Transfer Pricing in Turkey for Foreign-Owned Companies: Corporate Tax Article 13, Related Parties and Arm’s-Length Documentation

1. Article 13 targets profit shifted through non-arm’s-length related-party pricing

Transfer pricing is not a tax on having foreign shareholders. It is a rule governing the price and terms of transactions between related persons. A Turkish company can lawfully trade with its parent, subsidiary, sister company, shareholder or other related party if the transaction is commercially real and priced on arm’s-length terms.

The risk arises when the Turkish company’s taxable profit is reduced through a price or amount that would not have been agreed between independent parties.

Article 13 treats the corresponding profit as wholly or partly distributed through disguised profit distribution for tax purposes.

2. Related-party status is broader than parent and subsidiary

The statute includes shareholders, persons or entities connected to the company or its shareholders through management, control or capital, and persons or entities under their direct or indirect influence.

The analysis therefore extends to sister companies, controlling entities and some relationships without direct share ownership where control or influence exists.

Each material related-party relationship should be mapped before pricing documentation is prepared.

3. Ownership relationships use a 10% threshold in the situations defined by Article 13

Where related-party status arises through shareholding, voting or profit rights, Article 13 uses at least a 10% threshold for the relationship categories described in the current law. Direct and indirect interests are considered together.

A company should therefore not assume that only majority ownership creates transfer-pricing exposure.

Indirect ownership through a chain of holding companies must be calculated carefully.

4. Management and control can create related-party status even without direct share ownership

Article 13 also looks to management, supervision and influence. A person or company can therefore be related because it effectively controls decisions even where formal equity is limited.

Board appointment rights, contractual control, voting arrangements and financial dependence can all be relevant facts.

The legal and economic relationship should be documented from corporate records and agreements.

5. Specified family relationships are included

The statute includes shareholders’ spouses and specified relatives within the related-party definition. Transactions with family-controlled entities can therefore be subject to the same arm’s-length requirement.

A family company should not rely on informality as a reason for undocumented pricing.

Market evidence is particularly important where the transaction is not negotiated independently.

6. Arm’s length means the price independent parties would use in comparable conditions

The arm’s-length principle compares the controlled transaction with what unrelated parties would have agreed under comparable economic circumstances.

Product characteristics, functions, risks, assets, contract terms, market conditions and business strategy all affect comparability.

A single public price list can be insufficient where transaction volumes, credit terms or market functions differ materially.

7. Cross-border goods transactions should reconcile customs and transfer-pricing logic

Imports and exports between related parties create both transfer-pricing and customs considerations. The customs value and income-tax arm’s-length analysis have related but distinct legal purposes.

The company should maintain purchase/sale contracts, invoices, logistics records, independent comparable data and margin analysis.

Large year-end transfer-pricing adjustments should be coordinated with customs and VAT implications rather than booked mechanically.

8. Management and service fees require proof that services were actually provided

A Turkish subsidiary can pay a foreign parent for genuine management, IT, legal, accounting, procurement or other services. The tax file should prove what was supplied and why the Turkish company benefited.

Generic descriptions such as “management fee” without deliverables or allocation methodology create audit risk.

Costs allocated among group companies should use a rational allocation key connected to the benefit received.

9. Royalties require both IP ownership and arm’s-length pricing

A royalty should correspond to an actual trademark, patent, software, know-how or other right used by the Turkish company.

The payer should verify that the foreign entity owns or lawfully licenses the IP and that the royalty rate can be supported by comparable arrangements or another accepted method.

Withholding tax and treaty beneficial-ownership rules should be analysed separately from transfer pricing.

10. Intercompany loans create transfer-pricing and thin-capitalisation layers

Article 13 applies to lending and borrowing. Interest should therefore reflect arm’s-length market terms, taking into account currency, duration, security, creditworthiness and subordinated status.

At the same time, Corporate Tax Law Article 12 can classify excessive related-party debt as thin capitalisation. A loan can therefore be priced at arm’s length and still create a separate debt/equity tax problem.

Our next guide treats thin capitalisation separately.

11. Related-party rent must reflect market conditions

A foreign shareholder can lease equipment, intellectual rights or property to a Turkish company, but the rent should be supported by independent market evidence.

Where no exact comparable exists, functional and economic adjustments should be documented.

VAT, withholding and foreign-currency rules can apply in parallel.

12. The transfer-pricing method should fit the transaction

Comparable uncontrolled price, resale-price, cost-plus, transactional net margin, profit split and other accepted approaches can be relevant depending on the transaction and available data.

The company should not select a method solely because it produces the lowest Turkish taxable profit.

The method should be economically justified and consistently applied.

13. Contemporaneous documentation is more credible than an audit-time reconstruction

Related-party contracts, invoices, functional analysis, comparables, calculations, management approvals and proof of services should be retained when transactions occur.

Annual transfer-pricing reporting and documentation obligations depend on the taxpayer and transaction type.

Foreign-owned companies should align Turkish documentation with group master/local files where the applicable rules require them.

14. A non-arm’s-length transaction can trigger a taxable adjustment

If the tax administration concludes that profit was shifted through non-arm’s-length pricing, the Turkish company’s taxable income can be increased.

The corresponding amount can also be treated as a disguised distribution, creating secondary withholding and other consequences.

Double taxation can arise if the foreign jurisdiction does not make a corresponding adjustment; treaty mutual-agreement procedures can become relevant.

15. Transfer pricing does not replace withholding or VAT analysis

A related-party service fee can be arm’s length and still be subject to Turkish withholding or reverse-charge VAT. A royalty can be correctly priced and still require treaty withholding analysis.

Each tax layer should therefore be tested independently.

The same invoice can have corporate tax, withholding, VAT and transfer-pricing consequences.

16. Tax treaties can help resolve double-tax results but do not eliminate arm’s-length pricing

Associated-enterprises articles in tax treaties reflect the arm’s-length principle and can support corresponding-adjustment or mutual-agreement procedures where both states tax the same profit.

A treaty does not authorise related parties to set arbitrary prices.

Treaty residence and documentation must also be established for related withholding benefits.

17. A transfer-pricing audit should be prepared for before the information request arrives

The strongest compliance file explains the business model, each material related party, functions/assets/risks, the pricing method and the evidence supporting the price.

Last-minute documents created only after audit notification are easier to challenge.

Bakırcı & Keskin Hukuk Bürosu has one physical office in Mersin. Corporate and tax-related disputes throughout Türkiye can be coordinated from Mersin subject to the competent tax authority, court and procedural rules.

Conclusion

Foreign-owned Turkish companies can transact with group companies, but Article 13 requires arm’s-length pricing and defensible documentation. The analysis is transaction-specific and must be coordinated with withholding, VAT, thin-capitalisation and treaty rules.