Taxes have an important place in determining the fiscal policies of states. Equality and fairness of taxation creates a positive situation both within the country and in international relations.
The increase in the number of multinational companies and the market share in the developing international trade, the level of import and export transactions in terms of number and capacity, the distance that foreign investment finance models and resources have traveled on an overseas scale are known facts. These facts have led states to regulate the prevention of double taxation in order to compensate the losses incurred by entrepreneurs due to the differences in taxation policies between the states in order to attract international companies and investors to their countries in the taxation legislation and to improve the mutual trade volume.
The Republic of Turkey has signed the Agreement on Prevention of Double Taxation with 85 countries so far.
Double taxation is the case where the same tax issue is subject to taxation more than once and within the same periods in the states where both the tax subject arises and the taxpayer is a resident. Although it is called double taxation, it is possible for the taxpayer to be subject to taxation by more than two states or more times and these situations are also included in the scope of double taxation.
The double taxation problem may cause greater damage to the taxpayer due to the local legislation differences of the states in cases where the liability cannot be determined exactly.
Efforts to increase bilateral agreements regarding the prevention of double taxation started to be carried out by the League of Nations in 1921, and the first recommendation decision was taken by the OECC in 1955. In 1956, due to the importance of the agreement of all states on a draft text containing similar rules, the Financial Committee started work on the draft agreement on the prevention of double taxation for OECD countries.
Revisions were made on the Draft Agreement in 1963 and the Model Agreement and Comments in 1977, and s were made.
OECD member countries have mostly adhered to the model agreement text. Due to the nature of the Model Agreement, it is possible to say that its impact is not limited to OECD countries and is taken into consideration even in studies in non-OECD countries. The Agreement applies to all persons residing in one or both States parties.
Two different ways are adopted to avoid double taxation in the Model Agreement. One is the exception and the other is the offset method.
The profits of an enterprise in a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. Sea, inland waterway and air transport are regulated under a separate article and effective management center is the criterion.
The exclusive right to taxation in the context of certain items of income and wealth is given to one of the States parties. Thus, the other State party is prevented from taxing the elements in question and double taxation is avoided.
In addition, the prevention of tax discrimination, the prevention of double taxation and the establishment of a mutual agreement procedure for the settlement of disputes arising from the interpretation of the Agreement, the exchange of information between the tax authorities of the States parties, the assistance of the parties in the collection of each other's taxes, the tax transactions of diplomatic representatives and consular officers in accordance with international law and the principles of regional expansion of the Agreement are maintained.
The comments prepared by the State party officials attached to the articles are particularly useful and binding in the resolution of disputes.
The OECD Financial Affairs Committee has the opinion that bilateral agreements are more useful and applicable in preventing double taxation than a multilateral international agreement. We can justify this opinion, because there are discrepancies arising from a wide variety of tax systems in terms of the criteria adopted in the taxpayer facility, as well as in different graded and proportional tax systems.
Although double taxation prevention agreements are signed, taxation steps, tax amnesties and conceptual differences in local legislation can cause problems for multinational companies.
For example, in Turkey, a new step has been added to the income tax system with Digital Services Tax No. 7194 dated 05.12.2019 and Law on Amendments to Certain Laws and Decree Law Number 375. With the said amendment, it was decided to apply 40% rate for those who earn an income of 500,000 TL or more. In federal Germany, where income tax is differentiated according to marital status, a new step was added to the income tax with the change made in 2019. Thus, in Germany, which has a four-digit structure, 5.5% tax is collected under the name of "solidarity tax".
We see that the federal administration and state practices differ in the USA, which has a federal structure. In the USA, where the highest income tax rate for 2020 is 37%, the federal government collects two-thirds of tax revenues, and the states and municipalities collect the remaining one-third.
In Austria, the concepts of income and wages are evaluated differently in taxation. In order to prevent double taxation, although their place of residence is Austria, special provisions are applied to cross-border employees and all of their income is taxed in Austria.
In Austria, which has added a new taxation step since January 1, 2016, the highest rate has been increased to 55% in the progressive system for those who earn over 1 million Euros. To mention some other countries, Slovenia has reduced the tax rate on income corresponding to the middle income level, while Spain has reduced the rate in the top tax bracket.
Varying tax rates according to gender or marital status do not implemented in Turkey.Ancak We can see different practices regarding marital status in Germany also in Malta. It is worth mentioning that gender men - women is also used as a criterion in taxation in Israel.
Agreements to avoid double taxation are particularly important in the distribution of profits, transfer or lease of intangible rights of multinational companies.
In addition, international problems are encountered in determining the ownership status of intangible rights in terms of tax liability.
Another problem encountered in taxation is related to the guarantee. Different regulations in local legislation regarding guarantee services, especially subject to international accounting and reporting standards, are also subject of disputes.
When the issue of preventing double taxation was brought to the agenda; It is beneficial to mention countries that is called "tax haven" where there is no taxation, information sharing, transparency or these are low level. Turkey, as a precaution in the face of lack of civil and criminal sanctions in countries called tax havens applying harmful tax competition over any payments made to non-resident corporation, 30% cut on all kinds of payments has envisaged. (Corporate Tax Law Article 30/7)
With the President's Decree No. 2151, which entered into force on 25.02.2020, an amendment was made to the Cabinet Decree No. 2007/12888 on Disguised Profit Distribution by Way of Transfer Pricing. With this amendment, additional obligations have been brought to multinational enterprises regarding documentation.
The Republic of Turkey, since 2020, has made the transition to country-based reporting system with the purposes of transfer pricing risk assessment, assessment of base erosion and other risks related to profit transfer, and economic-statistical analysis. Country-Based Reports prepared by taxpayers and will have regionally important data can be shared with other countries mutually tax authorities under international agreements to which Turkey is a party.
Country Based Report is prepared by the ultimate parent company or deputy business which is a group of multinational enterprises with a consolidated group income of 750 million Euros or more, according to the consolidated financial statements of the previous accounting period and submitted to the Administration electronically.