Resolving tax disputes in transfer pricing
Transfer pricing audits have increased, with tax administrations using technology more often and carrying out inspections based on risk analysis. We support your company in all steps of dispute resolution, from tax audits to lawsuits, by using our know-how and experience.
Transfer pricing is one of the most important tax risk factors on companies’ agendas. The issue is also an important part of annual audit plans of tax administrations. In addition, many countries that have transfer pricing legislation also have special transfer pricing teams made up of auditors having expertise in this subject matter.
In Turkey, experienced auditors have been employed by establishing a "Thin Capitalisation, Transfer Pricing, Offshore Income” group directorate under the Tax Inspection Board TIB).
Within this framework, “risk analyses” executed by the TIB in the scope of electronic inspection applications determine which taxpayers will be subjected to tax audits. Hence, tax audits concerning transfer pricing are now based on risk analysis and focused on the issues below, with no sector limitations:
- recurring losses,
- invoices received for management services,
- year-end profit adjustments, and
- royalty payments.
PwC Transfer Pricing Team will assist you proactively against possible tax disputes through the services they provide with regard to fulfilling your company's annual documentation requirement and detecting risks that may arise during your related party transactions.
In addition, the team also provides support in each phase in the event tax disputes arise for your company with regard to transfer pricing, as follows:
- "during tax audits"; reviewing the transactions subject to dispute and the relevant documentation, providing legal and technical support, arranging meetings with tax auditors, reviewing the minutes prepared after the tax audit and providing guidance during the signature period;
- "after the tax audits”; reviewing the tax audit report in terms of legislation and implementation, presenting recommendations for the action plan to be prepared by the company in this phase, and providing the company with support during reconciliation if a certain decision is reached; and
- "during the litigation phase"; defining the arguments forming the basis of lawsuit petitions, scanning case law, making statements at hearings together with company officials under the title of financial advisor.
Mutual Agreement Procedure
All of the double taxation treaties Turkey has signed include provisions on a "mutual agreement procedure". A mutual agreement procedure is generally stated in the 25th article of agreements similar to the OECD Model Tax Treaty, which is a main reference for double taxation treaties.
Situations such as wrong transactions, wrong interpretations or ignoring relevant treaty provisions may arise during the implementation of double taxation treaty provisions by the respective tax authorities.
Taxpayers that encounter such situations and cannot resolve their problems with the relevant tax administration may always apply for national solutions (for example: litigation, reconciliation). On the other hand, the provisions of double taxation treaties regarding mutual agreement procedures provide an additional solution for these taxpayers. This procedure makes it possible for taxpayers to convey the problems they encounter to the official authorities of the state in which they reside or of which they are citizens.
In the event that a taxpayer claims that they have been subjected to taxation contrary to related double taxation treaty provisions within the scope of a mutual agreement procedure, transfer prices applied in the transactions between related companies may be adjusted by the tax authority of one of the contracting parties, and as a result of this adjustment, corresponding adjustments may arise that need to be performed by the other contracting party. So, to prevent transfer pricing adjustments from resulting in double taxation, it is of great importance that the mutual agreement procedure is used efficiently and quickly within the scope of the double taxation treaty.
In this context, our team will provide your company with the required support in the best way, enabling the efficient use of the said solution, by using the know-how we obtained in solving tax disputes and the experience we acquired from our practice related to mutual agreement procedures.
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