Transfer pricing is the term for describing pricing arrangements for goods, services, intangibles, loans and other financial transactions between related business entities. Where intercompany transactions are concerned, the pricing of goods and services within the organisation should be ensured by setting out the fair rewards that would arise for the same transactions involving third parties.
Global trading leads to intercompany transactions becoming more complex everyday. Transfer pricing is therefore a consequential issue for group companies when doing intercompany businesses both nationally and internationally. In order to achieve the goals to optimise their businesses and profits and to take advantage of good business planning in trade and tax terms as well as to manage risk management, increasingly more group companies are including transfer pricing in corporate governance and business policies.
Whereas transfer pricing is one of the most prioritised topics considered by taxpayers, the tax authorities are concerned about artificial profit shifting using transfer pricing which might erode companies’ tax bases or contribute to unfair advantages. Increasing the number of jurisdictions, including important trading partners, of Turkey has initiated the transfer pricing regulations in place in recent years.
Concurrently the tax authorities in each jurisdiction have imposed special penalties and local stringent documentation requirements, increased special transfer pricing tax audits, installed and educated transfer pricing expert teams and increased information exchange. This trend is continual.
To date, Turkish tax authorities have increased their focus on the subject by recently publishing transfer pricing legislation as part of new legislative changes. With the new rules in Turkey transfer pricing documentation will be obligatory as of January 2007 and it is expected that additional explanations will be provided by the Turkish Ministry of Finance to clarify the initial rules.
Situation for companies doing business in Turkey
Compliance with the new Turkish Transfer Pricing Law as well as different requirements of international transfer pricing regulations is a complex matter for group companies. Usually the failure to comply with these obligations can result in tax adjustments and penalties.
Additional to risk management aspects such as compliance, transfer pricing nevertheless creates a significant planning opportunity for companies both to optimise their profits as well as effective taxation, with the proper application of generally accepted methodologies and standards.
Considering developments globally and nationally and most importantly after the recent legislative changes in Turkish legislation, we suggest that Turkish companies and multinationals doing business in Turkey be urgently prepared for establishing and maintaining formal transfer pricing policies. If you believe the above explains your company’s situation PwC suggests you:
- Consider transfer pricing as one of the top items on your tax agenda
- Have a formal transfer pricing policy and maintain appropriate transfer pricing documentation
- Know what system your organisation has employed and whether this has resulted in a fair outcome
How can PricewaterhouseCoopers Turkey help you?
We offer support to companies in reducing risks by performing special transfer pricing projects for a company’s specific needs and wishes which also complies with Turkish or even worldwide transfer pricing regulations.
Being part of the PwC transfer pricing network, the specialised knowledge and experience allows us to provide global best practices including:
- Transfer pricing diagnostic reviews of groups’ transfer pricing arrangements/documentation
- Risk and opportunity analysis where groups directly achieve benefits as to their transfer pricing policies and company documentation systems
- Tax inspection advisory for transfer pricing related issues
- Assistance at up-front tax rulings
- European comparables searches
- Reviews for transfer pricing aspects during due diligence and structural business changes
PwC Turkey anticipates that the proposed changes will be the milestone in Turkish transfer pricing practice. Thus, being the leader in every developmental area, our dedicated team of transfer pricing specialists in Turkey will help you be at the forefront of the developments. Our experience through various assignments and seminars including our staff’s experience with international transfer pricing groups through secondments and special projects, our international network, and our familiarity to approaches of the Ministry of Finance means that we can offer most state-of-the-art services in this area.
