TAXATION OF FOREIGN COMPANIES DUE TO TRANSFER OF SHARES IN LIMITED LIABILITY COMPANIES
The process regarding the share transfer of limited companies is
essentially regulated under Article 595 of the Turkish Commercial Code
("TCC"). The steps to be followed for the share transfer in
accordance with this provision and relevant legal legislations are as follows:
·
First of all, the real value of
the shares subject to the share transfer shall be appraised.
·
A written Share Transfer
Agreement shall be concluded between the Parties.
·
The Share Transfer Agreement
shall be certified by the notary public.
·
Unless otherwise agreed in the
Articles of Association of the Company, a resolution on share transfer shall be
rendered by General Assembly of Shareholders and adopted in the General
Assembly book.
· The share transfer shall be
registered and announced in the Turkish Trade Registry Gazette.
·
The transfer of shares shall be
recorded on the Share Ledger.
The foreign company, which is a party to
the share transfer of Turkish limited liability company, shall be subject to
TCC in terms of share transfer to be made in Turkey, even if its head office is
not located in Turkey. Furthermore, tax liability shall arise in accordance
with the Corporate Tax Law in terms of the earnings obtained in Turkey as a result
of such share transfer. In accordance with the Income Tax Law, if a share transfer
agreement is concluded in Turkey, it is accepted that the earnings of the
foreign limited company are obtained in Turkey and therefore its tax
liabilities come to the fore.
As stated above, the "real value" of the shares subject to
share transfer must be appraised both before the Share Transfer Agreement is
concluded in the presence of the notary public and in the share transfer
decision to be registered and announced in the Turkish Trade Registry Gazette.
In accordance with the legal regulations, although it is necessary to appraise
the real value of the shares and to carry out share transfer transactions over
this value, in practice, share transfer transactions are usually carried out
over the "nominal value". However, in cases where share transfer
transactions are carried out at nominal value, a tax loss penalty arising from
the difference between the real value and the nominal value of the shares in
accordance with the tax legislation shall be imposed due to the fact that
foreign companies have not fulfilled their legal obligations.
Foreign companies may have a perception that if they do not notify
the relevant Tax Office regarding the share transfer transaction, no tax
liability shall occur. However, after the share transfer is completed in the
presence of a Notary Public, it is reported to the relevant Tax Office that the
share transfer transactions are carried out. It is because the notary and Tax Office
systems are integrated with each other and all transactions made with the tax
identification number of the relevant company can also be seen by the Tax Office.
In addition to all these, foreign companies subject to limited liability in accordance
with the Corporate Tax Law are obliged to report their earnings in Turkey to
the relevant Tax Office within 15 days from the date of earnings. Otherwise, a
tax loss penalty shall be imposed on them and the company and its
representatives shall be held jointly responsible for the payment of this
penalty.
It is only possible for foreign companies to be exempted from tax liability
as a result of share transfer transactions if there is a Double Taxation
Prevention Agreement between the contracting country and Turkey. Even in this
case, it is necessary to carefully examine the provisions of the share transfer
agreement and to determine the extent regarding the exclusion of taxation.
Otherwise, there is a risk of tax loss penalty as per Tax Procedure Law.
Consequently, if foreign companies have concluded a share transfer agreement in Turkey, a tax liability shall arise, without prejudice to the exceptions in the Double Taxation Prevention Agreements. In order not to face a tax loss penalty, the real value of the share transfer must be appraised and the tax amount to be calculated over this value must be paid to the relevant Tax Office.