319 TAX LAW Value Added Tax Aspect of Disguised Profit Distribution Through Transfer Pricing* Özge Kısacık Disguised profit distribution through transfer pricing is one of the tax security methods regulated under Article 13 of Corporate Tax Law No. 5520 (“CTL”). Pursuant to this article, if corporations purchase or sell goods or services with related parties at prices determined contrary to the arm’s length principle, the profit is deemed to have been distributed implicitly through transfer pricing in whole or in part. In the event that the disguised profit distribution is determined through transfer pricing, many consequences such as refusal of deduction, correction, and dividend assessment occur for taxpayers. In addition, if the transaction subject to disguised profit distribution through transfer pricing is also subject to value added tax (“VAT”), the VAT aspect of transfer pricing should be examined. The controversial issue in the relationship between disguised profit distribution through transfer pricing and VAT is whether the VAT calculated for the disguised profit distributed can be deducted or not. In this article, the relationship between disguised profit distribution and VAT is examined in the light of current law amendments, the dominant view in practice, and the decisions of the Council of State. Disguised Profit Distribution Through Transfer Pricing Pursuant to the CTL In accordance with Article 13 of CTL, in case corporations engage in purchase or sales of goods or services with related parties at prices determined contrary to the arm’s length principle, it is stipulated that the income will be deemed to have been distributed in a disguised manner through TP. The purchase or sale of goods or services means purchase, sale, manufacturing and construction, leasing and renting transactions, borrowing and lending, and all kinds of transactions which imply wage, salary, premium and other. * Article of October, 2021
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