Page 12 - VGKasim_2018

Vergide Gündem
English Translation

Taxation of payments made after the end of

duty in international assignments

We are experiencing a period in which global capital mobility has increased and this
increase is accompanied by another global mobility. Throughout this mobility that
we qualify as “international assignments”, employees fulfil their duties given by
their employers in the concerning countries following the footsteps of capital. The
aforementioned mobility of workforce, on the other hand, causes the taxation of
compensations to become a more complex and specialized branch day by day.

One of the significant issues on how to tax the income of any person is a matter
of residence. Residency is a concept that refers to the person’s being considered
as settled in terms of taxation. In principle, persons are taxed in the countries on
which they are resident for their whole income in the world. The situation whether
or not people are deemed resident in the related countries is determined by the
local tax laws of the concerning countries. However, in international assignments,
situations may be arising that persons are deemed to be resident in both countries
according to local regulations. In such cases, under the existence of a double
taxation agreement between the two countries, this agreement shall be applied to
determine the settlement. Another significance of residency is that avoiding double
taxation is the liability of the country in which the person is resident regarding the
circumstances that double taxation occurs.

In general, expatriates depart Turkey permanently by the end of international
assignments and start to be qualified as limited taxpayer (non-resident) in that
sense. Non-residents pay tax in Turkey only for the income they acquire from
Turkey. For the income to be acquired in Turkey, as per the Income Tax Law, the
service should be carried out in Turkey, the payment should be made from Turkey or
charged as expense in Turkey.

Therefore, the state of being a limited taxpayer does not imply that the interests
obtained by persons after leaving Turkey for their services carried out in Turkey
previously will not be subject to taxation. Despite the existence of some exceptions,
compensation is widely defined in the Income Tax Law and it is ensured that
payments to be made afterwards for services provided in the past shall be taxed as
wages.

Additionally, the legislation for double taxation avoidance treaties has a structure
allowing the taxation of compensations in Turkey for the period that the service had
been carried out in Turkey regarding the payments following the assignment.

Among the above-mentioned interests, the most common in practice are the
premiums paid for past performances, severance pay and share acquisition plans.
The income corresponding to the period for which the service is carried out in
Turkey is considered as a Turkey origin revenue and will have to be taxed even in the
circumstances that the payment was made outside Turkey and was not charged out
to the employer in Turkey and people are treated as limited taxpayers in Turkey.

However, it should not be ignored that some problems related to tax may arise in
practice. These problems can be briefly classified into three groups:

Kasım 2018asım 2018
12 K