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The taxation period for the DST has been set as one- Interpretation of tax treaties
month periods of the calendar year. In other words, digital
companies that exceed thresholds are required to register within the context of
themselves as taxpayers from March 1, 2020 and submit tax international law
returns every month.

On the other hand, a natural or legal person resident in Tax treaties are legal arrangements that require
Turkey has to pay three types of tax directly or indirectly interpretation, since the technical structures of them and
due to the payments made to digital service providers. For the signatory countries’ usage of the terms in the relevant
example, a full taxpayer receiving “internet advertising texts in different meanings within their domestic law. General
service” from the non-resident - digital service provider must interpretation rules regarding international treaties are
pay 7.5% DST, 18% reverse charge VAT and 15% withholding regulated in the Vienna Convention on the Law of Treaties
for the ads on the internet respectively. (VCLT). However, there are some discussions about the
implementation of the rules of interpretation.
Who is paying the DST? Is the non-resident digital company
paying it? Or the resident taxpayers in Turkey are paying it? Rules used in the interpretation of tax agreements may
Except VAT taken in to account as input VAT, the remaining be classified as the rules regulated within VAHS, special
taxes are paid by the Turkish resident individuals and comment rules and commentaries.
companies since the relevant taxes are reflected.
The basic and most comprehensive rules for interpreting
On the other side, the withholding tax at a rate of 15 % tax treaties are regulated between the 31st and 33rd
applied to the internet advertising services is deemed to articles of VCLT. General rules and complementary rules for
be applied as contrary to the double taxation treaties if it commenting are included in the related articles of VCLT. In
is supplied by a taxpayer residing in an other contracting that context, general comment rules may be identified as;
state with which Turkey has a double tax convention.
Another trouble is that the 15% withholding applied on these • Commenting throughout the agreement
payments are not accepted by the digital companies and the • Commenting in accordance with the ordinary meanings of
tax is paid by the service recipients. Last irregularity in the the terms
implementation of DST is that a subsidiary of a multinational
resident in Turkey, a member of a consolidated group in • Commenting on the purpose and subject of the agreement
terms of financial accounting has to pay a 7.5% DST in
addition to the corporate tax at a rate of 22 % applied upon Complementary rules are resorted to confirm the meaning
the total revenue it has acquired through the delivered that is obtained with general interpretation rules or to make
services that is a subject of the DST. a clear meaning in cases that cannot be clarified with general
interpretation rules.
Finally, potential partnerships with companies that are
being established by Turkish entrepreneurs in Turkey and Special comment rules are based on the use of countries'
the market values of these companies will be negatively domestic rules of law and the use of mutual agreement
impacted by the DST in case an M&A deal or potential JV procedure. The provisions of Article 3/2 of the OECD and
negotiations. UN Models empower them by referring to the domestic
law of the states in determining the meaning of the terms
And nowadays, the Covid-19 outbreak emerged in Wuhan in used in the agreements but not defined in the agreements.
January 2020 has just transformed into a global pandemic Therefore, if there are terms that are not defined in the
exceeding the borders of China and spreading on globe. agreement, the rules of domestic law can be used. Similarly;
However, it seems that it will take time to take control of the as per the Article 25/3 of the Model Agreements, the
pandemic. Governments, including Turkey are repeatedly contracting states may apply for mutual agreement to
introducing monetary and fiscal policies to reduce its effects. reduce any difficulties and doubts in the interpretation of the
Therefore, Turkey's approach of "taxing the global digital agreements.
companies" should be reviewed and simplified as part of
the financial policy measures in such an environment that is
heavily under the impact of Covid-19 outbreak. We need to
adopt a holistic approach to DST which turned out a mess.

Explanations in this article reflect the writer's personal view on the
matter. EY and/or Kuzey YMM ve Bağımsız Denetim A.Ş. disclaim any
responsibility in respect of the information and explanations in the
article. Please be advised to first receive professional assistance from
the related experts before initiating an application regarding a specific
matter, since the legislation is changed frequently and is open to different
interpretations.
10 April 2020 Nisan 2020