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Vergide Gündem
English Translation

The digital services tax in Covid – 19 days

As the fall of the Berlin Wall terminated the iron curtain, the expectations of a
more integrated world were very common just until three years ago because of
globalization following improved supply chains and a digitalized economy. However,
it turned into a controversial world order discussions and pursuits after Brexit. After
Brexit, governments started adopting protectionist policies in every field instead of
cooperation.

Following the economic crisis in 2008, the rules of international tax architecture
started to be reconstructed with the OECD's BEPS action plans under the leadership
of the G20, against the economic functioning to globalization. The leading among
those are “automatic exchange of information for tax transparency”, “Multilateral”
and automatic exchange of thousands of bilateral tax agreements and “taxation of
the digitalized economy”.

The first examples of these are “automatic exchange of information for tax
transparency”, “Multilateral Convention” for automatic amendment of thousands of
bilateral tax agreements inventory and “the tax challenges of digitalized economy”.
In this picture, Turkey also joined the countries introducing a digital services
tax (“DST”) as many other countries as of December 2019 without waiting for
an international solution for taxation of companies in the digitalized economy.
However, the approach to taxing digital companies with the DST has become
more complex since DST has been added to “VAT III” and “withholding tax
implementation”.

Why DST? Are the existing tax laws not enough to collect tax from these
companies? Unfortunately, the existing international taxation architecture falls
short of taxing the global digital companies, because the foundation of both local
and international tax agreements is based on the "physical store" principle (“brick
and mortar”).

The taxpayers of the DST which enters into force as of 1 March 2020 has been
defined as the "global digital companies" residing abroad and gaining revenue in
Turkey without a permanent establishment or permanent representative in Turkey.
Turkey also, as well as the other countries, intends to get its share from the revenue
gained in Turkey as source country despite these companies do not have “a physical
presence”. The most important justification of the law is based upon the thought
that the digital giants processing Turkey’s market data shall pay some tax to Turkey
in return. Because data is the oil of the digital era and value is created through
processing it as oil.

However, at that point, through the authority granted with the Law no.7194, the
President is authorized to reduce the DST to zero or increase the DST up to three
folds. With the use of this authority, the number of taxpayers covered in 2020
may be limited or expanded by increasing or decreasing the exemption limits.
It is beneficial to seriously evaluate the use of this authority during the latest
environment under the impact of coronavirus since the DST at a rate of 7.5 %
applied on the revenue will be affecting the corporate taxpayers that are the Turkish
subsidiaries of global digital companies so forcefully.

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