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Judgment of Supreme Court It has been decided to approve the Multilateral Competent
Authority Agreement on The Exchange of Country-By-
Adecco A/S has brought the lawsuit to Supreme Court Country Reports (Cbc MCAA) and published at the Official
(Højesteret), which is equivalent of Council of State in Gazette dated 01 October 2020. As of March 2021, Turkey
Turkey, when an unfavorable verdict was given. Supreme shares information to 46 countries and receive information
Court primarily stated in its review that royalties paid in from 57 countries. In determining whether to submit a
terms of utilization of brands, inclusion in a certain network Country-by-Country Report notification in Turkey, it will
or communicating with clients based on reference are be necessary to look at the list of countries that exchange
deductible expenses regardless of the entity making loss. information with Turkey on the OECD website.

In this phase, Supreme Court has stated that the case According to BEPS Action 13 Final Report and local
is required to be inspected in scope of transfer pricing regulations, the Turkish resident ultimate parent entity
legislation. In this review, it is important that the Tax or surrogate entity of a multinational enterprise group
Administration has the burden of proof. with consolidated group revenue of 750 million Euro or
above should prepare a Country-by-Country Report by
Supreme Court has the objection to tax administration in the end of the 12th month after the reporting accounting
terms of declaration of transfer pricing reports null and void period and submit it to the Turkish Revenue Administration
and making an assessment through determining a rate/price electronically. The CbC Report must be submitted through
itself. Supreme Court also stated that such review could be the TRA Information Transfer Platform (BTRANS) in XML
possible if no report is issued by the taxpayer or in case the format until 30 June 2021. In case of having more than one
report is almost not ready, so weak and almost null and void. business in Turkey, it is sufficient to present one on behalf of
the others.
Afterwards, the court examined the comparables in
transfer pricing report of the entity and as a consequence, Although certain uncertainties and criticisms on the
it concluded that 2% of royalty price applied cannot be mentioned latest documentation requirements and on
reviewed as in contradiction to comparable rates applied. timing exist, new country-by country reporting requirement
is considered as a positive step for transfer pricing
As a result, this lawsuit is highly valuable in terms of documentation in Turkey. In the upcoming period, it is
demonstrating the difference between reviewing of a case expected for Turkey to have more information sharing
during inspections related to payments made with related agreements in terms of country-by-country reporting.
parties and recognized as expense in scope of deductible
expenses and transfer pricing and rejection of transfer
pricing documentation by tax administrations and making
arbitrary assessment.

Country by Country Reporting
under transfer pricing
documentation requirements

BEPS initiative has designed to establish a common sense on
taxation among the OECD countries. In the Action Plan 13
within BEPS, transfer pricing documentation consists three
layers as Master File, Local File and Country-by-Country
Reporting (CbCR). CbCR in brief consists of tables disclosing
the income that the multinationals acquire on country basis,
profits, assets owned, number of employees and taxes
paid. The purpose of the country-based report is to ensure
international transparency of the financial and tax results of
multinational enterprises.

Through the Draft General Communique on Disguised
Profit Distribution through Transfer Pricing Series No.3
promulgated by the Revenue Administration on 16 March
2016, a regulation on the country by country reporting has
been handled. In this context, the first regulation on country-
by-country reporting was entered into force in February
25, 2020 with the publication of the President's Decree
No. 2151. The General Communiqué on Disguised Profit 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
Distribution through Transfer Pricing Series No.4 which responsibility in respect of the information and explanations in the
explains the details of the preparation of Country-by-Country article. Please be advised to first receive professional assistance from
Reporting was published in the Official Gazette dated the related experts before initiating an application regarding a specific
September 1, 2020. matter, since the legislation is changed frequently and is open to different
interpretations.
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