Turkey has enacted legislation implementing the OECD Pillar Two global minimum tax and a domestic minimum tax. Law 7524, published in the official gazette on 2 August 2024, was presented to parliament on 15 July 2024 and approved on 28 July. The two new taxes are explained below.
Introduction of Pillar Two: Global Minimum Taxation
Turkey has introduced the Pillar Two global minimum taxation. The enacted measures generally follow the OECD GloBE model rules and include:
Taxpayers falling within the scope of the rules must calculate their ETR and pay top-up tax on the difference between their ETR per jurisdiction and the 15% minimum rate. The ETR of an MNE group with net country-based income is calculated separately on a country-by-country basis for each accounting period. To determine whether top-up tax is owed, the ETR must be calculated in each jurisdiction where the MNE operates, which requires calculating the income and the tax on that income.
Liability to a top-up tax for a member of an in-scope MNE group arises under the IIR and the UPTR. The IIR is the primary method. According to IIR, the taxpayer of the global minimum tax is the ultimate parent entity, intermediate parent entity or partially owned parent entities established in Turkey.
The UTPR is a secondary rule as a backstop to the IIR top-up tax. The UTPR is activated when the ultimate parent entity, intermediate parent entity or partially owned parent entity of the group is located in a jurisdiction where Pillar Two is not implemented. In this instance, the taxpayers of the global minimum tax are the group entities established in Turkey.
The legislation adopts safe harbours and includes compliance obligations.
Provisional safe harbours (until the end of the 2026 accounting period)
The following can be deducted in calculating the domestic minimum corporate income tax:
The global minimum tax applies to earnings obtained in 2024 and thereafter (for enterprises subject to special accounting periods, the tax applies to earnings obtained in the special accounting period starting in the 2024 calendar year and thereafter).
The domestic minimum tax applies to earnings obtained in 2025 and thereafter (for enterprises subject to special accounting periods, the tax applies to earnings derived in the special accounting period starting in the 2025 calendar year and thereafter).
Dursun Kucukaslan
BDO in Turkey
Introduction of Pillar Two: Global Minimum Taxation
Turkey has introduced the Pillar Two global minimum taxation. The enacted measures generally follow the OECD GloBE model rules and include:
- An income inclusion rule (IIR) that applies to fiscal years starting from 1 January 2024;
- An undertaxed profits rule (UTPR) that will apply to fiscal years starting from 1 January 2025; and
- A qualifying domestic minimum top-up tax (QDMTT) that applies to fiscal years starting from 1 January 2024.
Scope of the rules
A global and a domestic minimum top-up tax of up to 15% will be imposed on affiliated multinational enterprise (MNE) groups whose worldwide annual consolidated revenue exceeds the Turkish lira equivalent of EUR 750 million in at least two of the four accounting periods preceding the accounting period in which the income is reported.Taxpayers falling within the scope of the rules must calculate their ETR and pay top-up tax on the difference between their ETR per jurisdiction and the 15% minimum rate. The ETR of an MNE group with net country-based income is calculated separately on a country-by-country basis for each accounting period. To determine whether top-up tax is owed, the ETR must be calculated in each jurisdiction where the MNE operates, which requires calculating the income and the tax on that income.
Liability to a top-up tax for a member of an in-scope MNE group arises under the IIR and the UPTR. The IIR is the primary method. According to IIR, the taxpayer of the global minimum tax is the ultimate parent entity, intermediate parent entity or partially owned parent entities established in Turkey.
The UTPR is a secondary rule as a backstop to the IIR top-up tax. The UTPR is activated when the ultimate parent entity, intermediate parent entity or partially owned parent entity of the group is located in a jurisdiction where Pillar Two is not implemented. In this instance, the taxpayers of the global minimum tax are the group entities established in Turkey.
The legislation adopts safe harbours and includes compliance obligations.
Safe harbours
The legislation includes both provisional and permanent safe harbours. The provisional safe harbours aim to reduce the compliance burden on affected taxpayers and under the permanent saft harbour, if the country in which the MNE group operates is designated as such, the global minimum top-up tax for the affiliated enterprises in that jurisdiction can be considered zero for the relevant accounting period.Provisional safe harbours (until the end of the 2026 accounting period)
- De minimis test exclusion: The jurisdiction has a total country-by-country report (CbCR) revenue of less than EUR 10 million and a CbCR profit of less than EUR 1 million.
- Simplified ETR test exclusion: The jurisdiction's ETR is equal to or greater than the transition rate for the fiscal year. The ‘simplified ETR’ is calculated by dividing the simplified covered taxes by the profit reported in the MNE group’s CbCR. The transition rates are:
- 15% for fiscal years beginning in 2024;
- 16% for fiscal years beginning in 2025; and
- 17% for fiscal years beginning in 2026.
- Routine profits test exclusion: The tested jurisdiction’s profit or loss before income tax for the jurisdiction is equal to or less than the substance-based income exclusion (SBIE), which is 9.8% of annual payroll costs and 7.8 % of net tangible fixed assets for the 2024 period. (These rates will be reduced by 0.2% for the following four accounting periods, and by 0.8% for payroll costs and by 0.4% for net tangible fixed assets for each of the four accounting periods starting from the 2029 accounting period.)
- De minimis test exclusion: The jurisdiction has a total jurisdiction revenue of less than EUR 10 million and a jurisdiction profit of less than EUR 1 million.
- Routine profits test exclusion: The tested jurisdiction’s profit or loss before income tax for the jurisdiction is equal to or less than the substance-based income exclusion (SBIE), which is 5% of annual payroll costs and 5% of tangible fixed assets.
Introduction of domestic minimum corporate income tax
The Corporate Income Tax Law is amended to include a new article entitled the "Domestic Minimum Corporate Income Tax," under which corporate income tax calculated by a company cannot be lower than 10% of the corporate income before the deduction of discounts and exemptions. Corporate income before the deduction of discounts and exceptions refers to the amount calculated by adding non-deductible expenses to the company's commercial profit.The following can be deducted in calculating the domestic minimum corporate income tax:
- Participation exemption for domestic income;
- Emission premium exemption;
- Return exemption for cooperatives;
- Sale-leaseback exemption;
- Fund income exemption;
- Venture capital fund discount;
- Disabled employee support discount;
- Earnings exempt from tax under the International Ship Registry Law;
- Earnings exempt from tax under the Free Zones Law;
- Technology Development Zone and R&D discount; and
- Investment incentive discount.
Compliance obligations
A global information return must be filed within 15 months following the month in which the accounting period is closed (extended to 18 months for the 2024 accounting period). A return for the domestic tax must be filed within 12 months following the month in which the accounting period is closed.The global minimum tax applies to earnings obtained in 2024 and thereafter (for enterprises subject to special accounting periods, the tax applies to earnings obtained in the special accounting period starting in the 2024 calendar year and thereafter).
The domestic minimum tax applies to earnings obtained in 2025 and thereafter (for enterprises subject to special accounting periods, the tax applies to earnings derived in the special accounting period starting in the 2025 calendar year and thereafter).
BDO insights
The new rules are complicated, will have both short and long-term impacts, and create demands on staff and technology, likely necessitating professional advice. In-scope MNEs should expect an increase in their compliance burden, with the complex calculations needed, identifying any potential gaps, and making necessary system updates and changes to existing compliance processes. Continuing to monitor legislative developments around the world is crucial as other countries move towards implementation of the Pillar Two rules.Dursun Kucukaslan
BDO in Turkey