Transfer Pricing Documentation Requirements in 5 Questions

Transfer pricing legislation requires the prices of all types of related party transactions to be determined in line with the arm’s length principle. Transfer pricing documentation is defined as all the documents that taxpayers are obliged to prepare in order to prove their related party transactions were performed under arm’s length conditions and at arm’s length prices. Transfer pricing rules set forth in Article 13 of Corporate Income Tax Law No. 5520, effective as of 01 January 2007, were prepared considering international guidelines, in particular OECD Transfer Pricing Guidelines. Turkish transfer pricing legislation requires taxpayers to perform their related party transactions at arm’s length prices and to document the implementation of such prices.

In addition to being a legal requirement, TP documentation is a proactive instrument of defence in a tax inspection, and keeps taxpayers prepared for retrospective examinations of related party transactions that could create time and cost burdens, and supports the transfer pricing policy being applied consistently.

As a result of the analysis carried out during the transfer pricing documentation process, corporations gain highlevel perspective regarding their own businesses and operational models as well as their competitors and the industry they operate in. Therefore, they can take the necessary action if there is a need to change their commercial or operational models.

Due to transparency requirements increasing as a result of the OECD BEPS Project and updates in the OECD Transfer Pricing Guidelines, many countries adopted new and more comprehensive transfer pricing documentation requirements. The threetiered approach that was adopted in many countries after OECD BEPS Project was included into the the legislation with Presidential Decree No.2151 issued on February 25th, 2020, outlining changes to Cabinet Decree on Disguised Profit Distribution Through Transfer Pricing.