Tax Treaty Case Law around the Globe 2012

S. 147 Session 4

Dividends, Interest and Beneficial Ownership

S. 149 Chapter 15

Turkey: The Concept of Dividends

Hakan Üzeltürk

15.1. Introduction

Under article 10 of the OECD Model Convention, the taxing right as regards dividend income received by resident persons in a contracting state belongs to the state in which the shareholder is resident. Nonetheless, the source state is also granted a right of taxation, even if limited. This rule is followed in almost all of Turkey’s tax treaties. Therefore, both the residence and source principles are accepted. Although there is no restriction of taxing rights for the residence state, some restrictions exist for the source state. Rates of 5% and 15%, as noted in reservations made to the OECD Model, can be stretched in favour of the source state. Under the Turkey-Netherlands income tax treaty, these rates were increased in favour or Turkey to 15% and 20%. The rates are important for investments that will be made in Turkey. The dividend withholding rates are set at 15% and 20% in some Turkish treaties concluded with developed countries, and at 10% in treaties with developing countries.

Another reservation of Turkey is included in article 10(5) of the Turkey-N...