Tax Treaty Case Law around the Globe 2017

S. 247Turkey: Characterization of Cost Contribution Agreement Fees

Billur Yalti

1. S. 248Introduction

Turkey has 82 tax treaties in force. Turkey’s tax treaties generally follow the provisions of the OECD Model Tax Convention on Income and on Capital (hereinafter OECD Model). Deviations concern in particular withholding taxes, professional income and capital gains. Although there is a significant treaty network, the jurisprudence on these treaties is considerably rare. One of the exceptional cases that concerns the characterization of income as “royalties” will be explained and analysed in this report. The decision, which was given by a local tax court, is related to the characterization of cost contribution agreement fees.

2. Facts of the Case

The Istanbul Tax Court, 8th Chamber, gave its decision in case K.2016/386, on 26 February 2016. In the case, a Turkish resident company carrying on business in fuel sales, marketing and importation, paid cost contribution fees to a group company residing in the United Kingdom for management, technical support and manufacturing design services it received under a cost contribution agreement (CCA). The UK company had no permanent establishment or a permanent r...