Tax treaty disputes in Turkey

Abstract

Introduction: Turkey has a vast network of tax treaties. Since 1970, when the first tax treaty was signed with Austria, treaties have been concluded with eighty-two countries; all of them have come into force. Three of these treaties have been completely revised, and one treaty has been renewed due to the termination of the previous one. Between 1970 and 2016, during a period of forty-six years, the annual average number of treaties concluded by Turkey was approximately two. The total number of tax treaties concluded by Turkey, a member country of the OECD, exceeds the average number of treaties concluded by OECD member states; according to research conducted in 2009, OECD member states on average have entered into seventy-two treaties. Turkey’s performance in concluding tax treaties has been regarded as ‘successful’ in national tax literature since implementation of a treaty is a highly technical, time-consuming and demanding administrative effort, which takes three to five years from the start of negotiations. However, there is no objective data, at least in the author’s knowledge, suggesting that signing a large number of treaties definitely contributes to economic development or indicating how many treaties a certain country should have. Despite the comprehensive tax treaty network, tax treaty disputes are rare in Turkey. In addition, many of the hot topics of tax treaty disputes have not been litigated and, therefore, the judiciary has not had an opportunity to provide guidance on them. Various assumptions can be made as to the reasons for the scarcity of the case law on tax treaties; however, it must be pointed out that most of the opinions are speculative. The first possibility might be that the Turkish tax authorities have interpreted the tax treaties correctly and therefore few disputes have arisen between taxpayers and the administration. This argument could be true; namely, the low number of judicial judgments might be a result of the low number of tax treaty disputes, yet it is hard to reach a definite conclusion when other possibilities have to be taken into account. The second possibility might be that the tax treaty disputes have been solved mostly by resorting to the resolution procedure applicable at the administrative level that is called ‘reconciliation’ in domestic law.