Turkey’s Arm’s-Length Principle

Article 13 of the Turkish Corporate Tax Law treats profits as potentially distributed through transfer pricing where related parties transact at prices or amounts that are inconsistent with the arm’s-length principle.

The legislation expressly reaches a broad range of dealings, including purchases and sales, manufacturing, construction, leasing, lending and borrowing, remuneration and similar transactions.

For multinational groups, that support should be visible in both the tax documentation and the underlying finance records.

Who Is a Related Party?

Türkiye’s related-party definition covers direct and indirect relationships through ownership, management, control or influence, together with other relationships specified in the legislation.

Where the relationship arises through shareholding, voting rights or profit participation, the legislation includes a 10% threshold in the circumstances specified by Article 13. The facts should still be reviewed carefully because related-party status can arise through more than share ownership alone.

Which Transactions Create Transfer-Pricing Risk?

Turkey Transfer-Pricing Documentation: Who Files What?

The exact Local File transaction scope can differ depending on the taxpayer and whether the controlled transaction is domestic, cross-border or connected with a free-zone entity. The annual scope should therefore be checked against the current Turkish rules rather than relying on a generic group template.

The Local File: What Should It Actually Contain?

A useful Local File should explain why the pricing makes economic sense, not merely reproduce invoices.

Core sections typically include:

• Company and business overview.
• Organisation and ownership structure.
• Related-party list.
• Description of controlled transactions.
• Agreements and transaction flows.
• Functional analysis: functions, assets and risks.
• Selection of tested party where relevant.
• Selection of transfer-pricing method.
• Internal or external comparables.
• Benchmarking / economic analysis where needed.
• Financial data and segmentation.
• Conclusion on arm’s-length outcome.

Management Fees and Intra-Group Services

Group-service charges are a recurring area of scrutiny because the tax authority can ask both whether the service was genuinely provided and whether the amount charged was arm’s length.

A defensible file should answer:

1. What service was provided?
2. Why did the Turkish company need or benefit from it?
3. Was the activity duplicative of local functions?
4. Was it a shareholder activity rather than a chargeable service?
5. What costs entered the pool?
6. Which costs were excluded?
7. What allocation key was used?
8. Was a mark-up applied and why?
9. How was the mark-up benchmarked where required?
10. Does the invoice agree to the calculation and accounting records?

In 2026, EY Türkiye continued to identify intra-group service invoices, cost bases, allocation keys and mark-ups among frequently challenged transfer-pricing areas in Turkish tax audits.

Royalties and Intangibles

A royalty rate should not be supported only by the existence of a global licence agreement. The Turkish file should explain the role of the IP in the Turkish business and the commercial value received by the local entity.

Relevant questions can include:

• Which trademark, technology, software or know-how is used?
• Who legally and economically controls the intangible?
• How does the Turkish entity benefit?
• What revenue or profit base is used for the royalty?
• Are comparable uncontrolled royalty arrangements available?
• Is the royalty consistent with the functions and risks of the Turkish entity?
• What withholding and VAT treatment applies?

Transfer-pricing, withholding and indirect-tax analysis should be coordinated because changing the legal character of a payment can affect more than the arm’s-length price.

Intercompany Loans and Financial Transactions

Related-party financing should be analysed as financing, not simply as an interest invoice.

The arm’s-length interest rate is only one part of the analysis. The amount of debt itself and the capital structure can also create Turkish tax consequences.

Benchmarking: Internal Comparable Before External Database

Where a comparable transaction already exists between the tested company and an independent party — or between the related party and an independent party — that internal comparable can be highly relevant.

If no reliable internal comparable exists, an external benchmark may be required. Depending on the transaction, the analysis may use:

• Comparable uncontrolled prices.
• Gross-margin methods.
• Cost-plus analysis.
• Transactional net margin method.
• Profit split or other appropriate methods where circumstances require.

The method should follow the nature of the transaction and available evidence rather than being selected simply because a database search is convenient.

Segmented Financials: A Common Missing Piece

A Turkish subsidiary may have several business lines but only one statutory P&L. A transfer-pricing analysis may need the profitability of a specific distribution activity, manufacturing activity or service function.

That requires segmenting:

• Related-party revenue.
• Third-party revenue.
• Direct costs.
• Shared operating expenses.
• Assets or working capital where relevant.
• Allocation keys for common costs.

If segmentation is created only after the year ends, the exercise is often manual and subjective. A better approach is to build cost centres or analytical dimensions into the accounting process before year-end.

Year-End True-Ups and True-Downs

Multinational groups often target an arm’s-length operating margin for a limited-risk distributor, manufacturer or service entity. Actual year-end profitability may fall outside the target, creating a proposed transfer-pricing true-up or true-down.

Before posting the adjustment, the Turkish team should confirm:

• The adjustment is consistent with the documented pricing policy.
• The calculation uses the same cost / revenue base as the policy.
• The corresponding group entity records the same adjustment.
• The invoice or credit-note process is legally supportable.
• Turkish VAT and withholding consequences are understood.
• Customs implications are reviewed for goods-related adjustments.
• The annual TP form and Local File reflect the final amounts.

Transfer Pricing and Customs

For imported goods, a transfer-pricing adjustment can affect not only corporate income tax but also customs valuation. A year-end adjustment that reduces or increases the purchase price may therefore require a customs review.

This is particularly relevant where the group uses:

• Retroactive product-price adjustments.
• Target-margin models.
• Year-end debit / credit notes.
• Variable royalty structures connected with imported goods.

Turkish tax and customs teams should be aligned before an adjustment is implemented.

Transfer Pricing and Withholding / VAT

Transfer pricing determines whether the amount is arm’s length; it does not by itself determine the Turkish withholding or VAT treatment.

For cross-border related-party payments, the workstream may need to address:

• Domestic withholding classification.
• Applicable double-tax treaty.
• Beneficial ownership and residency evidence where relevant.
• Reverse-charge VAT / responsibility VAT.
• Characterisation of mixed service / licence arrangements.
• Deductibility and documentation.

This is why the Local File should be connected to the transaction tax matrix used by accounting.

Master File: When Does a Turkish Entity Need One?

Turkey’s three-tiered transfer-pricing documentation framework includes the Master File. Under the current framework, a Turkish corporate taxpayer that belongs to a multinational enterprise group is generally required to prepare a Master File where both:

• Prior-year-end balance-sheet assets are at least TRY 500 million, and
• Prior-year net sales are at least TRY 500 million.

The Master File is group-level in nature and generally covers areas such as:

• Group legal and ownership structure.
• Business activities and value drivers.
• Intangibles.
• Intercompany financing.
• Group transfer-pricing policies.
• Consolidated financial and tax information.

Local Turkish data should be checked against the global Master File so the Local File does not describe a different value chain.

CbCR and CbCR Notification

Country-by-Country Reporting applies at a much larger group threshold: generally EUR 750 million of consolidated group revenue in the prior fiscal year.

For Turkish entities, the compliance analysis should determine:

• Where the ultimate parent is resident.
• Whether the parent files a CbCR.
• Whether Türkiye has an effective exchange arrangement with that jurisdiction.
• Whether a surrogate parent files elsewhere.
• Whether local Turkish filing can be triggered.
• Which Turkish entity submits the CbCR notification.

Under the current Turkish timetable, the CbCR notification is generally due by the end of the sixth month following the end of the reportable fiscal year.

Transfer Pricing and Pillar Two

Transfer pricing and Pillar Two are separate regimes, but they use overlapping financial data. Transfer-pricing adjustments can affect accounting income, covered taxes and jurisdictional profitability used in the Pillar Two workstream.

For an in-scope multinational group, related-party data should therefore be consistent across:

• Turkish Local File.
• Master File.
• CbCR.
• Group consolidation.
• Pillar Two / GloBE data package.

See Pillar Two & QDMTT Compliance in Turkey.

Advance Pricing Agreements

Turkish taxpayers can seek an Advance Pricing Agreement (APA / PFA) with the Turkish Revenue Administration for qualifying related-party transactions. Depending on the facts, an agreement can be unilateral, bilateral or multilateral.

An APA can be relevant where:

• The transaction value is material and recurring.
• The pricing method is complex.
• The group seeks greater tax certainty.
• There is meaningful double-tax exposure.
• A long-term Turkish operating model is being implemented.

GİB’s 2025 activity report states that 20 APAs had been concluded by the end of 2025, illustrating that the mechanism is available but remains a specialist process rather than a routine filing.

A Practical Annual Transfer-Pricing Process

What SystemsCPA Can Support

Frequently Asked Questions

Related SystemsCPA Guides

• Intercompany Accounting & Reconciliation in Turkey — monthly accounting, confirmations and group-close controls.
• Management & Group Reporting in Turkey — local financial data for headquarters.
• Corporate Tax Provision & Deferred Tax in Turkey — tax accounting and ETR reporting.
• Audit Readiness & Year-End Close Support in Turkey — related-party evidence and year-end support.
• Pillar Two & QDMTT Compliance in Turkey — GloBE data and multinational tax reporting.