Turkey (Türkiye): MLI and tax treaty-related considerations for Turkish investors in the Netherlands

Turkey: MLI and tax treaty-related considerations

The Netherlands has been often preferred as an investment location by outbound Turkish investors, given the advantages of the Netherlands as a holding location and also certain advantageous provisions contained in the Turkey-Netherlands income tax treaty.


Additionally, the Netherlands has reinforced its advantageous tax position by allowing easy application of the participation exemption regime and by a recently enacted withholding tax exemption on dividend distributions to companies resident in a treaty country (including Turkey).

Under the OECD’s base erosion and profit shifting (BEPS) project, the Multilateral Instrument (MLI) aims to replace or update income tax treaties that no longer respond to today's conditions and that may be insufficient to address tax evasion.  Turkey signed the MLI in 2017, but with reservations to certain provisions other than the minimum standards, meaning that these articles of the MLI are not applicable but instead the relevant articles of the current income tax treaties continue to apply. Article 5 of the MLI regarding the prevention of double taxation was among Turkey's reservations, so that the exemption clause of the income tax treaty between Turkey and the Netherlands would remain in force. However, under pending legislative proposals in Turkey, the exemption provision of the income tax treaty between Turkey and the Netherlands would be repealed, causing certain tax advantages to be lost.

For MLI to enter into force, first of all legislative and executive processes in Turkey would need to be completed. After Turkey notifies the OECD of the completion of such processes, the MLI would enter into force as of the first day of the month following the end of the three-month period after this notification. It appears that the MLI in Turkey would, at the earliest, be in force as of 1 January 2022 (but timing of the approval process of the MLI is not certain).

Accordingly, companies that have directed their investments through Dutch holding structures need to consider what steps and actions may be required before the MLI enters into force.

Read an October 2020 report [PDF 157 KB] prepared by the KPMG member in Turkey

For more information, contact a KPMG tax professional in Turkey:

Eray Büyüksekban | ebuyuksekban@kpmg.com

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us