Turkey: 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.

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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proposals in Turkey, the exemption provision of the income tax treaty between Turkey and the Netherlands would be repealed, causing certain tax advantages to be lost.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

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