Türkiye vs Headquarter Corp, September 2007, Danıştay Üçüncü Dairesi, E. 2007/89 K. 2007/2446, T. 20.09.2007

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Headquarter Corp had transaction with it’s branch in the Turkish Mersin Free Zone. The branch imported the goods subject to the transaction from abroad for $ 2,298,137.79 and these goods were then transferred from the branch to the Headquarter Corps for US $ 3,214,135.00 without any special processing, production process or added value by the branch.

The tax office issued an assessment where the price of the controlled transactions were adjusted based on the import price (internal CUP).

Headquarter Corp brought the assessment to tax court.

The tax court stated, that because the branch does not have a separate legal entity from the company, profits were not transferred out of the company as a result of the high-priced transaction. Therefor there was no hidden distribution of income. However, it was also concluded that the reason behind the sale of the goods sold to the Headquarter from the branch in the free zone of Mersin, at a price that was above market prices for comparable transactions, was an attempt to transfer profits to the tax free zone and excluding those profits from the tax declaration of the headquarter Corp.

Headquarter Corp argued that the value of the goods purchased from the importer is evaluated according to the Free on Board (FOB) in the claims in the tax inspection report. Hence, an evaluation was made based on the method in which the seller, who sells the goods to the branch in the free zone, is liable for costs and damages until the goods in question are loaded on the ship, and it was emphasized that the insurance, freight and other costs incurred afterwards were not taken into account by the examiners.

On that basis, Headquarter Corp filed an appeal with the Administrative Court.

Judgement of the Administrative Court

The Administrative Court concluded that the price difference of $ 915.997.21 between the seller in the free zone importing the said good and selling the goods to the Headquarter Corp did not reflect the economic and commercial realities without adding any added value to the product.

The appeal request was overturned for a new decision.

 

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T 3-daire-e-2007-89-k-2007-2446-t-20-9-2007

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