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Türkiye vs Lender, April 2012, Danıştay Üçüncü Dairesi, E. 2011/5165, K. 2012/1247, UYAP, 12.04.2012

Posted on April 12, 2012 | By Courts of Turkey | No comments

Category: Financial Transactions | Tag: Hidden distribution of profits, Interest rate, Intra-group loan, Loan, Shareholder loan, Tax-Free Zone

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A Turkish company located in a tax free zone had obtained interest income based on the interest rate applied to foreign currency loans, although the company had lent money to its partner in Turkish Lira.

Normally interest income is considered taxable, but within the tax free zone, income from listed activities is exempt.

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Related Guidelines

TPG2022 Chapter X paragraph 10.100In some intra-group transactions, the cost of funds approach may be used to price loans where capital is borrowed from an unrelated party which passes from the original borrower through one or more associated intermediary enterprises, as a series of loans, until it reaches the ultimate borrower. In such cases,...

TPG2022 Chapter X paragraph 10.97In the absence of comparable uncontrolled transactions, the cost of funds approach could be used as an alternative to price intra-group loans in some circumstances. The cost of funds will reflect the borrowing costs incurred by the lender in raising the funds to lend. To this would be added the...

TPG2022 Chapter X paragraph 10.96In considering arm’s length pricing of loans, the issue of fees and charges in relation to the loan may arise. Independent commercial lenders will sometimes charge fees as part of the terms and conditions of the loan, for example arrangement fees or commitment fees in relation to an undrawn facility....

TPG2022 Chapter X paragraph 10.95Whereas it is unlikely that an MNE group’s average interest rate paid on its external debt meets the comparability requirements to be considered as an internal CUP, it may be possible to identify potential comparable loans within the borrower’s or its MNE group’s financing with an independent lender as the...

TPG2022 Chapter X paragraph 10.94When considering issues of comparability, the possibility of internal CUPs should not be overlooked....

TPG2022 Chapter X paragraph 10.93Arm’s length interest rates can also be based on the return of realistic alternative transactions with comparable economic characteristics. Depending on the facts and circumstances, realistic alternatives to intra-group loans could be, for instance, bond issuances, loans which are uncontrolled transactions, deposits, convertible debentures, commercial papers, etc. In the evaluation...

TPG2022 Chapter X paragraph 10.92In the search for comparability data, a comparable is not necessarily restricted to a stand-alone entity. In examining commercial loans, where the potentially comparable borrower is a member of an MNE group and has borrowed from an independent lender, provided all other economically relevant conditions are sufficiently similar, a loan...

TPG2022 Chapter X paragraph 10.91The arm’s length interest rate for a tested loan can be benchmarked against publicly available data for other borrowers with the same credit rating for loans with sufficiently similar terms and conditions and other comparability factors. With the extent of competition often present within lending markets, it might be expected...

TPG2022 Chapter X paragraph 10.90The widespread existence of markets for borrowing and lending money and the frequency of such transactions between independent borrowers and lenders, coupled with the widespread availability of information and analysis of loan markets may make it easier to apply the CUP method to financial transactions than may be the case...

TPG2022 Chapter X paragraph 10.89Once the actual transaction has been accurately delineated, arm’s length interest rates can be sought based on consideration of the credit rating of the borrower or the rating of the specific issuance taking into account all of the terms and conditions of the loan and comparability factors....

Supplemental Guidance

Italy vs Veneto Banca, July 2017, Regional Tax Court, Case No 2691/2017An Italian bank paid interest on a bond subscribed by an Irish group entity, with a spread two points above market. Tax authorities disallowed the excess under IRAP rules, extending Article 11(7) TUIR via Law 147/13. The bank challenged the assessment on grounds of no controlling relationship at issuance and...

Switzerland vs “Hôtel X. SA”, November 2013, Federal Supreme Court, Case No 140 II 88 (2C_291/2013 / 2C_292/2013)A Swiss hotel company charged 2.5% interest on a loan to its 50% shareholder, Y. (Suisse) SA. The Swiss tax authority argued the arm's length rate was 3.941%, resulting in additional taxable income of CHF 5,850 for 2009. After unsuccessful challenges before cantonal courts, the Federal Supreme Court upheld the...

France vs Electricité de France, December 2025, Conseil d’État, Case No 491165 (ECLI:FR:CECHR:2025:491165.20251217)EDF International subscribed to convertible bonds issued by its wholly owned UK subsidiary at a low coupon rate. French tax authorities argued the rate was below arm's length for straight debt and that the conversion feature had no value to an existing sole shareholder, characterising the benefit as a hidden...

Türkiye vs No-Banker Corp, November 2008, Administrative Court, E. 2006/3620 K. 2008/4633 T. 18.11.2008A Turkish company issued an interest-free loan to a related party, which the tax authority assessed as a hidden distribution of profits, adding income tax, penalties, and banking and insurance transactions tax. The tax court found the loan served the company's business purposes and ruled in the taxpayer's favour. The...

Italy vs Edison s.p.a. April 2016, Supreme Court no 7493An Italian company granted Lira 500 billion in non-interest-bearing funding to a related party, classified as a contribution reserved for future capital increase. The Italian tax authority challenged the arrangement under transfer pricing rules. The Italian Supreme Court held in 2016 that intra-group financing is subject to transfer pricing legislation...

France vs Montlaur Sakakini, Oct 1995, Administrative Court of Appeal, No 95LY00427A French company challenged a tax authority adjustment that set arm's length interest rates on intra-group advances at 10–12%, arguing the correct rate was 4.5%. The Lyon Administrative Court of Appeal sided with the taxpayer in 1995, finding that the rates cited by the tax authority — based on bank...

France vs. France Immobilier Group, Nov. 2012, CE no 328670A French company challenged the tax authority's assessment of intra-group loan pricing. The Council of State ruled in 2012 that the applicable interest rate should be determined by reference to the financing conditions the lender itself could have obtained from a third-party bank, deciding the case mostly in favour of...

Spain vs McDonald’s, March 2017, Spanish Tribunal Supremo, Case no 961-2017A Spanish subsidiary of McDonald's received loans from a group entity domiciled in Ireland at interest rates between 3.45% and 6.02%. The Spanish tax authority challenged the rates, arguing the Irish lender lacked substance and funds of its own, and benchmarked the arm's length rate against comparable external bank loans....

TPcases

Türkiye vs Lender, April 2012, Danıştay Üçüncü Dairesi, E. 2011/5165, K. 2012/1247, UYAP, 12.04.2012

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