In this case, the Turkish Council of State reviewed an appeal by the Tax Office against a Tax Court decision that had annulled an additional VAT penalty imposed on a Turkish company.
The penalty was based on claims that the company had distributed hidden profits to its foreign affiliate by providing services at undervalued prices, violating transfer pricing rules.
The lower court found the comparability analysis used in the tax authority’s report insufficient, noting that only 2 of 8 companies were comparable and that key comparability factors had not been properly considered.
Judgment
The Council of State agreed with the lower court, finding no legal basis to reverse the decision, and thus dismissed the appeal and upheld the annulment of the tax penalty