Ruling Number: 62030549-125[30-2016/1]-104549 Introduction In a private ruling dated August 1, 2016, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to payments made to artists resident in the United Kingdom and Germany for concerts to be given in Türkiye. The taxpayer stated that their company organizes concerts and similar events in Türkiye. They will bring a group of artists from the UK and Germany for a concert event. The artists’ hotel and meal expenses will also be covered by the taxpayer. The artists will stay in Türkiye for 1-2 days and then return to their countries. Payments will be made via bank transfer. Invoices will be issued either by the artists themselves or by their foreign agencies. The taxpayer requested clarification on whether withholding tax is required under the double taxation treaties. Part I – Domestic Law Analysis Corporate Tax Law (Law No. 5520) Article 3(2) – Limited Liability: Corporations whose legal and business centers are both not located in Türkiye are taxed only on their income derived from Türkiye. Article 3(3)(a): Commercial income derived by foreign corporations having a place of business or permanent representative in Türkiye. Article 3(3)(c): Professional service income derived in Türkiye. Article 30 – Withholding Tax for Limited Liability Taxpayers: Type of Professional Service Income Withholding Tax Rate Petroleum exploration 5% Other professional service income 20% Income Tax Law (Law No. 193) Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article 7 – Income Deemed Derived in Türkiye: For professional service income, the income is deemed derived in Türkiye if the professional services are performed or utilized in Türkiye. Article 65 – Definition of Professional Service Income: Income arising from any kind of professional service activity constitutes professional service income. Professional service activities are those that rely on personal effort, scientific or professional knowledge, or expertise rather than capital, are non-commercial in nature, and are performed independently. Article 66(2)(4) – Professional Persons: Concert-giving artists are considered professionals (serbest meslek erbabı). Article 67 – Expense Reimbursements: Expense reimbursements received from clients in connection with professional services are added to income. Article 94 – Withholding Tax Obligation (Paragraph 1, subparagraph 2): Payments made to persons performing professional services are subject to withholding tax. Council of Ministers Decree No. 2009/14592 – Withholding Tax Rates: Type of Professional Service Withholding Tax Rate Professional services within the scope of Article 18 17% Other professional services 20% Part II – Double Taxation Treaty Analysis Türkiye-UK Double Taxation Treaty (Effective January 1, 1989) Article 17 – Artistes and Sportsmen (Paragraphs 1, 2, and 3): 1. Notwithstanding Articles 14 and 15, income derived by a resident of one Contracting State as an entertainer (such as a theatre, motion picture, radio or television artiste, or a musician) or as a sportsman from their personal activities as such exercised in the other Contracting State, may be taxed in that other State. 2. Where income in respect of personal activities exercised by an entertainer or sportsman accrues not to the entertainer or sportsman themselves but to another person, that income may, notwithstanding Articles 7, 14, and 15, be taxed in the Contracting State in which the activities are exercised. 3. Income derived from activities exercised in one Contracting State by a resident of the other Contracting State shall be exempt from tax in the first-mentioned State if the visit is supported wholly or substantially from the public funds of the other State and, in the case of Türkiye, additionally if the visit is met by associations or organizations beneficial to the public interest. Türkiye-Germany Double Taxation Treaty (Effective January 1, 2011) Article 17 – Artistes and Sportsmen (Paragraphs 1, 2, and 3): 1. Notwithstanding Articles 7, 14, and 15, income derived by a resident of one Contracting State as an entertainer (such as a theatre, motion picture, radio or television artiste, or a musician) or as a sportsman from their personal activities as such exercised in the other Contracting State, may be taxed in that other State. 2. Where income in respect of personal activities exercised by an entertainer or sportsman accrues not to the entertainer or sportsman themselves but to another person, that income may, notwithstanding Articles 7, 14, and 15, be taxed in the Contracting State in which the activities are exercised. 3. The provisions of paragraphs 1 and 2 shall not apply if the visit to the other Contracting State is wholly or substantially supported by public funds of the other State, its political subdivisions, or local authorities, or by an organization recognized as a charitable organization. In such case, the income shall be taxable only in the State of residence. Part III – Ruling Conclusion Step 1 – Characterization of the Payment Factor Determination Nature of activity Concert performance (artist / musician) Location of activity Türkiye Characterization Professional service income (serbest meslek kazancı) Step 2 – Withholding Tax on Direct Payments to Artists Factor Determination Who receives the payment? Artists (directly) Applicable treaty article Article 17(1) (UK and Germany DTTs) Taxing right Türkiye has the right to tax Domestic withholding tax rate 20% Step 3 – Withholding Tax on Payments to Agents/Organizers Factor Determination Who receives the payment? Agent/organizer (not the artists directly) Applicable treaty article Article 17(2) (UK and Germany DTTs) Taxing right Türkiye has the right to tax Domestic withholding tax rate 20% Step 4 – Expense Reimbursements (Hotel, Meals, etc.) Factor Determination Nature of expense reimbursements Part of the professional service income (Article 67 of Income Tax Law) Tax treatment Included in the taxable amount subject to 20% withholding tax Step 5 – Treaty Exemption (Not Applicable) The exemption under Article 17(3) of both DTTs would apply only if: The visit is supported wholly or substantially from public funds of the home country (UK or Germany), and In the case of Türkiye, additionally if the visit is met by associations or organizations beneficial to the public interest. This exemption does not apply to commercial concert events organized by a private company. Summary Table Scenario Payment Recipient Treaty Article Taxing Right Withholding Tax Rate 1 Artists directly (UK resident) Art. 17(1) Türkiye 20% 2 Artists directly (Germany resident) Art. 17(1) Türkiye 20% 3 Agent/Organizer (UK resident) Art. 17(2) Türkiye 20% 4 Agent/Organizer (Germany resident) Art. 17(2) Türkiye 20% 5 Expense reimbursements (hotel, meals) Art. 17(1) or (2) Türkiye 20% (included in taxable amount) 6 Exemption (public funds / public interest) Art. 17(3) Only home country 0% (not applicable in this case) Required Documentation for Treaty Benefits To benefit from the treaty provisions (if any exemption applies), the artists (or their agents) must: Obtain a Certificate of Residency from the competent authorities of the UK or Germany proving that they are fully liable to tax in their country of residence on their worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer) or the relevant tax office. If the Certificate of Residency cannot be provided: Domestic law provisions (20% withholding tax) will apply. Important Notes Article 17 overrides Articles 7 (Business Profits), 14 (Professional Services), and 15 (Dependent Personal Services) for artiste and sportsmen income. Even if the payment is made to an agent or organizer (rather than the artist directly), Türkiye still has the right to tax under Article 17(2). Expense reimbursements (hotel, meals, transportation) are included in the taxable professional service income. The public funds exemption (Article 17(3)) applies only to visits supported by public funds or public interest organizations – not to commercial concerts organized by private companies. The taxpayer must withhold tax at 20% at the time of payment and declare it to the tax office. This private ruling is based on Article 413 of the Tax Procedure Law No. 213. The ruling becomes invalid if incorrect information is provided, or if there is ongoing tax audit, litigation, or reconciliation related to this matter. Acting in accordance with this ruling protects the taxpayer from tax penalties and default interest for the related transactions. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. 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