Considerations of “Related Party,” in Disguised Earning Distribution via Transfer Pricing

Considerations of “Related Party,” in Disguised Earning Distribution via Transfer Pricing

Elif Sonsuzoğlu (Near East University, Cyprus) and Hayriye Işık (Namık Kemal University, Turkey)
DOI: 10.4018/978-1-5225-2245-4.ch006
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This study aims to evaluate the regulations regarding affiliated person subject to transactions violating the arm's length principle within the context of Distribution of Disguised Earning by Transfer Pricing. In Turkish Tax Laws, DDETP is regulated by Income Tax and Corporation Taxes Act. In these regulations, price or charges used in transactions with the affiliated persons are considered DDETP for real person, trader or corporation performing the transaction. Purpose of the regulations is to prevent the efforts of exclusion of earnings from the tax assessment in a disguised manner and minimizing tax assessment by assuming fees and charges against the arm's length principle in transactions with affiliated persons.
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Within the Income and Corporation Tax acts, it is stated that, with regard to DDETP, in transactions where the trader is in disadvantage due to higher or lower prices violating arm's length, the reduction of expenditure regarding these transactions involving the affiliated person is not allowed and the aforementioned payments are considered as unaccepted expenditure. Corporation Tax listed DDETP as legally unaccepted expenditure in article 11-1c). Corporation Tax Act article 13-1 describes DDETP as follows: 1

If organizations are engaged with affiliated person in purchese or sales of goods and services on a price or fee which violates arm's length principle, the income is considered fully or partially to be distributed in disguise through transfer pricing.

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