International Tax Competition and Its Reflections in Turkey

International Tax Competition and Its Reflections in Turkey

Semih N. Öz (Ankara University Political Science Faculty, Turkey)
DOI: 10.4018/978-1-5225-0053-7.ch009
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Abstract

International tax competition has been significantly increased since 1980s as a result of liberalized financial and fiscal policies, while this leads sovereign nations faced budgetary deficit problems and public finance related considerations. This paper aims to analyze how Turkish tax system is affected by international tax competition, services submitted by tax havens and facilities used by multinationals. In 2006, a new Corporate Income Tax Law was introduced in Turkey. One of its purposes is to combat against harmful tax competition and therefore it covered defensive measures such as controlled foreign company (CFC), thin capitalization rule and transfer pricing regulation, to prevent companies from leaving their income abroad. This study aims to analyze effects of international tax competition in Turkey whether there are change in tax rates, tax structure, and tax revenue; and how the government respond it, as a beneficiary; or, a loser.
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1. The General Principles Of International Taxation

In general, within a taxation framework both personal and corporate income taxes can be levied by two alternative principles which include the residence principle and the source principle. Under the residence principle, tax payers are taxed uniformly on their worldwide income irrespective of the particular jurisdiction where their income earned. Under the source principle, however, individuals or companies are taxed in a particular jurisdiction where their income earned irrespective of where they reside. Residence- and source-based taxes generate distinct macro-economic implications by generating different effects on the required return on domestic investment and the after tax return on domestic saving (Bovenberg, 1992).

Key Terms in this Chapter

Horizontal Tax Competition: Competition among governments at a single level i.e. national sovereign governments or local governments.

Controlled Foreign Company: Taxation of undistributed foreign subsidiary profits in the resident country, as if the profit is distributed.

Tax Competition: The situation where independent jurisdictions compete non-cooperatively over the taxation of production factors to influence their location.

Vertical Tax Competition: Competition among different levels of same government, i.e. municipality/states and federal government.

Transfer Pricing: the amount charged by one segment of an organization for a product or service that it supplies to another segment of the same organization.

Capital Import Neutrality: Under CIN all investors receive the same tax treatment, regardless of where they reside.

Asymmetric Tax Competition: Tax competition between countries that are differed in population size.

Capital Export Neutrality: Under CEN investors, receive the same tax treatment wherever they invest.

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