The United States of America (USA) has been announced that in case the countries who impose Digital Service Taxes, shall not cease their actions, would be applied to an additional 25% customs duty on 32 products to be imported. Since Turkey is one of the countries’ that implies digital service taxes; the additional customs tax impose was a concern should be evaluated. Note that, the source of this declaration is arisen from two-pillar approach announced by the OECD/G20 on 08.10.2021 intending the digital economy taxation.
Let’s see together the Two-Pillar Approach (Pillar One and Pillar Two) with the OECD/G20 Statement herein this letter.
United States Trade Representative Office has been made a competition investigation against digital services taxes applied by the countries such as Turkey, Austria, and France, the United Kingdom, Italy, Spain and rest. After this investigation, on 02.07.2021 the Office announced to all digital service tax applying countries, that USA is under discrimination with assuming there is a double taxation.
On the current situation, USA announced that if a solution cannot be founded concerning digital taxation, USA is going to apply additional customs duties for various goods to be imported from Turkey, by declaring that the legal bases such as international tax principles and double taxation have been violated due to the digital service tax applied by countries such as Turkey.
Pillar 1 and Pillar 2 are the pillars determined according to the gross national product with the profit and approach ratios of the importing countries. To picture the issue i.e., 25% of the “residual income” of the companies included in pillar 1, whose profitability exceeds 10%, will be distributed among the market countries according to the revenue-based distribution key and will be subject to taxation in these countries. It is also be regulated that multinational companies exceeding 750 million Euros of their annual revenues is going to be subject to the minimum corporate tax (“Minimum Tax”) in global. When these two pillars’ reflection is compared, there should be profit taxation in the percentage of 15% shall be applied to the companies which shows their profits lower than the normal situation with a tax plan. In other words, while Pillar 1 enables multinational enterprises to tax a part of their income from digital activities in market (source) countries without having a physical or legal workplace in those countries, Pillar 2 enables a minimum corporate tax rate in global. According to the authority’s future plans, the relevant relevant regulations will come into effect in 2023.
So with the latest news, double taxation will be prevented with the calculations of profit and more egalitarian multilateral practice in taxation will be introduced.
In this manner, it is requested from the countries to make a commitment to abolish taxes applied unilaterally such as the Digital Service Tax for all companies and it is requested to make a commitment that similar practices will not be re-implemented. Actually, the unilateral practices of the countries has been considered as an interim solution until a mutual solution is found between the countries. However, it is possible to say that while such practices cause problems such as uncertainty and double taxation for tax payers, some actions by governments, such as the removal of trade benefits and the introduction of additional impositions could be implied in case there is not a settlement on the current taxation disputes.
The Two Pillar Approach has been presented and approved by the G20 Ministry of Finance and Central Bank directors at the meeting held in Washington on 13.10.2021 and it is also approved at the G20 Leaders’ Summit.
TURKEY IS ALSO SETTLED ON 22.11.2021
- Within this framework, Turkey is going to abolish the Digital Service Tax when the effect of Pillar 1 practices come into effect.
- The period between date of the Pillar 1’s enter in Turkey and 01.01.2021 will be referred as the “Interim Period”.
- The Digital Service Tax paid in the Interim Period in Turkey will be compared with the tax to be paid in the first year under Pillar 1 with the ratio and proportion method and Digital Services Tax levied surplus during the Interim Period will be set off from the taxes to be paid under Pillar 1.
On 21.10.2021, the US, Austria, France, Italy, Spain, and the UK announced that they had reached a political settlement concerning taxation of digital service providers in the ınterim period before pillar 1 was introduced. While the United States undertakes to remove the measures it has been taken for products to be imported from the specified countries subjected to this writing, other countries will allow the deduction of digital service taxes paid by American-based companies during the interim period from the corporate tax to be paid in the source countries within the framework of the 1st column.
Please reach to the announcement from the below link that Turkey Republic has been made so far:
Hilal Şimşek, Attorney At Law