Sanver on Turkey/Italy and Turkey/Spain Prevention of Double Taxation Treaties

Sanver on Turkey/Italy and Turkey/Spain Prevention of Double Taxation Treaties

In this Emerging Issues commentary, Dr. Ali I. Sanver of Pekin & Pekin discusses Articles 23/4 and 22/1/d of the Turkey/Italy and Turkey/Spain prevention of double taxation treaties. He analyzes whether these articles will offer a unique opportunity for cross-border financial structuring in relation to dividends, royalties and interest income. He writes:

"A Spain resident investor investing in fixed income securities in Turkey would also be in a position to claim a 15% Deemed FTC in Spain which would result in a full 15% benefit since, as explained above, he or she would be subject to a 0% withholding tax in Turkey on the underlying interest income. A Spain resident financial institution would enjoy a 10% benefit on any of its cross-border lending to Turkey residents as the Deemed FTC under the Spanish Treaty on bank lending is only 10%.

"Under Turkish tax law and practice, any type of foreign tax credit is only accepted by Turkish tax offices if verifying documentation, that is duly issued by the related foreign country's tax authority and ratified by the incumbent Turkish Consulate, can be presented at the time of filing of the related tax return (pursuant to Article 33/(6) of Turkish Corporations Income Tax Act). In this respect, the practitioner should be ready to face significant difficulty, however, in obtaining such verifying documentation for the Deemed FTC which rests on a withholding tax that is notional.

"The deemed (notional) foreign tax credit available under the Spain/Turkey and Italy/ Turkey tax treaties might offer (additional) benefits in relation to cross-border lending and investments in debt and equity issues provided that local tax offices can be convinced to apply international tax treaty provisions."

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