Double Taxation; is when a taxable income is subject to tax in more than one country, the same income is taxed both in the country where it is obtained and in the country where the person who obtains the income is a “Resident”. In other words; is when two or more states want to impose taxes on the same taxpayer in the same period and on the same subject.
The name of the tax problem between a country that wants to tax the income of foreign persons within its borders and another country that wants to tax the income of people who earn income in other countries and live in their own country emerges as a double taxation problem.
Due to the fact that each country has its own different legislation, large double taxation is a problem today. In particular, the problem of double taxation arises in cases where the obligation cannot be fully determined and creates some effects.
Turkey signed the first Double Taxation Prevention Agreement with Austria on 03.11.1970 in Vienna. Countries with double taxation prevention agreement in force: Austria, Norway, South Korea, Jordan, Tunisia, Romania, Netherlands, Pakistan, United Kingdom, Finland, Turkish Republic of Northern Cyprus, France, Germany, Sweden, Belgium, Denmark, Kazakhstan, Macedonia, Albania, Algeria, Mongolia, India, Malaysia, Egypt, People’s Republic of China, Poland, Turkmenistan, Azerbaijan, Bulgaria, Uzbekistan, United States, Belarus, Ukraine, Israel, Slovakia, Kuwait, Russia, Indonesia, Lithuania, Croatia, Moldova, Singapore, Kyrgyzstan, Tajikistan, Czech Republic, Spain, Bangladesh, Latvia, Slovenia, Greece, Syria, Thailand, Sudan, Luxembourg, Estonia, Iran, Morocco, Lebanon, South Africa, Portugal, Serbia-Montenegro, Ethiopia, Bahrain, Qatar, Bosnia and Herzegovina, Saudi Arabia, Georgia, Oman, Yemen, Ireland, New Zealand, Canada, Switzerland, Brazil, Australia, Malta, Mexico, Kosovo, Philippines, Vietnam, Gambia and Rwanda.
Principles considered in the conclusion of the Double Taxation Prevention Treaties
- Residency principle: The income of the resident of the host country in all other countries is taxed in the same way, regardless of the source from which it is obtained. In other words, the income that a person earns all over the world; collected and taxed in the country of residence.
- Resource Policy: According to this principle; not the country where the individuals reside, but the place where the income is obtained. For example; Just as foreign taxpayers in Germany are taxed in Germany only on their income from Germany.
- Nationality Principle: In accordance with this principle, a person who is connected to a country by citizenship pays taxes to that country. The “nationality principle”, which is not an independent taxation principle, can usually be used in the agreements made by countries with great economic potential with other countries. In the Turkish Tax System, as stated in Article 3 of the GDPR, taxation authority has been determined according to both the nationality principle and the residence principle.
National and International Methods to Prevent Double Taxation
Regulations have been made in various tax laws to prevent or eliminate double taxation. In this context, the following methods are used to prevent double taxation;
- Deduction method (Deduction from Base): In the deduction method, while the tax calculation is made in a country based on residence in income and wealth taxes, the tax paid in foreign countries is deducted from the calculated tax base. Accordingly, domestic and international earnings are collected; From the base found, the taxes paid in the foreign country are deducted and the remaining amount is taxed.
- Offset method (Tax Discount): In this method; A country that relies on residence in taxation calculates the tax on all income obtained at home and abroad and adopts the deduction of similar taxes paid in foreign countries from the calculated total tax. The proportion of the contribution of foreign income to the total income declared in Turkey is the amount to be deducted from the calculated tax. With the GDPR 123.md and KVK 33.md, it is possible to offset taxes paid in foreign countries in Turkey.
- Exception method: A country that wants to avoid double taxation keeps out tax on subjects that have been taxed in other countries. For this, it does not need to make agreements with other countries, With the regulations it unilaterally makes in its own legislation, it can prevent double taxation by exempting the elements taxed in the source country from tax.
International Methods One of the ways to prevent double taxation is to make international agreements based on the sharing of powers between countries so that taxation powers do not conflict. Agreements aimed at preventing double taxation are mostly made in terms of income and wealth taxes.
Income Elements Regulated in Double Taxation Prevention Agreements It is possible to list the Income Elements Regulated in Double Taxation Prevention Agreements as follows;
- Income from real estate assets,
- Commercial gains,
- International transportation earnings,
- Dividend income,
- Interest income,
- Intangible rights costs,
- Capital appreciation gains,
- Income from self-employment activities,
- Wage revenues,
- Income of the members of the board of directors of the company,
- Artist and athlete income,
- Pensions of private sector employees,
- Wage income and pensions of public employees,
- Income from teachers and students,
- Other income,
In the agreements, the elements of income are handled separately and the taxation authority is left to the “country of residence” or “the country of origin from which the income is obtained”, depending on the situation, and sometimes it is shared between both countries. Where taxation is carried out in both states; tax paid in the other State to avoid duplicative taxation on the same earnings; in the state of residence, it is offset or exempted under the provisions of the Ç.V.Ö.A.