Türkiye Implements OECD Pillar Two Global Minimum Tax Rules

Türkiye has officially adopted the OECD’s Pillar Two global minimum tax framework with the enactment of Law No. 7524 on August 2, 2024. This significant reform aligns Türkiye’s corporate tax regime with international efforts to combat base erosion and profit shifting (BEPS) by multinational enterprises (MNEs).

🔑 Core Elements of Türkiye’s Pillar Two Framework

1. Qualifying Domestic Minimum Top-Up Tax (QDMTT)

Türkiye now applies a QDMTT to ensure that in-scope MNEs are taxed at a minimum effective tax rate (ETR) of 15% on income generated domestically.
This applies to MNE groups with annual consolidated revenues exceeding €750 million in at least two of the past four fiscal years.
The QDMTT prevents foreign jurisdictions from imposing their own top-up taxes by guaranteeing sufficient domestic taxation.

2. Income Inclusion Rule (IIR)

From January 1, 2024, Turkish parent companies of in-scope MNE groups must pay a top-up tax on low-taxed income earned by their foreign subsidiaries.
This ensures the global minimum ETR of 15% is met, even if foreign jurisdictions apply lower tax rates.

3. Undertaxed Profits Rule (UTPR)

Effective January 1, 2025, the UTPR acts as a safeguard when the IIR is not applied by the MNE’s parent jurisdiction.
In such cases, Türkiye may impose a top-up tax on local group entities to compensate for the shortfall in foreign taxation.

📌 Scope and Applicability

• Threshold: Applies to MNE groups with annual consolidated revenues above €750 million in at least two of the four fiscal years prior to the assessment year.

• Exclusions: Entities such as government bodies, international organizations, non-profits, and pension funds are generally excluded in accordance with OECD guidelines.

• Safe Harbors: Türkiye has adopted transitional safe harbor provisions to simplify initial compliance for qualifying groups.

🗂️ Compliance & Reporting Obligations

• Effective Dates:

  • QDMTT and IIR: Effective from fiscal years starting January 1, 2024.

  • UTPR: Comes into effect for fiscal years starting January 1, 2025.

• Reporting Requirements: In-scope entities must submit detailed tax returns calculating any top-up taxes under the QDMTT, IIR, and UTPR.
  The first filings are due in 2025 for the 2024 fiscal year.

📊 Strategic Implications for Multinational Enterprises

• Assess Effective Tax Rates: MNEs should evaluate their global and domestic ETRs to forecast potential top-up tax exposure.

• Enhance Data Infrastructure: Reliable systems and processes are critical for meeting the framework’s complex reporting standards.

• Review Intercompany Transactions: Companies may need to restructure intercompany pricing or operational setups to optimize tax outcomes.

• Engage with Authorities: Early and transparent dialogue with Turkish tax authorities can help resolve uncertainties and streamline compliance.

Conclusion
Türkiye’s implementation of Pillar Two underscores its commitment to global tax fairness and ensures that profits are taxed where economic activity occurs.
MNEs operating in Türkiye should act swiftly to assess the implications, update their tax strategies, and ensure full compliance with the new obligations.