Client Alert:



The Law no. 7194 on Digital Service Tax and Amendment of Certain Laws and the Decree Law numbered 375 (“Law no. 7194”) is published in the Official Gazette dated 7 December 2019 and numbered 30971. The Law no. 7194 stipulates a “digital service tax,” which will enter into force as of 1 March 2020.

Taxation Problem in Digital Services

Due to the boundless nature of the internet, taxation of the income generated by companies through the services they provide worldwide (e.g. Google, Amazon, Facebook, Apple, Microsoft) has been a topic of debate for a long time. Although there are international efforts towards reaching a global consensus on the subject, certain countries act individually and introduce digital service taxes through national legislation. With the Law no. 7194, Turkey has now joined the list of these countries.

Efforts on International Consensus

Organization for Economic Cooperation and Development (OECD) has been leading the efforts to address the economic risks that may arise from the taxation of services in the digital economy. The latest OECD proposal (PDF), for instance, stipulated rules regarding (1) place of taxation and (2) portion of the profit earned from digital services that should be subject to taxation.

As the member countries are yet to reach a consensus on the proposal, the tendency of taxation on the national level gains momentum day by day. In response, Steven Mnuchin, the Secretary of the Treasury of the USA, issued a statement on 4 December 2019, requesting all countries to suspend their plans for digital service taxes and wait for a consensus on the OECD level.

French Digital Service Tax, USA Investigation, and Turkey

The digital service tax was first introduced in Europe by France on 11 June 2019, which was set at a rate of 3% and applied retroactively, starting from 1 January 2019. In response, the USA initiated an investigation against France regarding its regulation on the digital service tax and prepared a report (PDF) to the effect that the French digital service tax is “against the primary principles of the international taxation policies.” While the investigation is still ongoing, France has stated at the G7 meeting in France on 17-18 July 2019 that in the event a credible decision is reached at the OECD level, it will adapt its digital service tax accordingly.

The USA Trade Representative announced on February 2019, before the Law no. 7194 was passed into law in Turkey, that it was evaluating whether similar investigations related to digital service taxes might be conducted against Austria, Italy, and Turkey. The fact that the Law no. 7194 has now been passed into law by the Grand National Assembly of Turkey and that the tax ratio is regulated as 7.5% can be influential in a potential investigation that might be initiated in the future.

Digital Service Tax within the Scope of the Law no. 7194

Services Subject to the Digital Income Tax

The services stated below shall be subject to the digital service tax under the Law no. 7194:

  • Any type of advertisement services provided through digital media (including advertisement control and performance measurement services, services regarding transmission and management of data related to users, and technical services in relation to placing of advertisements);
  • Services provided through digital media for the sale of auditory, visual, or any other digital content (including computer programs, applications, music, videos, games, in-game applications) and for listening to, watching, playing, recording, or using such content in electronic devices;
  • Services in relation to the provision and management of digital platforms where the users can interact with each other (including services relating to the sale or facilitation of the sale of goods or services among users).

Additionally, revenue generated from the intermediary services provided by the digital service providers through digital media with regards to the above-mentioned services shall be subject to the digital service tax.

Taxpayer of the Digital Service Tax and Secondary Liability

Taxpayer: Providers of digital services are the taxpayers of the digital service tax. Digital service providers are defined in the Law no. 7194 as “those who provide services that constitute the subject of the digital service tax.” A digital service provider’s status as a full or limited taxpayer within the meaning of the personal and corporate income taxes as well as whether the services are provided from a workplace or a permanent establishment in Turkey has no effect on a service provider’s liability arising from the Law no. 7194.

Secondary Liability: The Ministry of Treasury and Finance can hold those who are parties to the transactions subject to the tax and those who act as an intermediary in the transaction or payment liable for paying the digital service tax if the taxpayer lacks any presence in Turkey or if it is deemed necessary by the ministry.

Exemption from the Digital Services Tax

Companies who generate revenue less than TRY 20 million in Turkey or EUR 750 million (or its TRY equivalent) worldwide from digital services in the previous accounting period are exempt from the digital service tax.

In the event the taxpayer is a member of a consolidated group in terms of financial accounting, the total revenue of the group generated from the services falling within the scope of the digital service tax will be taken into account in reaching the exemption thresholds.

Exceptions of the Digital Service Tax

Revenue generated from the following services provided through digital media are exempt from the digital service tax:

  • Services subject to treasury share payment under the additional article 37 of the Telephone and Telegraph Law no. 406;
  • Services subject to the special communication tax within the scope of article 39 of the Expenditure Tax Law no. 6802;
  • Services provided within the scope of article 4 of the Banking Law no. 5411;
  • The sale of R&D products developed as a result of research and development activities conducted in R&D centers as defined in article 2 of the Law no. 5746 on Support of the Research, Development and Design Activities and services provided exclusively through such products;
  • Payment services within the scope of article 12 of the Law no. 6493 on Payment and Securities Settlement Systems, Payment Services, and Electronic Money Establishments.

Digital Service Tax Rate

The digital service tax is set at 7.5%, calculated based on the revenue generated from services falling within the scope of the digital service tax in the relevant taxation period. The President of Turkey is authorized to reduce the digital service tax rate to 1% (either separately for each service type or collectively) and to increase the rate up to 15%.

Taxation Period, Declaration and Payment of the Digital Services Tax

Taxation Period: The taxation period for the digital service tax is determined as one-month periods throughout the calendar year.

Declaration of the Tax: Taxpayers and tax withholders are obliged to submit their digital service tax declarations to the relevant tax offices by the end of the month following the taxation period.

Payment of the Tax: Taxpayers and tax withholders are obliged to pay the digital service tax within the period of submission of declaration.

Digital service tax is deductible from the taxpayer’s taxable income in terms of personal and corporate income taxes.

Enforcement of Blocking Access to Services

Digital service providers that fail to submit declarations and pay their digital service taxes shall be served a notice and this will be announced in the Revenue Administration’s website. In the event the obligations are not fulfilled within thirty days following the announcement, the Ministry of Treasury and Finance can block access to the services provided by these digital service providers until fulfilment of the obligations. Such decisions to block access shall be sent to the Information and Communication Technologies Authority (BTK) in order to be notified to the internet service providers. Internet service providers will then have twenty-four hours to execute the decision to block access to the services.

Draft Communiqué on the Digital Service Tax

The Ministry of Treasury and Finance has very recently published the first draft of “the General Communiqué on the Implementation of the Digital Service Tax” (PDF) on its website. The draft communiqué details the provisions of the Law no. 7194 and provides many examples to illustrate the services and service providers to which the digital service tax would apply.



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