by Arda Kutsal on November 4, 2009
Today, Google, the biggest player in Turkish online advertising market, has been fined a total of 71 million Turkish Liras (approx. $47 million) with the claim of tax dodging, as we learned though the news report at Sabah newspaper.
Here is the deal: Google has a legal presence in Turkey under the name Google Advertising and Marketing Limited Company. However, when there is a Google AdWords sale, the operations are completed directly over Google Ireland where the bills are originated. Even though Google Turkey says that these sales are done directly over Ireland, Turkish government claims Google Ireland entitled to be obliged to pay taxes because of the fact that Turkish tax inspectors detected that the company is positioned as an intermediary firm in Turkey. As a result, the company has been fined on the grounds of this reason.
According to Turkish laws, a company, which has a representative company in Turkey, is acknowledged as a taxpayer and is obliged to pay taxes for the services it sells.
We have been in touch with Google Turkey on the issue and asked their opinions. Here is their statement concerning the issue:
Google is acting in accordance with the tax laws of every country in which it operates, including Turkish laws, and that its negotiations with the government on this issue are ongoing. We fully believe that Google is acting in accrdance with Turkish laws.
We also have been in touch with Başak Barut, lawyer representing popular Turkish web community Eksi Sozluk (SourTimes) and Webrazzi, on the law and financial aspects of the issue and asked for her opinions. Başak Purut’s comment on the issue is as follows:
What I can say on the issue in the light of the limited information I have acquired from the media is that, for buying and selling operations of goods or services in Turkey, both corporate or personal income tax and VAT will be subject of matter.
It seems that this problem has more than one aspects:
First of all, Google has established an advertising company with foreign capital in Turkey. (You can find the relate information on ITO.org.tr records.)
As I have understood from the news report, this company is either not operating actively, or it does not make out invoices for the fields it operates or it bills a very small portion of its business volume over Turkey. (I have come to this conclusion considering the news report and the tax penalty, which I am partly acquainted with the issue.)
Although GOOGLE REKLAMCILIK VE PAZARLAMA LİMİTED ŞİRKETİ (Google Advertising and Marketing Limited Company) operates actively in Turkey, all the collection of revenues, billing and payment operations are completed from abroad.
Therefore, in this case, as Google is a company established abroad, it is not even possible to discuss whether exemption of TAX or etc. is a matter of subject or not. As far as I am concerned, if a company with foreign capital in Turkey transfers its revenue directly to its company abroad with the aim of not paying the tax of it, this act is subject to de facto penalty. When you consider current tax laws in Turkey, this is not so surprising.
If Google operated in Turkey only as a liaison office, we would have a different case here, but again the company could and would be obliged to pay taxes.
Surely, this issue has another aspect: persons and companies giving advertisement to Google and persons and companies having Google ad areas on their websites.
The persons and companies giving advertisement to Google make their payments by only credit cards as far as I know, and they may not even know whether Google, operating in Turkey, gets this payment or not. However, when we assume that one should make transactions over a company in Turkey, these persons must have received documents on their expenses. So, this may lead to a problem.
For now, I’m leaving aside the issues such as where to exercise the penalty, or how it will affect Google’s Turkey operations. However, I do wonder whether it is possible that websites publishing Google ads will be fined in the same manner, to make payment to Google of the publisher in the coming days? Concerning the issue Başak Purut told:
The websites that give place to Google ad areas on their pages should make declaration of this income. If they do not, although this amount of income reaches the level that should be declared, we can talk about a violation of law, apart from the current situation of Google, but from the point of the earner.
Apart from these, Google make payments to the websites publishing its ads from abroad, and for those who like to make out an invoice, draw the invoice to California/US address, but have the invoices sent to Ireland, as far as I’m concerned. In my personal opinion, even though there is an active presence of Google in Turkey as a company, those who prepare documents this way will not have any problems. Of course, there is a problem as website owners think that they are exempt from VAT since invoices are issued to a company established abroad in exercise, but this issue is disputable. According to current tax laws, when a service is used in Turkey, the price have to be added VAT since there is an explicit provision as “The services that are produced, made use of or used in Turkey, will be acknowledged to be carried out in Turkey”.
At this stage, negotiations are ongoing as stated in Google statement, so it is necessary to follow the process. We’ll update you as we have some developments on the issue.