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What is Digital Service Tax?
With the introduction of digital transformation into every aspect of our lives, digital services have gained a lot of importance in our day. The taxation of these services has become an important topic of discussion in recent years. The digital service tax is a tax on the activities of digital service providers in countries. This tax aims to balance the contribution of digital services to national economies. Unlike other tax types, digital service tax only covers digital service providers. Applying this tax differs between countries and causes various disputes between countries.
“Digital Service Tax” refers to article 52 (a) of Law No. 7194, dated 5/12/2019, which governs the Digital Service Tax, some other laws, and Decree-Law No. 375. It is defined between articles 1 and 7 of that Law. It became effective on March 1, 2022, in accordance with the paragraph.
With the entry into force of the tax provisions of the Law, the General Implementation Communiqué was published by the Ministry of Finance Revenue Administration on 20.03.2020.
In this article, we will try to convey the essential points regarding the digital service tax and its application in order to inform our valued readers about the new regulations.
If you need tax-related services in Turkey, contact us now.
Which Services Are Subject to The Digital Services Tax?
Pursuant to article 1 of the Law, the following services provided in Turkey are subject to digital service tax;
- Kinds of advertising services offered in the digital environment,
- The services provided in digital media for the sale of any audio, visual, or digital content, as well as for the listening, viewing, playback, electronic recording, or use of such content on electronic devices in digital media,
- The revenue obtained from providing and operating the digital environment where users can interact with each other is subject to digital service tax.
In the Law, digital service providers are defined as those who provide the abovementioned services. In contrast, the digital environment is defined as any medium where online activities occur without physically meeting face-to-face.
In Turkey, providing a service is defined as physically providing the service within the country and using the service in Turkey, providing the service to people in Turkey, or evaluating the service in Turkey. This definition is important because it determines whether a service provider must comply with Turkish regulations and pay taxes in Turkey.
Suppose payment for the service is made within Turkey. In that case, the payment should be considered part of the service provided within Turkey, and any applicable taxes should be paid accordingly. Even if the payment is made outside of Turkey, the service provider must still transfer the payment to a Turkish account or separate it from their profit. Therefore, service providers must understand the definition of providing a service in Turkey and comply with related regulations to avoid legal or financial consequences.
What Are The Advertising Services Offered in The Digital Environment?
Under the Communiqué, it has been stated that services such as advertising control and performance measurement services, data transmission and management related to users, and technical services related to the presentation of advertisements are counted as advertising services offered in the digital environment, and all revenues from these services will be subject to digital service tax. Accordingly, published in the digital environment;
- Search engine ads, such as showing the ad with the search results or showing the advertiser-related search result in priority order,
- All kinds of audio, visual, or written advertisements published in digital media before, during, or after watching the video or user sharing,
- Pop-up ads,
- Advertisements published on the websites of newspapers or magazines, or on the websites of organizations that only broadcast audio and/or visuals in digital media, or during their broadcast streams,
- Simultaneous broadcasting of broadcasts made by the broadcaster over terrestrial, satellite, or cable media in a digital environment, revenues from services such as advertisements that are not included in the content of the broadcast stream are within the scope of digital service tax.
What Are The Content Sales in the Digital Environment and The Services for Utilizing The Content?
Revenue from the following services offered in the environment is subject to digital service tax: Digital sales of any audio, visual, or digital content (including computer programs, applications, music, video, games, and in-game applications) in the digital environment and for listening, watching, playing or recording on electronic devices or using these content in digital media. In this context;
- Programs, software, and applications used in electronic devices such as computers, tablets, mobile phones, smart bracelets,
- Contents of image, sound, and text files such as movies, TV series, videos, pictures, photographs, graphics, articles, magazines, newspapers,
- All kinds of digital games, game add-ons, or game codes, regardless of whether they are played online or offline, including those for playing on a game console,
- The digital sale of game-related applications or packages (such as additional playing rights, extra game time, access to in-game features, materials, and items, in-game character creation or development, or in-game virtual currency) in exchange for a fee to the user in online games. And other comparable content sales and utilization of this content (listening, watching, playing, or recording the content on digital devices or using them on these devices),
- The service of intermediation for the sale of digital content in the digital environment is within the scope of the digital service tax on the revenue obtained from the services provided in the digital environment for the listening, watching, playing, or recording of the said content in the digital environment or recording them on electronic devices or using them on these devices.
What Are The Services of Providing and Operating Digital Environments Where Users Can Interact With Each Other?
Digital platforms offer a wide range of services enabling users to share written, visual, or audio content, interact, and purchase goods and services. These platforms can provide various functions, such as guaranteeing payments, facilitating delivery and returns, and announcing or accessing products for sale.
The revenue generated by these digital platforms is subject to the digital services tax. This tax ensures that digital businesses contribute to the economy in the same way as traditional brick-and-mortar businesses. Digital businesses must understand the implications of digital services tax and comply with the regulations. By doing so, they can help support their local economies while continuing to provide valuable services to their users.
What Are The Intermediary Services For The Services Offered in The Digital Environment?
The revenues of digital hosting providers that provide intermediary services in the digital environment for the services specified in Article 1 of the Law, as a result of intermediary services, are also subject to digital service tax.
Who is The Taxpayer of The Digital Services Tax?
Digital service providers are the taxpayers of the digital service tax. At this point, the liability status of the digital service provider is not considered. The taxpayer may be a natural or a legal person or even a resident of a foreign country and will be considered a digital service taxpayer per this Law. Accordingly, whether the digital service provider is liable for income or corporate tax in Turkey does not affect digital service tax liability.
According to the second paragraph of article 3 of the Law, in cases where the taxpayer does not have a residence, workplace, legal and business center in Turkey, and other cases deemed necessary, the Ministry of Treasury and Finance acts as an intermediary with the parties to the taxable transactions to secure the tax receivable. It is also authorized to hold taxpayers responsible for the payment of tax.
Who is Tax-Exempt From The Digital Services Tax?
The tax concerns digital services businesses with high turnover. By the 1st paragraph of article 4 of the Law, businesses with a revenue of more than 20 million TL in Turkey or more than 750 million euros worldwide regarding the services subject to tax are liable to pay the digital service tax. Businesses with turnover below these figures are exempt from tax. If the taxpayer is a member of a consolidated group in financial accounting, the group’s total revenue regarding the services subject to tax is considered in applying these limits. If the taxpayer’s income falls below at least one of the limits specified for two consecutive fiscal years, his exemption will begin.
What is The Tax Base and Rate?
The base of the digital services tax is the revenue obtained due to the services that are the subject of the tax in the relevant taxation period. If the income is calculated in foreign currency, the foreign currency is converted into Turkish lira at the foreign exchange buying rate of the Central Bank of the Republic of Turkey, valid on the date of income. No deduction is made from the tax base under expense, cost, and tax. The digital service tax is not shown separately on invoices and invoice substitutes. The rate of the tax has been determined as 7.5%. It is calculated by applying the rate to the base. No deduction is made from the tax calculated in this way.
How is The Declaration and Assessment of Tax Done?
The digital service tax is levied upon the taxpayer’s declaration. Even if taxpayers do not obtain taxable revenue in a taxation period, they have to submit a declaration regarding these periods. Digital service tax is levied by the tax office to which they are affiliated in terms of this tax for digital service providers liable for value-added tax and by the tax office to be determined by the Ministry of Treasury and Finance for those who do not. The digital service tax paid by digital service taxpayers can be deducted as an expense in determining the net income based on income and corporate tax by these taxpayers.
With the introduction of digital services into every aspect of our lives, the contribution of digital service providers to countries has also gained importance. Therefore, countries adopt different approaches to the taxation of digital services and seek solutions. The digital service tax has come to the fore to keep up with the digital economy and provide fair taxation. However, as the digital service tax application differs between countries, it is an issue that must be resolved internationally. Studies on this subject are very important for the future of the digital economy and digital services.
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