It is a common practice for multinational groups to issue annual management or IT fee invoices from the parent company to their subsidiaries. These charges typically represent the subsidiary’s share of group-level administrative, management, or IT services. While such allocations are standard in multinational structures, they require careful evaluation for compliance with Turkish tax and accounting rules.
Tax Treatment in Temporary and Annual Returns
Quarterly Temporary Corporate Tax Returns
During the fiscal year, if the management or IT fee amount has not yet been finalized and is only recorded as a provision, the expense cannot be deducted in temporary corporate tax returns. Since the amount is uncertain, no corporate tax deduction or VAT withholding is required during interim periods.
Annual Corporate Tax Return
At the end of the year, once the parent company confirms the total amount and issues the invoice, the expense becomes definite and should be recorded as an accrual in the same fiscal year’s accounting records.
If the exact amount is finalized after the year-end closing, the invoice may still be recorded as a previous year expense, provided that it is issued and entered into the accounting records by April 25 of the following year. Only in this case can the expense be deducted in the corporate tax return for that fiscal year.
This approach ensures compliance with both the accrual and matching principles under Turkish tax legislation.
VAT and Withholding Timing
If the management or IT fee is recorded as an accrual in the year-end accounts, the corresponding VAT and withholding tax (if applicable) must be declared for that same period. The deductible VAT can be reported in the VAT return for the month in which the invoice is recorded.
If, however, the invoice is issued and booked in the following year as a previous year expense, the VAT and withholding obligations should be based on the invoice date, and the deductible VAT should be included in the VAT return of that same month.
Necessity of Tax Withholding
Since the services are utilized in Turkey, VAT withholding must be applied under the reverse charge mechanism.
For corporate income tax (CIT) withholding, the determination depends on whether the Turkish subsidiary directly benefits from the services.
If the services are independent in nature—such as bookkeeping, financial reporting, or other professional services—and the foreign entity has no fixed place of business or presence in Turkey exceeding 183 days, no CIT withholding is required.
If, on the other hand, the charges merely represent a cost allocation by the parent company without direct benefit to the Turkish entity, the payment may not qualify as an independent service and could require alternative tax treatment.
Review of the Invoice Content
Management and IT fee invoices generally include group-level management support, administrative, or IT-related services. If these services are not directly relevant to the Turkish subsidiary’s operations or are already invoiced separately, they may not qualify as deductible independent service expenses.
However, if the Turkish entity benefits from the parent company’s brand, know-how, or integrated business systems, the charge may be viewed as an intellectual property (IP) payment.
This interpretation applies only if no separate invoice is issued for IP or royalty charges. In such cases, a withholding tax under the IP article of the relevant Double Tax Treaty may be applicable.
Conclusion
The proper accounting and tax treatment of management and IT fee invoices requires close attention to timing, documentation, and the nature of the service.
To ensure deductibility, the invoice must be issued and recorded in the accounting books by April 25 of the following year and supported by clear evidence that the service was directly related to the Turkish entity’s operations.
Correct classification and documentation will help ensure full compliance with Turkish tax laws and minimize risks during inspections.
For any questions regarding intercompany service charges and tax compliance, please visit Contact page to get in touch.