Türkiye's Grand Chamber for Tax Disputes at the Council of State (Danıştay VDDK) has settled a years-long dispute: the "treasury loss" condition for disguised profit distribution through transfer pricing applies only to corporate tax and does not extend to VAT on the same transactions. The ruling of 21 May 2025 (case E.2023/988, K.2025/375) matters for any Turkish company transacting with related parties, including international groups with a Turkish and Kazakh footprint.
What was in dispute
Article 13 of the Corporate Tax Law (5520) requires, for disguised profit distribution through transfer pricing to be recognised, that a "treasury loss" arise: an underpayment or delay in assessing "any type of tax" caused by a price deviating from market level. The phrase "any type of tax" raised a long-standing question: does it include VAT on the same transaction, or is the condition specific to corporate tax alone?
The practical stakes are significant. If the condition extends to VAT, the tax authority would need to prove combined harm across both taxes, a higher bar that leaves more room for taxpayer defence. If not, VAT can be reassessed on an under- or over-priced related-party transaction directly, with no treasury-loss analysis at all.
What Danıştay ruled
The chamber gave an unambiguous answer: the treasury-loss condition applies only to corporate tax. The reasoning: corporate tax and VAT are taxes of a different nature (a tax on profit versus a tax on the transaction), and each carries its own separate safeguard against related-party underpricing. For corporate tax, that is Article 13 of Law 5520, with its treasury-loss condition. For VAT, it is Article 27 of the VAT Law (3065), which requires using the "market price and consideration" (emsal bedel ve emsal ücret) with no additional condition attached. The two provisions contain no cross-reference to each other, and the court found no legal basis for importing one provision's condition into the other.
The chamber's practical conclusion is stated directly: where a related-party transaction falls under transfer pricing and is also subject to VAT, a corporate tax reassessment requires proof of treasury loss, while a VAT reassessment on the same transaction does not, the VAT base is simply determined at market price.
The ruling passed by majority vote, with a dissenting opinion arguing for a unified reading of "any type of tax" that would include VAT. Worth keeping in mind: the question will remain a live legal debate, but the majority position now sets the official practice of the highest instance.
A further marker: how treasury loss itself must be proven
In a parallel ruling issued the same day (E.2023/899, K.2025/384), the chamber clarified the evidentiary standard for corporate tax: treasury loss must be demonstrated through a concrete comparison of the tax difference between the market price and the price actually applied, not inferred merely from the existence of a price deviation. This confirms that the burden of proof rests with the tax authority, and a general assertion of price mismatch is not enough.
What this means for corporate groups
If your structure includes transactions between related Turkish and foreign companies (goods sales, royalties, management services, loans, rent), and the tax authority revisits pricing, two separate tracks now matter.
On corporate tax, you have a substantive defence: require the inspectorate to produce a concrete treasury-loss calculation, not a general reference to a price deviation.
On VAT, that defence through the treasury-loss condition no longer exists: VAT on a transfer-pricing transaction can be reassessed directly at market price, and the only line of defence is substantiating the price itself as being at market (transfer pricing documentation, comparable transactions, functional analysis), not arguing the absence of treasury loss.
The practical takeaway: transfer pricing documentation that substantiates your price as market-based now protects you on both taxes at once, while the "treasury loss not proven" argument only works against a corporate tax reassessment.
Do you run transactions between related companies across jurisdictions and want your transfer pricing policy stress-tested on both fronts? Contact us.