[Turkey] Following an investigation that lasted over a year, Turkish authorities are fining Internet giant Google a total of 71 million Turkish Lira (approx. €32 million or USD $47 million) for supposedly dodging the national tax system.
Local media reports (links in Turkish) teach us that the Turkish government claims it is entitled to additional taxes because of the fact Google operates its online advertising in the country and even boasts offices and a registered subsidiary there while bills and payments originate from Ireland. That latter part rings true, since the search juggernaut’s European headquarters are located in Ireland’s capital and most of its support and financial services are centralized there.
But Turkish authorities say Google is required to pay national taxes for revenue generated through its registered company based in Turkey, and asserts that an extensive audit shows that the American company owes the government nearly $50 million in unpaid taxes.
Google, which is market leader in search and online advertising in Turkey, has unsurprisingly countered these claims saying that it runs its ad network operations from Ireland and thus is not obliged to pay taxes in Turkey merely because it owns a subsidiary there. In a statement, Google said it 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’ve also been in touch with a Turkish lawyer, who tells us the government is making a valid claim, pointing out that Google has set up a full-fledged company called Google Reklamcılık ve Pazarlama Ltd. Şti. (which means Google Advertising and Marketing Ltd.) in Turkey rather than what he refers to as a ‘liaison’ branch. Had it done the latter, says the lawyer, the company would have had to pay very little or no taxes at all.
Did Google make a mistake when setting up shop in Turkey, or is this public announcement merely a tactic of the government to speed up its negotiations with the company? Either way, this story will be continued and I’d wager the issue will likely get settled soon enough.
On a sidenote: the Turkish government has still shown no intention of stopping its year-long blocking of Google-owned YouTube in the country, which is fairly ironic even if not totally related to the tax issue.
(Hat tips go to Emrah Saglik for the tip and Webrazzi editor and TechCrunch Europe contributor Arda Kutsal for his help in translating and providing more background)
whats my name : banana republic
You do business in a country, then you comply with the tax laws. Google got PWNED trying to operate out of a tax haven.
Basically true as far as I can tell, if you run a properly set up company in any country that earns income from sources inside that country (most likely advertising for/by turkish companies) then you pay taxes there. Any attempt to do otherwise is tax avoidance and Google got stung.
That said, Turkey and Ireland have a double tax treaty, so Google should be able to reduce their taxes in Ireland as a result.
Really, a company should support the country they’ve setup shop in, not set up international tax setup simply to avoid taxes, it does nothing for the countries they’re earning money in. And if Google is an Irish company, I’m the pope.
Turkey is ruled by religious zealots who hate Google, the Internet and Free Speech in general. Proof?
Well, a good example is that they block Youtube most of the year. That’s the government!
There are many other examples that show what type of country Turkey is. Journalists and authors are bullied, thrown into prison or killed. Theory of evolution advocates are treated like witches in the middle ages and Kurdish people (never mind the Armenians) are treated like shit.
I wouldn’t mind a rebuttal to what I just wrote so we get the other side of opinion.
Rom,
What you think about Turkey is completely wrong. I’m from Turkey and I live in New York so I have a fair understanding between west cultures and east cultures.
I don’t want to get into the details about the texture of my country. If you are not aware of what Turkish government has done in the past 5 years, too bad.
The main reason why Google has been penalized is that they’ve been making most of the transactions for Adwords from Ireland and making the invoices under that country. In terms of Turkish tax system, even if you have a branch in Turkey and doing the main business from somewhere else, you still need to pay your taxes for what you get paid for the services you provide in Turkey.
what Rom says in this comment is not completely wrong; it just leaves out all the positive parts. Hrant Dink, an armenian journalist, was killed and the real murderers were never found and there is indeed a crusade against the theory of evolution just like there is in USA. Also, youtube is blocked and so is myspace and some other websites for ridiculous reasons. This is real.
but then again, those websites were censored because of stupid holes in the legal system. Anyone can take advantage of these until they are plugged.
I am Turkish myself and not bashing Turkey but the above problems need to be fixed and ignoring them won’t help.
Also, there are tons of positive things happening in Turkey and it is very easy to disregard them as a biased westerner who only seesreasons why Turkey should not be admitted to EU or how Turkey treated Armenians a century ago.
Ciao!
I am not gonna get to politics but it is about taxation law. No government would want its taxes just fly away. So if you operate in Turkey you act according to Turkish taxation, if you operate in Ireland or Sweden or any other EU country you respect their law.
Actually many other countries in EU have passed a law saying that you are supposed to pay VAT even if you are selling online on the internet from a third country and many countries also still claim that they should pay income tax to the country where the customer resides. It is actually about the future of the e-commerce. The regulations vary from country to country and the countries should come to a consensus.
It is so easy to start an office in a country actually to run your business and start another office in a third country where the tax regulations are loose or very low. Like in Channel Islands.
Since Turkey is not in EU then the EU regulations are not applicable. So this is the law and order. I don’t know how they operate in other countries around the world but they may face some other lawsuits.
I am pretty sure Turkey is ruled by anyone but religious fanatics. Unless I am getting my news absolutely wrong, Turkey is working very hard to keep the religious zealots out of power.
rom,
what are you up to make comments relevant to the subject
1) Tax evasion
If fighting tax evision is a bad thing, then I guess the United States are even worse. President Obama practically forced Switzerland to give information about bank accounts of American citizens. Obama is going after other countries.
Also it doesn’t matter if the Turkish claim is right or wrong. What matters is that Google has a fair chance to defend itself in a courtroom.
2) YouTube issue
Turkey is in a situation where it has to fight to maintain secularism and other foundations that make it possible for Turkey to be a democratic country. To protect secularism and the other important foundations of the Turkish republic, the greatest symbol of it is also protected (Ataturk). Even to a point where YouTube can be blocked. This could be handled differently for example by filtering YouTube content more specificly.
Concluding that you are an idiot by saying that the Turkish republic is ruled by religious zealots, because that would mean there would no law that protects secularism.
3) Kurdish people
The government of Turkey has treated the east of the country worse than the rest. That has been acknowledged by the government. The area has been a conflict zone for decades meaning that some economic disadvantagement is due to that. Another reason is that the west had more economic advantages to begin with and was more interesting to invest in.
Right now the Turkish government is working on improving the situation in the east but it is not improving fast enough. The government has allowed a Kurdish party in the parliament, launched a Kurdish television network and has become greatly more tolerant for the Kurdish culture. This change is due to less Kurdish terrorism.
4) Armenians
As far as I know the Turkish government is currently not treating any Armenians as shit. As a matter of fact they just recently made efforts to strengthen the ties between Armenia.
The Turkish government does not acknowledge that there was an Armenian genocide and would like there to be thorough research (see wiki about Armenian genocide under “Republic of Turkey and the Armenian Genocide”). Before the “Armenian genocide” the Ottoman Empire treated all of it’s inhibitants extremely well.
@Rom
This is not a rebuttal as I didn’t even vote for them and don’t plan to, but let me tell you right away that you’re totally wrong on this.
The ban on Youtube has nothing to do with the government in charge. In fact the Turkish prime minister himself said “I’m opening Youtube why don’t you?!”. (referring to use of proxy servers to evade the ban)
On contrary of what you believe, the ban is promoted and approved by “secularists” (you probably naively sympathize with them) becase some 15 year old Greek teenager made a video of Ataturk calling him gay.
Europeans are not helping the matter with having this black-white vision, conservatives = evil zombies, “secularists” = angels.
If you don’t know enough about something please refrain from spreading false information.
Its about time, the number of companies who are basically laundering money through (the banana republic of) Ireland is a joke.
@Hikmet: Turkey bans Youtube and you can be – and will be as many examples show – jailed for criticizing the Turkish state. This is ridiculous and dangerous. I don’t even want to go into how they treat the Kurdish people, since there are many more examples I could name that show the true colors of Turkey.
Nevertheless this are all facts. I admit, that ‘normal’ thinking people are somehow helpless since they are somehow ’squashed’ between the religious and ultra-nationalist forces.
Still, a big problem is that most people do not have a tradition of critique towards their own state in Turkey.
I live and lived in 4 different countries. People never resisted to criticize and slander their state and government for much less atrocities then the ones named above. In Turkey people seem to have this holy awe towards their state. I can only assume that nationalism is so deep-rooted that people directly feel bad if something bad is said about their country.
I am Kurdish and don’t like most of the Turkish politics. Half of my family is Armenian and other half is Kurdish, so I have no Turkish relatives except my friends, but still you are wrong. This is not nationalism, and I hate Turkish nationalists. Most of your arguments are fundamentally wrong. If we would speak 30 years ago, I could agree with you but Turkey is changing so fast. Like America, can you compare 40-years-ago America with current America? (America is much much better though, but you got the point)
There are still a lot of problems like freedom of speech etc, but Turkey is in the largest 20 economies in the World, and also its social life. It is globally accepted that Turkey is the most democratized muslim populated country, and it’s improving. We have lots of things to do though.
About the tax problem, if they need to pay tax in Turkey, they will pay their tax. You can’t expect any exception here. Turkey is not in European Union yet, so we don’t get any tax benefits from EU.
@Rom,
Although that’s totally out of the subject, with the Kurdish problems, believe me, Turkey is much friendly than other countries like USA, U.K., etc.
Turkey accepts Kurdish people as their own citizens with equal rights but fights with the ones who are terrorized.
USA, U.K., etc. invaded their lands in Iraq, killed thousands for oil and power.
The problem with Turkish people not accepting critiques is because many people who are commenting are the ones who even never lived in Turkey but read news from politically-guided resources which are “one-sided”. Wish you find a chance, stay in Turkey for a while and see the difference (or ask people who visited the country).
All this stuff about Turkey is all very well – but the real question is how small businesses over in the UK are being affected by all this. Particularly tea and coffee shops, which stock a lot of Turkish produce. I’ve written a short blogpost which addresses this issue: http://tiny.cc/s4tOG
@Rom
Surely, Turkey has a lot of problems to solve when it comes to freedoms. Jail time for criticizing state? This is not one of them, otherwise the journalists and presenters of some 20+ newspapers and tv’s should be immediately jailed, as they criticize the government and state policies everyday, but they are not at all jailed since as long as I can remember.
There are however, archaic laws. “Insulting turkishness” is one of them, and Nobel prize winner Orhan Pamuk was sent to court for it (although not sentenced, as usual). The occasional police brutality towards protesters is another one.
And the day of the court, thousands of people were gathered to protest it. So people in Turkey are no different than people in Europe when it comes to reactions to limiting their freedoms.
So this is a better argue point for you to make if you want to speak about problems of Turkish state, and the more people does speak it the more it helps, hence my replies to you.
So in short, Turkey centainly has much work to do, but it’s actors and dynamics are different from what you described in your earlier posts.
I remake my original point, “Westerners” with little knowledge, I appreciate your effort to make sense of such things, but please don’t jump to conclusions hastily before really having a look into the matter, otherwise all we have is a soup of stereotypes about the region and people which worsen the problems.
In fact I read your last comment again and it seems like you are on this more to bash Turkey than to criticize the news at hand.
Let’s bash the wrongdoings even if it belongs to Turkey, USA or Papua New Guinea, I am all for it, any day of the week.
But “show true colors of Turkey”?, Making generalizations over 75 millions of people in a country you haven’t lived not 1 month ? (it wouldn’t change the point at hand one bit even if you did)
I’m done replying to you. Good luck in your new career as a hater.
Who said I am a ‘Westener’? I have no strong affiliation with any state, just a set of values I would call ’suitable’ for the 21st century.
I know the law against “Insulting turkishness”. The existence of such a law shows the mindset I tried to criticize. Banning Youtube is just another example of that mindset.
Having such a law the executive and judicative can basically do whatever they want with the press and their people. It may be pretty harmless what this law does at the moment, but it will be disastrous in the future if either the religious or the nationalist get the upper hand.
My theory and why I wrote this piece is:
The government hates Google, Youtube is just one example which could be used to rally opposition in upcoming election in March. Turkey hits Google with a tax fine.
The government hates the Turkish media. The government hits the Turkish media with a tax fine: http://abcnews.go.com/International/wireStory?id=6925046
Sounds familiar? Am I the only one who sees similarities? Am I the only one who doesn’t believe a word when I hear: “Prime Minister Recep Tayyip Erdogan’s government has said the issue is about tax code violations, not press freedom.”
Google to Turkey: “I kiss you”
Turkey to Google: “Tax bill wavied”
Google should pay up. Period.
Turkey may or may not be ruled by religious zealots. I really don’t know. BUT, I do know that governments, across the board, are greedy, over bearing, bureaucrats. I would usually side with Google, but in this case it looks like the government has got ‘em by the bits!
@NullOp – and what do you say to this tax fine: http://abcnews.go.com/International/wireStory?id=6925046
Xenophobic & moronic comments aside, this is actually an interesting question to debate: when is a dollar earned by an online company in a country REALLY earned in that country?
Similar situations must arise everywhere and are bound to become more important. Before, the distinction between a remote office not selling to local clients (and not paying local taxes) and a fully-fledged subsidiary acting and selling locally was pretty clear.
Now, with sales and transactions easily done via the Internet and via international payments, the line is blurred. I am sure Google’s lawyers looked into it, but who knows if they simply did what they do elsewhere, without taking into consideration the country’s tax laws…
I am not familiar with the case, but I think it’s feasible that the government may have a legitimate claim here. So let’s not start with insults to a country simply because it dared – gasp – to question what a multinational entity doing on its territory.
Actually I believe (not as an expert but I have pretty quiet knowledge) that Google made a mistake. In Turkey the company names are pretty long because according to the law you should define your companies activities on your official name. So the Google’s company name and title in Turkey is “Google Advertising and Marketing Ltd.” So taht means that they can sell advertisement. Instead, if they chose the way just naming the company other way like “Google Internet Search Engine Ltd.” they could still claim that they were just working on search engine but nothing with “advertisement.” Under the table they could still run the business like they do today and still run away with penalty. They would say that the company in Ireland is dealing with the Adwords and we’ve got nothing to do with that. That could still be legitimate.
Still when it comes to internet there are many issues to be discussed about e-commerce. There is not a dispute only between the companies and the governments but also between the governments. Everybody would like to get the tax.
In Google’s case it is like exporting a service to Turkey from Ireland. If they didn’t have a company in Turkey with the title “Advertising and Marketing” or if they didn’t have a company in Turkey at all they could get away with that. Also the customer could benefit because he wouldn’t pay the VAT either.
But as far as I know Belgium and Sweden has passed a law stating that even if the seller of a e-service is in a third country other than the consumer resides, the consumer is liable to pay VAT to the residence country because the state acknowledge that the sales occurred in his own territory. Then here comes another question…. if the sales occurred in his territory, the state should get the income tax from the company also but the company is not registered in his territory
Really funny stuff
One should investigate if Turkey has an agreement with the country of the company, that would prevent double taxing. USA and Turkey has an agreement like so. As such if you earn something in USA and you give your tax to USA, you won’t pay tax in Turkey, vice versa. However I don’t know if Ireland and Turkey has a similar agreement.
@Peter – again, you didn’t even comment on another recent case of tax fine in Turkey: http://abcnews.go.com/International/wireStory?id=6925046
Tax fine is a means of political power. Google in general is a problem for any power structure in Turkey given the upcoming elections – especially Youtube is the enemy.
Same is true for the Turkish media. Here again unbelievably high tax fines are used to silence free press, free speech, freedom.
Rom, I agree with you about the tax fine that the government used to silence a Turkish media group but I don’t see the point in the Google’s case. yes Google has YouTube and many other platforms but the content is generated by the users/members in these websites. So, is the state’s strategy to frighten Google so they stop working against Turkey or ban these content? I don’t think this is the case is about.
The issue with Google tax penalty is a very common international tax regulation and international trade problem. There are many other video sharing websites and comics magazines that you can easily find content against the government. The reason that these mediums are still alive/active because they don’t provide offensive content against Atatürk. That was the reason that the YouTube was banned. It is again a law. Yes it can be questioned if there should be a special law against one person in a country but the when the laws are based on a country’s own dynamics and the Turkish folk and the state is very sensiive about it. I still don’t approve that the YouTube’s ban. In my opinion the content could be made unavailable for the Turkey based IP’s… maybe. Just a thought.
Here is my experience about how it´s handled in Germany, Sweden and France (okay, it´s EU, but I´m sure Turkey is close):
It becomes more and more common that subsidiaries need to pay local VAT for the services of the “mother company”, especially if it´s a vague service, like consulting or an e-service hosted somewhere in the cloud.
It would be different if Google would have a real good like Amazon – in that case just the location of the warehouse would count for VAT and there would be no doubt where to pay the taxes. But it seems to me as if Google Turkey maybe did also some consulting work (why else should they have a local office?) so if I would be Turkey (or Germany, or Sweden, etc.) I would wake up my Financial Authority guys and ask for some bucks.
“for supposedly dodging the national tax system”
“the Turkish government claims it is entitled”
“On a sidenote: the Turkish government has still shown no intention of stopping its year-long blocking of Google-owned YouTube in the country, which is fairly ironic even if not totally related to the tax issue.”
googlecrunch.
Don’t forget, the Turks won’t respect you unless you haggle aggressively.
that is bullshit.
do no evil and pay up, sucka
A few notes:
- It’d be wise to remember that, Turkey, especially the current government doing everything they can do bring in foreign investment to the country. If they did not have a solid case, they wouldn’t hassle over this and risk lost opportunities due to negative press.
- Tax evasion is a very complicated matter, even within for the national companied (eg setting up corporations in Delaware due to its tax advantages in the US), and especially more for the mutli-national corporations.
But, it seems that Google has a sizeable AdWords and Adsense operation in Turkey, has a company set up in Turkey to provide this services, and simply running bills over the country of Ireland to evade taxes.
this post reminds me of this :
bad newswriting = dumb audience
-Google search and Adwords are seperate companies
-There are no fines on Google search. No cencorship.
-Youtube ban also is not a doing of the goverment, its the courts who decided on that. There is an obvious dilemma about it. Youtube is banned because of hateful videos against Atatürk, the founder of modern Turkey, by the courts who are claiming that they are protecting secularism. The ruling party on the other hand is widely ciritised and condemned for their lack of respect for Atatürk. If the goverment reacts on the issue and opens up the ban by overruling the courts, the secularists are going to blame them for allowing these videos and for being against Atatürk. Looks funny and ironic and the results are stupid really.
-Google has a branch or a liaison office (dont know full technicality) acting as
a) Representing & acting on behalf of Google
b) Marketing and selling Adwords service to Turkish companies.
-I dont know how much of this ads are used in Turkish market and how much are used on overseas market. My guess is minimum 90% of them are bought by Turkish companies, used in Turkey
-Google is making profit in Turkey from advertising revenues.
-According to the laws they have to pay their taxes for services used and sold in Turkey.
-They dont obey this and they get fined.
-End of story.
(I really pity for those guys who pops up in every debate about Turkey and repeats the same blah blah each time. Get a life!)
edward – Google search and Adwords are not separate companies.
Nice design Webrazzi
I live in Turkey and was receiving monthly payments from Adsense for several years before Google set up shop locally. My sites generate mostly English (language) revenue and are not related to Turkey.
Should the Turkish goverment be taking a cut of Google’s cut??
I liked it very article and I go to place in mine blog of Brazil, the Goal of Plate, that finishes to arrive in pagrank 5, I am back in the @goldeplaca Twitter, congratulations to that make the site, each better day.
Google uses a proxy country to invoice ads to Turkish companies which want to reach Turkish users in Turkey.
Turkey may be making for some decisions proving very unpopular among its allies as of late, but let’s not mix things up (?).
If you have a company in any country, you must be spend tax for country rates. This is very normal.
yo visitando unas paginas encontre esta donde muestras lugares extraños en google earth: http://www.megadual.com/2009/10/31/estranos-lugares-de-google-earth/
I own a small tea shop in Britain and we have Turkish leaves. These have had tax paid on them in Turkey – so why should Google avoid this? I’ve written about the travails of trying to make a buck out of tea (Turkish and otherwise here) http://bit.ly/1xyoT7
It is very interesting to watch a simple tax case news to become historical/political debate about the country.
We just need to look to facts and compare what’s happening in Turkey to recent history…
- As a business, if you operate in a country and make money from these businesses then you have to pay taxes to that country. Remember offshore gambling sites and their operations in USA??? USA banned all off-shore gambling sites as they couldn’t get taxes from them. So Turkey is asking the same thing from Google… just to pay taxes from the money that they earn in Turkey.
- About youtube comments… Youtube operates in lots of countries and as rule #1, they have to obey the rules of the country that they operate (I’m not even getting into discussion of the laws in each country here – right or wrong, law is the law!). Just imagine what would happen if youtube host any videos against the constitution and/or USA laws???
why should turkey hate some compagny ruled by zionist that support nazism and the slauther of innocent in the holly land……..
QUESTION: who kill jesus…. ?
ANWER OF SOME FALLAH: the romannns!!!!
INTEROGATION: how do they know that ?(may be they helped…. ! )
Hard to understand how a good old sales tax issue can bring up so many misguided and political comments.
In general Turkish companies need to charge an additional 18% sales tax on every invoice they issue. Government collects these sales taxes from the companies the following month after the invoice was issued. So it is very a nice steady cash flow for the government. US consumers are used to this tax as the “sales tax” and I believe in UK it is known as VAT.
If an international company which does not have an office in Turkey sends an invoice to a Turkish company they do not need to include a sales tax.
The same is true in US as well. Amazon for instance, still (at least whenever it sends out something to me, maybe its because I live in Florida
) does not add sales tax to its invoices.
There are many online companies which do not charge sales tax and this good old sales tax issue is well known by governments world wide and will definitely be solved at some point.
Some of you might also say “how about the corporate tax and income tax”. That’s a totally different issue. Google Turkey can find thousands of way to evade paying those taxes in Turkey if they want just by bringing in “service invoices” from its headquarters. But even if they pay the corporate and income taxes in Turkey they wouldn’t have to pay those taxes again neither in Ireland or US. Turkey has double taxation agreements with both of those countries.
Cheers,
Hulya
Hulya, that’s the real issue. Google doesn’t pay taxes in Ireland either.
the banana republic
What we will become Google’s future if every contry ask a payroll from his profits ?
Is this policy applied to other search engines ?
Wait and see.
@ Adnan Mavir
Not to stray to far off the beaten path but the USA didn’t go into Afghanistan for power they went into get rid of the Taliban. You are also not seeing what good the U.S. military is doing for example they help the farmers grow better and more efficient crops. This would take me to long to explain why it’s good for the economy but it just is. Again I don’t mean to go to far of the main topic.