07.09.2022/59
Explanation of the Definition of the Ultimate Beneficial Owner in the Tax Procedure Law Circular
The circular regarding the determination and notification of the ultimate beneficial owner has been published on the official website of the Revenue Administration.
The explanations contained in the circular are quoted below:
“1. Introduction”
In accordance with the requests submitted to our Presidency, the explanations on the determination of the ultimate beneficial owner, as stipulated in Article 5 of the 529th serial Tax Procedure Law General Communiqué, form the subject of this circular.
“2. Determination of the Ultimate Beneficial Owner”
As stated in the 529th serial Tax Procedure Law General Communiqué, the ultimate beneficial owner must be a natural person. The determination of the ultimate beneficial owner is made by considering the following elements as a whole. As also explained in the same Communiqué, the ultimate beneficial owner;
a) Natural person shareholders who own more than 25% of the legal entity’s shares,
b) If there is a doubt that the natural person shareholder who owns more than 25% of the shares of the legal entity is not the ultimate beneficial owner, or if there is no natural person shareholder owning this proportion of shares, the natural person(s) who ultimately control the legal entity,
c) In cases where the ultimate beneficial owner cannot be identified under (a) and (b), the natural person(s) with the highest level of executive authority.
Natural persons owning more than 25% of the legal entity’s shares must always be reported. However, if the ultimate beneficial owner is determined under items (b) and (c), the names of these individuals will also be included in the ultimate beneficial owner notification form. Necessary explanations regarding the ultimate beneficial owner are provided in the relevant sections of the form.
“3. Direct and Indirect Control”
A natural person may ultimately control an entity, whether it is a legal entity or not, either directly or indirectly. Even if a person does not have more than 25% of the shares directly or indirectly in a business, if they have ultimate control through different means, they are considered the ultimate beneficial owner along with those owning more than 25% of the shares.
For example, individuals who have significant influence over the management or supervisory boards, through appointment, dismissal, or contractual or family relationships, are considered to have ultimate control over the legal entity, whether it is incorporated or not. Necessary explanations are provided in the relevant sections of the Ultimate Beneficial Owner Notification Form.
Example 1: Y person, who owns 40% of company B, which holds 80% of company A’s shares, is considered an ultimate beneficial owner of company A, as they indirectly hold 32% of company A’s shares (80% x 40%).
Example 2: Z person, the founder of a company, has transferred shares to their children but continues to serve as the chairman of the board. Z person has the authority to appoint or dismiss the majority of the board members. In this case, Z person is considered an ultimate beneficial owner of the company.
“4. Individuals with the Highest Level of Executive Authority”
The term “highest level of executive authority” refers to natural person(s) who have the authority to make strategic decisions that fundamentally affect the business activities of the legal entity, as well as those who hold high-level management positions such as the chairman of the board, general manager, or financial director, and exercise executive control over the daily or routine operations.
You can access the related Circular here.
Best regards,
BİLGENER
