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In brief

In the face of the global digital economy’s accelerating growth, Turkey’s latest measure to tax the digital economy was the introduction of the DST, effective as of March 2020.

Turkey’s 7.5% DST covers digital service providers exceeding a global revenue threshold of EUR 750 million and local revenue of TRY 20 million. The tax is mainly applicable to revenue generated from online advertising services, digital content sales/services and digital platform services.

However, since its introduction, Turkey’s DST has given rise to numerous debates and criticisms, mainly due to its broad and vague material scope and its high rate of 7.5% on gross revenue earned during a taxation period (i.e., one-month period) from in-scope services.

Other factors generating discussion were the DST’s lack of an offset mechanism or any exemption for intragroup transactions (therefore, the DST could be levied twice on reseller structures within groups that exceed the applicable thresholds, once at the reseller level and once at the supplier level); lack of a group filing mechanism; and lack of any relief where two or more different national DSTs apply to the same transaction.

Precedential Turkish court victories on DST

The vagueness of the DST’s scope, especially with respect to the “digital medium” concept defined in the DST Law, has already been subject to two important litigation cases in Turkey, leading to the first court victories against the Turkish Tax Authority regarding the DST Law implementation. Esin Attorney Partnership, member firm of Baker McKenzie International, a Swiss Verein represented the winning parties (two leading software companies) in these litigation cases. 

What should be understood from “sales realized in digital medium”?

The DST disputes revolved around the interpretation of Article 1/1-b of the DST Law regarding the digital content sales in the context of which sales should be deemed as conducted “in a digital medium.” 

The first litigation case was filed by the Turkish subsidiary of one of the world’s leading software companies operating as the distributor for the group’s software licensing and cloud services sales in Turkey. We argued that the disputed sales (directly to end users) should not fall within the scope of Article 1/1-b of the DST Law, since these sales are not realized in a “digital medium” as required by the DST Law.

We argued that the DST Law only targets sales made in virtual stores without any human intervention (i.e., click-and-buy arrangements). This argument relies on the legal definition of the digital medium provided under Article 2 of the DST Law: Any and all kinds of media where online activities are undertaken without any physical contact. The classic example of an “online sale” is a virtual store, where a consumer purchases a song, game, film or software on an online store. These sales are performed without any human interaction or involvement and in an entirely virtual environment.

In fact, the literal meaning of the law also aligns with the purpose of the DST Law: the DST Law’s preamble and legislative history clearly state that the purpose of the law is to tax multinational digital companies operating in the Turkish market without a significant physical presence (sometimes without a physical presence at all) in Turkey, and generating income from Turkey without paying any taxes. In this sense, the DST Law was clearly not designed to be applied to taxpayers whose employees are physically present in Turkey and that realizes its sales through human interactions.

In our client’s case, however, the disputed sales involved complex software products used by large businesses and public entities that are not realized on a click-and-buy basis. The sales instead required person-to-person human interactions between the seller’s employees working in the sales, marketing and technical support departments and the customer, in order to understand and/or determine the needs of the customer. 

In August 2021, the first-degree tax court unanimously ruled in favor of our client, stating that the taxpayer’s activities cannot be deemed as realized in the digital medium, as the major and essential part of the taxpayer’s activities rely on activities conducted physically (such as long meetings with customers to determine their needs, in-person trainings, and sales contracts negotiations), even if the software/service is delivered online.

What about granting the right to resell software?

The second DST dispute victory was filed by a nonresident software company regarding whether the granting of the right to resell software or cloud services would fall within the scope of the DST in Turkey.

With respect to the disputed sales, our nonresident client only grants the right to resell its products (software and cloud services) to a third-party “distributor” in Turkey under a distributorship agreement, whereby the distributor’s right is limited to sales made to “resellers” in Turkey, who ultimately sell the products to the end users in Turkey. We argued that the granting of the right to resell products to the distributor under a distributorship agreement should not fall within the scope of the DST Law, as disputed sales are not carried out in a digital medium as required by the DST Law.

In December 2021, the first-degree court unanimously concluded that the disputed sales were not made in a digital medium, considering that the distributorship agreement was physically negotiated and signed by the parties, distributor does not have the right to sell the products directly to the end customers in Turkey and the distributor is not authorized to use the products or use or keep the product keys, codes, license files, account information or passwords without our client’s consent.


As the very first court decisions issued regarding the scope of the DST Law (subject to the approval of the Istanbul Regional Administrative Court and Council of State), the decisions clarified the sale of a digital content in a “digital medium” under the DST Law. Although the court decisions are not public, other taxpayers can still utilize them as a persuasive court precedent in case of a possible DST audit/litigation in Turkey.

Esin Attorney Partnership, member firm of Baker McKenzie International, a Swiss Verein represented two important litigation cases in Turkey, leading to the first court victories regarding the “digital medium” concept in Turkish DST legislation.

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© 2022 Esin Attorney Partnership. All rights reserved. Esin Attorney Partnership is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional services organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.


Erdal Ekinci is a Principal in Baker McKenzie, Istanbul office.


Orhan Pala is a Senior Associate in Esin Attorney Partnership Istanbul office.


Beril Bozoğlu is an Associate in Esin Attorney Partnership Istanbul office.

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