Once the foreign parent is in place, nearly every file arrives at the same question: who keeps the software? The investor wants the company it funded to own the product; the IP representations in term sheets ask for exactly that. Moving software born in the Turkish operating company up to the foreign parent, however, is not the one-signature exercise it is assumed to be: an intellectual property transfer is a three-faced transaction — it answers to Turkish copyright law on form, to tax legislation on price, and to a future due diligence on proof.
In practice, usually only one of the three faces gets seen. A template is translated, a token price is written in, signatures are collected and the file is closed. Then one of two things happens: either a tax audit asks about the arm’s length value of software transferred to a related company for next to nothing, or in an exit negotiation the buyer’s lawyers ask for the code’s chain of title line by line and the chain breaks at its first link. Both cost far more than a transfer structured properly at the outset.
Software is a copyright work, and transfers are formal
Under Turkish law, computer programs are protected as works under the Law on Intellectual and Artistic Works, Law No. 5846. Protection does not depend on registration; it arises the moment the code is written. What can be transferred is not the work itself but the economic rights over it: reproduction, distribution, adaptation and communication to the public, among others. Moral rights cannot be transferred; only their exercise can be authorised. That distinction must flow directly into the contract language; a wholesale sentence like “the work is hereby transferred” leaves technically unclear what actually passed.
On form, Article 52 of Law No. 5846 is unambiguous: contracts concerning economic rights must be in writing and must list each right individually. The “all right, title and interest” sentence of an English assignment template may not satisfy that requirement; for an asset governed by Turkish law, every economic right being transferred needs to be enumerated in the agreement. One more detail: a blanket present-day transfer of code not yet written takes effect only as an undertaking; the passage of future development to the parent should be secured through work product clauses in the services agreement and periodic confirmatory assignments. These features of the copyright regime explain why the assignment should be a bilingual document drafted with both legal systems in view.
Whose code is it when an employee wrote it?
The question to answer before any transfer is whether the Turkish company actually holds the rights it is trying to assign. Under Article 18 of Law No. 5846, the economic rights in works created by employees in the performance of their duties are exercised by the employer, unless a contract or the nature of the work indicates otherwise. For payroll employees this rule is a strong starting point; even so, writing express IP clauses into employment contracts, clarifying scope and side projects, is standard practice.
The statute’s helping hand does not extend beyond the payroll. For freelancers, agencies and consultants, rights do not pass to the company without a written assignment; even in a commissioned work relationship, an assignment agreement is required. Code the founder wrote before the company existed sits in the same category: it belongs to the founder personally, and if it was never properly assigned to the company, the company has nothing to pass on to the parent. The standard cure for these gaps is a set of intellectual property assignment agreements signed with everyone who touched the code. Open-source components, by contrast, are not the subject of the assignment at all; they come with their licence terms and should be tracked as a separate column in the chain’s inventory.
A token price is the most expensive option
The transferring Turkish company and the acquiring parent are related parties; the price between them is subject to the arm’s length principle of the transfer pricing regime. Assigning software that carries the product’s entire value for one lira is cheap on paper and expensive in an audit: the administration will determine the arm’s length value itself, and the difference comes back with tax and penalties attached. An inflated price creates the mirror-image problem on the parent’s side; the price has to be defensible in both directions.
The instrument of defensibility is a valuation. At an early stage, software value is most often computed under a cost approach — the person-months and expenses that went into development; for revenue-generating products, income-based methods come into play. However technical the methodology debate, the principle is simple: the price should reasonably approximate what an independent buyer would pay for that software, and the reasoning should be documented in a written valuation study. This is also where the appeal of transferring early comes from: the more the product matures and revenue grows, the higher the arm’s length value climbs, and with it the tax base.
The three places tax touches the transfer
Without going into rates, three items belong on the planning table. First, the transfer gain: the arm’s length price enters the Turkish company’s corporate income and is taxed there, so the financials of the transfer year should be planned around it. Second, the transaction taxes: how the assignment agreement fares against stamp duty, and the VAT treatment of a cross-border transfer, depend on how the contract and the consideration are structured, and should be worked out before signing. Third, if a licence model is chosen instead of an assignment, the direction of the flow reverses: the royalties the parent will pay come onto the agenda, and the withholding tax burden on those payments must be read together with the applicable double tax treaty.
What these three items share is that none of them can be corrected after the agreement is signed. Tax planning belongs at the start of the transfer, not in its annex; deciding which asset moves, at what price and in which direction is a decision the tax adviser and the lawyer make at the same table.
Five years later, in a due diligence room
The transfer’s final face is the story that will one day be told to a legal due diligence team. What the buyer’s or investor’s lawyer looks for in the IP section is one thing: an unbroken chain. The agreement by which the founder assigned pre-incorporation code to the company, employment contracts with IP clauses, signed copies of the freelancer assignments, the open-source inventory, the bilingual assignment from the Turkish company to the parent, and the valuation study showing the price met the arm’s length standard. If any link is missing, the missing link converts into a price negotiation or an amount parked in escrow.
So prepare the transfer file knowing that a lawyer you have never met will read it. Keep the documents in a single folder, in date order, and fix missing signatures and dates today. In companies that have done a flip-up, this file should be thought through together with the rest of the structure; for a summary of the share-layer mechanics, see the five key points of the flip-up.
To pull it together: moving your software to the foreign parent is a legitimate and usually necessary step, but it has to pass three tests at once. The copyright test asks that the transferred economic rights be listed one by one in a written agreement and that the employee, freelancer and founder links of the chain hold firm. The tax test asks that the price be set and documented at arm’s length, and that stamp duty, VAT and withholding be worked out before signature. The due diligence test asks that all of it sit in a file a stranger’s eye can verify in minutes, years from now. A transfer that passes all three is a footnote nobody mentions on exit day; one that does not is that day’s main agenda item.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
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