In which law is the regulation on R&D deduction included?

31.05.2021

• Subparagraph (a) of the first paragraph of Article 10 of the Law No. 5520 regarding the R&D deduction application has been repealed as of 9/8/2016 in accordance with the provision of Article 57 of the Law No. 6728.

Article 3/A has been added to Law No. 5746 with Article 60 of Law No. 6728. In Article 3/A of the Law No. 5746, the R&D deduction has been regulated regarding the R&D and innovation activities carried out by the income and corporate taxpayers within their businesses. Accordingly, 100% of the amount of research and development expenditures made by income and corporate taxpayers exclusively for the search for new technology and information within their businesses, provided that 100% of the amount of research and development expenditures made by income and corporate taxpayers exclusively for the search for new technology and information within their businesses, the projects within this scope are evaluated as R&D and innovation projects by the Ministry of Industry and Technology, the deduction will be made in the determination of earnings in accordance with Article 10 of Law No. 5520 and Article 89 of Law No. 193.

Accordingly, as of 9/8/2016, the application made within the scope of Article 3/A of the Law No.5746, in the application of deductions on research and development projects for the search for new technology and information, the R&D deduction application will be benefited by taking into account the Law No. 5746 and the related regulations. On the other hand, regarding the projects subject to the applications made within the framework of the Corporate Tax General Communiqué with serial number 1 before 9/8/2016, R&D deduction will be used, according to the provisions of the clause (a) of the first paragraph of the Article 10 of the Corporate Tax Law before it was amended by the Law No. 6728.

In addition, within the framework of Article 3 of Law No. 5746, R&D and design deductions can be used.

2- According to the Law No. 4691 on Technology Development Zones, earnings from R&D, software and design activities in these zones are exempt from income and corporate tax. Is it possible to benefit from R&D and design deductions regarding these earnings?

It is not possible for taxpayers to benefit from the R&D and design deduction, since they who prefer to benefit from the incentives in Law No. 4691 are not able to benefit from the incentives in the application of Law No. 5746. However, if it is preferred and the conditions are met, it is possible to benefit from the supports in the Law No. 5746 instead of the incentives in the Law No. 4691.

3- Can R&D deduction amount, which cannot be deducted due to insufficient earnings in the relevant period, be transferred to the next accounting periods?

• The amount of R&D deduction, which cannot be deducted due to insufficient earnings in the relevant period, can be transferred to the next accounting periods.

4- Will the amount of support provided for R&D, innovation and design activities be considered as income in the determination of taxable income?

• For those engaged in R&D and innovation activities and design activities in accordance with Law No. 5746; supports received from foundations and international funds that use funds or loans to support R&D and innovation projects and design projects from international institutions or public institutions and organizations established by law or within the scope of technology development project agreements are held in a special fund account. This fund is not taken into account in determining the taxable income according to Law No. 193 and Law No. 5520 and the amount of R&D or design expenditure made in the relevant year. In the event that this fund is transferred to another account or withdrawn from the business in any way other than capital addition within five years following the accounting period in which it was acquired, taxes that are not accrued on time are deemed to have been lost.

Grants received for projects within the scope of abolished subparagraph (a) of the first paragraph of Article 10 of Law No.5520 will be included in the corporate income and R&D expenditures covered by these supports will be able to benefit from the R&D discount.

5- If the grant amounts, which will not be taken into account in determining the amount of R&D and design expenditure, cannot be determined exactly in the relevant accounting period, how will the R&D and design deduction amount be determined in the corporate tax calculation?

– The support amounts to be received as a grant must be taken into a special fund account on the date of receipt, the amounts in this account must not be included in the corporate income and the R&D and design expenditures made from this amount must not be subject to the R&D and design deduction.

– If the amount of support to be received as a grant is determined before the deadline for submitting the corporate tax return of the relevant year, R&D and design expenditures exceeding the grant amount can be subject to R&D and design deduction.

– If the amount of support to be received as a grant is determined after the deadline for submitting the corporate tax return of the relevant year, provided that R&D and design expenditures exceeding the grant amount are not subject to R&D and design deductions in the relevant period, it will be possible to be subject to R&D and design deduction by submitting a correction declaration. In addition to this, the expenditures to be subject to the R&D and design deduction must be R&D and design expenditures and related to the supported R&D and design project.

6- What action is taken if the terms of support and incentives are violated or if the incentives are misused?

In case that the provisions of the law are violated or support and incentive elements are misused, in terms of taxes not accrued on time, tax loss is deemed to have arisen and the lost taxes are collected together with delay interest and tax loss penalty. The non-tax supports provided are collected in accordance with the provisions of the Law No. 6183 on the Procedure for the Collection of Public Receivables and by applying a default interest.

7- What happens if the R&D and design project are not completed or are unsuccessful?

In cases of no economic asset due to the failure of the projects to be completed, compulsory reasons or the failure of the project, amounts made within the scope of R&D, innovation and design activities and capitalized in previous years are written off directly.

8- Can projects supported by the Small and Medium Enterprises Development Organization of Turkey (KOSGEB) benefit from deduction and supports within the scope of Law No. 5746? Do these projects also need to be submitted to the Scientific and Technological Research Council of Turkey’s (TÜBİTAK) approval?

It is possible for the R&D and design projects approved by the Small and Medium Enterprises Development Organization of Turkey to benefit from the support and incentives included in Law No. 5746. These projects are also not required to be submitted to the Scientific and Technological Research Council of Turkey’s approval.

9- Can projects approved by the Ministry of Industry and Technology of the Republic of Turkey within the framework of ‘San-Tez Program’ benefit from deductions and supports within the scope of Law No. 5746?

In case the conditions are met, the projects that are deemed appropriate to be supported by the Ministry of Industry and Technology of the Republic of Turkey within the framework of the San-Tez Program, it is possible to benefit from the supports and incentives in Law No. 5746.

Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
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