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Implicit Profit Distribution through Transfer Pricing in Turkish Corporate Tax

30.07.2021

According to Article 13 of the Corporate Tax Law, if the corporations purchase or sell goods or services at the cost or price they have determined with related parties in violation of the arm’s length principle, the earning will be deemed to be distributed in whole or in part through transfer pricing implicitly.

Buying or selling goods or services refers to the transactions of buying, selling, manufacturing and construction, leasing and renting, borrowing and giving money, and other transactions that require bonuses, fees and similar payments.

  1. Related person concept and arm’s length principle

Related person refers to the real person or corporation to which the corporations or their partners are related, and the real person or corporation to which they are directly or indirectly affiliated or under their influence in terms of administration, control or capital. The spouses of the partners, the descendants and descendants of the partners or their spouses, and the third-degree minor relatives and in-law relatives are also considered related persons. The spouses of the partners, lineal kinship of the partners or their spouses, third-degree relatives and collateral relatives are also considered related persons.

Whether the tax system of the country where the income is obtained provides a taxation opportunity at the same level as the taxation capacity created by the Turkish tax system and considering the information exchange or not, all transactions made with persons in the countries or regions declared by the Council of Ministers will be deemed to have been made with related persons.

The arm’s length principle means that the price or cost applied in the purchase or sale of goods or services with related parties is in accordance with the price or cost that would occur in the absence of such a relationship.

It is obligatory to keep the records, tables and documents of the calculations regarding the price or prices determined in accordance with the arm’s length principle as proof papers.

  1. The methods to be applied in determining the arm’s length price or cost

Corporations will determine the price or cost to be applied in transactions with related parties by using the most appropriate method for the nature of the transaction among the following methods.

1) Comparable price method: means the determination of the arm’s length sale price to be applied by a taxpayer by comparing it with the market price to be applied by real or legal persons who purchase or sell comparable goods or services and are not related in any way.

In order for this method to be applied, the transaction with related parties must be comparable to the transactions made by persons who are not related to each other. The concept of comparable quality means that the goods or services subject to the transaction and the conditions of the transaction are similar both in transactions between related parties and between persons who are not related.

2) Cost-plus method: refers to the calculation of the arm’s length price by increasing the costs of related goods and services by a reasonable gross profit rate.

The appropriate gross profit rate refers to the profit rate reflecting the price to be applied if the goods or services in question are sold to unrelated persons at the time of purchase or sale. If the conditions are suitable, the general gross profit margin applied by the taxpayer in the transactions with unrelated persons regarding these goods or services will be the ideal rate. If the number of transactions required for comparison is insufficient, the appropriate gross profit rate criterion will be taken into account as the profit rate reflecting the price applicable if the good or service in question were sold to unrelated persons. It is foreseen that this method will find an application area especially in the transactions related to raw materials, semi-finished products and manufactured goods.

3) Resale price method: means that the arm’s length price is calculated by deducting a reasonable gross sales profit from the price to be applied in case the goods or services that are the subject of the transaction are resold to real or legal persons who are not related in any way.

In this method, the basis for reaching the comparable price or value is the probable sale to be made to real or legal persons who have no connection between them, and the price or price to be applied in this sale. An appropriate gross sales profit will be deducted from the said price or price determined based on assumptions, to arrive at an arm’s length price for the relevant transaction.  The appropriate gross sales profit here refers to the profit that can be applied for the said goods or services at the time of the transaction, determined or determined by an objective rate that can be determined according to the market conditions. After this profit is deducted, the comparable price that can be applied in the sale of the good or service to the related parties will be reached.

4) Other methods: If it is not possible to reach any of the above methods at an affordable price, the taxpayer can use other methods to be determined by himself/herself in accordance with the nature of the transactions.

In order to reach the comparable price or value, in choosing the most appropriate method among the above-mentioned methods, first of all, the price or cost used by the taxpayer in the transactions with unrelated persons will be taken as the basis for comparison as an internal precedent. In case the price or price used in this way is not available or unreliable, the transactions of taxpayers or institutions that are directly similar can be taken as a basis as an external precedent. Moreover, the important thing here is to determine the price or cost in the most accurate and reliable way, and it is possible to use domestic and foreign counterparts together.

13.3. Counting the implicit earnings distributed through transfer pricing as dividends and the adjustments to be made

Income, which is deemed to be distributed implicitly through transfer pricing in whole or in part, is considered as the distributed profit share or the amount transferred to the head office for limited taxpayer taxpayers as of the last day of the accounting period in which the conditions in this article are fulfilled, in the application of the Income and Corporate Tax Laws. However, the taxes levied on behalf of the implicit profit distribution made in institution must be finalized and paid in order for this adjustment to be made in the institutions with which implicit profit distribution is made.

In case the said profit share has been transferred to another institution, this income will be considered as participation income. In case the profit share is transferred to a limited taxpayer institution, natural persons, any person or institution that is not subject to tax or exempt from tax, it will be necessary to withhold tax based on the profit distribution over the amount found as a result of the net profit share of this profit share and the completion of this amount to the gross.

13.4. Treasury loss in implicit profit distribution through transfer pricing

With the Law No. 5766, the following seventh paragraph has been added to the 13th article of the Corporate Tax Law, which regulates the issue of “implicit profit distribution through transfer pricing”, and the current seventh paragraph has been supplemented as the eighth paragraph.

(7) The acceptance that the income is distributed implicitly due to the domestic transactions between the full taxpayer corporations and the foreign corporations’ workplaces or permanent representatives within the scope of the related person is conditional on the occurrence of a treasury loss. What is meant by treasury loss is the incomplete or late accrual of all kinds of taxes that must be accrued on behalf of the institution and related persons due to the prices and costs determined in violation of the arm’s length principle.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Information and Explanations on Annual Paid Leave in Turkey

 27.07.2021

How Long Does a Worker in Turkey Have to Work at Least in order to be entitled to Annual Paid Leave?

The legal regulation regarding annual paid leave has been made in the articles 53 to 61 of the Turkish Labor Law No. 4857, and with the Annual Paid Leave regulation published in the Official Gazette dated March 3, 2004, the procedures and principles of annual paid leaves were determined.

In this article, in the light of the explanations made in the Turkish Labor Law and the Regulation, we will discuss the main issues and some specific situations regarding annual paid leave under the headings.

1- At least how long does an employee have to work in order to be entitled to annual paid leave?

In order to be entitled to annual paid leave, the employee must have worked for at least one year, including the probationary period, from the day s/he started working at the workplace. We understand that there are hesitations about whether the probationary period is included in the calculation of the annual leave or not in some questions. Since it is clearly stipulated in Article 53 of the Labor Law that the probationary period will also be taken into account in the calculation of annual paid leave, this issue is not open to interpretation and the probationary period must be taken into account in the calculation of annual paid leave. 

2- Can the right to annual paid leave be renounced?

It is not possible for the annual paid leave to be renounced or deleted by the workplace.

The provisions of the Labor Law regarding annual paid leave do not apply to those working in seasonal or campaign jobs lasting less than one year due to their qualifications.

The employee cannot waive his right to annual paid leave, and cannot ask for his/her money instead.

Pursuant to the provision of Article 50 of the Constitution, it is stated that “……. Resting is the right of employees. The rights and conditions of paid week and festive holidays and paid annual leave are regulated by law.” In accordance with this provision of the Constitution, when the regulations in the Labor Law No. 4857 are considered collectively, the employer and the employee are obliged to rest without working on the Week Holidays, National and Official holidays and annual paid leave days, except for the extraordinary situations listed in the laws.

The exception to this rule under normal conditions is the payment of the wage corresponding to the unused annual leave right, if any, at the time of termination of the employment contract. Apart from this, it is not legally possible for the employer to offer the employee the wage of the leave instead of taking annual paid leave in order not to disrupt the work, or employee can’t ask for the leave money instead of taking the leave to increase his/her income.

The law is based on the use of annual paid leave rights by the employee for the purpose of rest. According to the law, the employee and the employer cannot offer each other to pay their accumulated leave rights in cash while the employment contract continues. However, if the employee resigns from the job or the employer terminates the employment due to dismissal or other reasons, unused leave entitlements must be paid to the employee in cash. One of the issues that are confused here is whether the accumulated annual paid leave rights will be paid if the worker resigns or not. It doesn’t matter whether the payment of unused annual paid leave entitlements is resigned or the employment contract is terminated by the employer. The accumulated annual paid leave rights of the employee whose employment contract is terminated must be paid in cash to him/her, if any. These payments made during the termination of the employment contract should be considered as wages and deductions from taxes and SSI premiums should be made.

3- Annual paid leave periods vary according to the seniority of the employee.

The annual paid leave period to be given to the workers is determined according to the seniority of the employee, that is, the total working time at the workplace.

Annual paid leave period according to working time (seniority) at the workplace;

a) It cannot be less than 14 working days for those who are working for 1 to 5 years (including five years)

b) It cannot be less than 20 working days for those who are working more than 5 years and less than 15 years.

c) It cannot be less than 26 working days for those who are working for 15 years (including) and more. 

Since Saturdays are determined as working days in the Labor Law, they are counted as working days in the annual paid leave calculation. It does not matter whether there is work on Saturdays or not in the calculation of annual paid leave. The workplaces where the week holiday is applied as two days on Saturday and Sunday should make the annual paid leave calculation on Saturday as if it were a working day. In the above section, the annual paid leave days determined according to the employee’s seniority will be calculated as working days on Saturday.

For example, in a workplace where there is no work on Saturdays and Sundays, the annual paid leave period that will start on August 1, 2021 and will last 14 working days for an employee who has completed 2 years of working period and therefore is entitled to 14 working days of annual paid leave will be as follows.

Leave start      : August 2, 2021

Leave days     : 14 working days

Starting date to work : August 18, 2021

The days of 8 and 15 August 2021, which coincide with the employee’s leave period, are added to the 14 working days leave period and the leave period is calculated as 16 calendar days (14+2). Although there is no routine work at the workplace on Saturdays -7 and 14 August 2021- are taken into account as working days in the annual paid leave calculation.

Annual paid leave periods of workers working in underground works will be increased by 4 working days. (4857/53.art.)

The annual paid leave period to be given to workers aged 18 and younger and workers aged 50 and over cannot be less than 20 working days. (Article 4857/53)

Annual leave periods can be increased by employment contracts and collective labor agreements concluded between the employer and the employee. (Article 4857/53)

4- Period of entitlement and use of annual paid leave

In the calculation of the period required to be entitled to annual paid leave, the periods that the employees worked in one or several workplaces of the same employer are taken into account by combining them. In so far, the period of time spent by the employees working at an employer’s workplace within the scope of the Labor Law, at the workplaces of the same employer without being covered by the Labor Law, is also taken into account. In the valid article 4 of the Labor Law, it is stipulated in which jobs the Labor Law is not valid. Accordingly, the working hours of a worker in the workplaces under the control of the same employer will be considered as a single workplace in the calculation of annual paid leave.

For example, in a limited company under the control of the same employer and in a workplace where three people work in accordance with the definition of Article 2 of the Tradesmen and Craftsmen Law No. 507, in a workplace where there is bag trading business, the annual paid leave period of the worker who works alternately and part-time at different times, but continues to work in two places without interruption, will be calculated as if he was working in one place.

5- From what date does the calculation of the entitlement to the next year begin?

The one-year service period required for the worker’s future leave entitlements is calculated from the day the previous leave entitlement arises, to the next service year.

Example:

Employment starting date                 : August 1, 2020

Date of entitled to annual leave        : August 1, 2021

The date on which the permit was granted for the following year  : August 1, 2022

6- Circumstances to be taken into account in the annual leave calculation

Some situations that are considered to be worked in the calculation of the annual paid leave entitlement are given below.

a) The days when the worker cannot go to work due to an accident or illness (However, no more than the period stipulated in the sub clause (b) of clause (I) of Article 25.)

b) The days when female workers are not employed before and after giving birth in accordance with Article 74.

c) The days when the worker cannot go to work during assignment due to maneuvers or any law other than regular military service (more than 90 days per year of this period is not counted).

d) Fifteen days of the time the worker spends without working as a result of the work being suspended for more than one week due to compelling reasons at the workplace (provided that the worker starts working again).

e) The times mentioned in Article 66 of the Labor Law titled as the cases counted as working time.

f) Weekends, national holidays, general holidays

g) According to the regulation issued on the basis of the Law No. 3153, the half-day leaves to be given to those working in x-ray clinics other than the Sunday

h) The days when they cannot continue their work due to their participation in mediation meetings, their participation in arbitral committees, and their representation of workers in these committees, in the assembly, board, commission and meetings established in accordance with the legislation on working life or in conferences, congresses or boards of international organizations related to labor issues as a worker or union representative

ı) (Amendment: 4/4/2015-6645/35 art.) Leave periods listed in Annex 2,

j) Other leaves granted by the employer and short working periods in Article 65.

Fifteen days of the time that the worker spends without working as a result of the work being suspended for more than one week due to compelling reasons at the workplace (provided that the worker starts working again)

One of the issues that has been frequently wondered recently is whether the Short-Time Working Times applied during the pandemic period will be taken into account in the annual paid leave calculation or not. According to Article 55 of the Labor Law, 15 days of the time spent in the Short-Time Working Allowance are taken into account in the calculation of annual leave. Let’s continue by stating that there is a court decision to the contrary in this regard.

k) The annual paid leave period granted to the worker as a result of the implementation of this Law.

7- Can annual paid leave be divided?

As a rule, the annual paid leave cannot be divided by the employer, and it must be given by the employer on a continuous basis within the period of time due according to seniority. However, if the employee and the employer agree, leave periods can be used in sections, some of which are not less than 10 days.

Example:

The annual paid leave period can be determined as follows, with the employee and employer’s mutual agreement.

First leave period        : 2 August 2021 – 13 August 2021 (10 working days and 1 Sunday)

Second leave              : 26 August 2021 (1 Business Day)

Third leave period      : 31 August 2021-1 September 2021 (2 Business Days)

Third leave                 : 7 September 2021 (1 Business Day)

8- Can unpaid leaves during the year be deducted from annual leave?

Other paid and unpaid leaves or rest and sick leaves granted by the employer during the year cannot be deducted from annual leave.

Unpaid leaves given during the year will be deducted from the monthly wage in the period of use. The employer cannot deduct for unpaid leaves.

9- Are the holidays that coincide with the annual leave period deducted from the leave day?

In the calculation of annual paid leave days, national holidays, weekdays and general holidays that coincide with the leave period are not counted from the leave period. In other words, the annual leave of the employee is extended as much as the national and religious holidays and other legal holidays that coincide with this period.

Holidays and other public holidays;

National Holiday Day 29 October;

From 13.00 on 28 October to 29 October: 1.5 days

Official holidays are:

* National Sovereignty and Children’s Day on April 23: 1 day

* May 19 is the Commemoration of Atatürk and Youth and Sports Day: 1 day

* August 30 Victory Day: 1 day

Religious holidays are:

* Feast of Ramadan; From 13.00 on the day of Eve: 3.5 days

* Feast of Sacrifice; From 13.00 on the day of Eve: 4.5 days

Other holidays are:

January 1, New Year’s holiday: 1 day

May 1, Labor and Solidarity Day holiday: 1 day

July15, Democracy and National Unity Day: 1 day

10- Right of Unpaid Travel Leave

The employer is obliged to give unpaid leave of up to four days in total to cover the time spent on the way to and from those who will spend their annual paid leave at another place where the workplace is not located (in another city or in another country), provided that they make a request and document it. Unpaid leave will be deducted from the relevant month’s pay.

The employer is also obliged to keep a leave registration document showing the annual paid leaves of the workers working in the workplace.

11- If the subcontractors change, will there be a loss in the annual leave rights of the employees?

The annual paid leave period of subcontractor workers who continue to work at the same workplace even though their subcontractor has changed is calculated by taking into account the periods they have worked at the same workplace.

The main employer is obliged to check whether the annual paid leave periods to which the workers employed by the subcontractor are entitled are used and to ensure that they are used within the relevant year, while the subcontractor is obliged to give a copy of the leave registration document to the main employer.

12- Wage must be paid in advance before annual leave

As a rule, the employer is obliged to pay the wages before or in advance for the annual leave period to each worker who uses his/her annual paid leave before the worker starts his/her leave.

Weekly holidays, national holidays and public holidays that coincide with the annual paid leave period must also be paid separately. (4857/57)

13- It is forbidden to work elsewhere while on annual leave

If it is understood that the worker who is using his/her annual paid leave is working in a paid job during the leave period, the wage paid to him/her during this leave period can be withdrawn by the employer. (4857/58)

14- The accumulated annual paid leave receivable must be paid in cash only when the employment contract is terminated.

If the employment contract is terminated for any reason, the employee’s wage for the annual leave periods that s/he is entitled to but not used is paid to himself/herself or to the beneficiaries over the wage on the date of the termination of the contract. The statute of limitations for this wage starts from the date of termination of the employment contract.

In case of termination of the employment contract by the employer, the notice period and the compulsory new job search permits cannot be intertwined with the annual paid leave periods.

15- The employer determines when the annual leave will be used according to the nature and characteristics of the job.

The worker must notify the employer in writing at least one month before the time s/he wants to use the annual paid leave s/he is entitled to.

The leave board or the employer is not bound by the date of use of the leave requested by the worker. However, the schedules to be prepared by the said committee to show the order and rotation of the leave are prepared by taking into account the worker’s demand and work situation.

For permission requests that coincide with the same date: Priorities are determined by taking into account the seniority at the workplace and the date of the previous year’s leave.

The employer or employer’s representatives, in consultation with the leave board or its successors, can determine that annual paid leaves will be given in a certain period or periods of each year, depending on the nature and characteristics of the work carried out in the workplace. It is announced at work.

If travel leave permit holders return to work without using this period, the employer may not start them before the expiry of the said period.

16- Explanations on the mass leave permission application

The employer or employer’s representative may apply mass leave covering all or some of the workers between the beginning of April and the end of October.

When mass leave is applied, the leave board arranges and announces the leave schedules in such a way that the workers who will take the mass leave will start the leave at the same time and show the end of the leave period of each worker according to the leave periods and travel leave requests of the employees.

Mass leave periods can be determined to include workers who have not yet earned the right to annual paid leave during these periods. In so far, if this mass leave method is not applied in the following year or years, the date on which those in this situation will be entitled to the next annual paid leave is determined according to general principles.

In case of mass leave, the employer or employer’s representative may exclude a sufficient number of workers from the mass leave for compulsory situations such as the protection of the workplace, the maintenance, preparation, cleaning or security of the tools, equipment, equipment or machinery in the workplace.

Those who are in this situation are given their annual leave before or after the mass leave period, on any date when they want.

17- How are the annual paid leave entitlements of part-time employees calculated?

Employees working part-time or with on-call employment contracts benefit from the annual paid leave like full-time employees and cannot be subjected to different treatment.

Employees who work part-time or with on-call employment contracts, as long as their employment contracts continue, use the leave they are entitled to for each year by not working on part-time working days that fall within the next year’s leave period.

No distinction can be made between the part-time or on-call workers who are entitled to leave according to the specified principles, and the full-time workers, in terms of annual leave periods and leave wages.

18- Are premiums taken into account in the annual paid leave calculation?

While determining the leave wage, the wages to be received in return for overtime, premiums, social benefits and the permanent worker of the workplace and the wages of the workers working in preparation, completion and cleaning works outside of normal hours are not taken into account.

19- Are the annual leave rights of retired employees the same?

A person who retires from one of the 4/a, 4/b and 4/c statuses (Formerly Social Insurance Institution, Social Security Organization for Artisans and the Self-Employed and Retirement Fund) starts to work in a workplace subject to the Labor Law, and is paid to the SSI separately from the regular employees and under the name of Social Security Support Premium.

There is no difference between retired employees and regular employees in the calculation of annual paid leave entitlements. Retirees who have worked for one year, even in different workplaces of the same employer, including the probation period, have the right to annual leave of 14 working days, just like regular employees. However, if the retiree is over 50, the day off must be at least 20 working days.

20- Do unused annual paid leave entitlements transfer to subsequent years?

Any written or verbal action taken by employers to destroy the accumulated annual paid leave rights of the employees for the relevant year or previous years, for whatever reason, is illegal. If such a situation arises, the employee has the right to file a lawsuit to claim annual paid leave rights, taking into account a 5-year statute of limitations from the termination of the employment contract.

Employees whose employment contract continues must be exercised within reasonable periods of their accumulated annual leave, if any.

 

Ali KARAKUŞ

CPA and Independent Auditor

www.karenaudit.com

July 2021

Istanbul


Source: Edited by: Ali Karakuş – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Explanations Regarding the Liquidation of Companies in the Turkish Corporate Tax Law

26.07.2021

  1. Liquidation period

The liquidation period will be valid instead of the accounting period in the taxation of the companies that have gone into liquidation, whatever the reason might be.

Liquidation begins on the date of registration of the general assembly decision regarding the liquidation of the corporation and ends on the date of registration of the liquidation decision.

The period from the start date to the end of the same calendar year and for each calendar year after this period and for the period in which the liquidation ends, the period from the beginning of the relevant calendar year to the end date of the liquidation is considered an independent liquidation period.

In case the liquidation ends within the same calendar year, the liquidation period will start on the date the corporation goes into liquidation and will continue until the liquidation ends.

Example 1:

If the liquidation is concluded within the same year:

The date of liquidation of the corporation………… : 18/1/2006

End date of liquidation ………………………………………    : 12/12 /2006

Liquidation period ……………………………………………     : 18/1/2006-12/12/2006

Example 2:

If the liquidation continues for more than one year:

The date of liquidation of the corporation………… : 15/4/2006

End date of liquidation ……………………………………….   : 4/6 /2008

  1. Liquidation period ………………………………………… : 15/4/2006-31/12/2006
  2. Liquidation period ………………………………………… : 1/1/2007-31/12/2007

III. Liquidation period ……………………………………….    : 1/1/2008-4/6/2008

1.1. Correction if the liquidation is ended with a loss

If the liquidation is ended with a loss, the result of the liquidation is corrected towards the previous liquidation periods and the taxes paid in the previous periods are returned to the taxpayer. In case the tax base is declared as a result of the final liquidation, the previous liquidation periods will not be corrected.

Changes in the tax rate while the liquidation transactions are in progress will not require the said corrections to be made. Corrections will only be made if the last liquidation period results in a loss.

Example 3:

In a corporation that went into liquidation on 3/6/2006, the liquidation was completed on 15/4/2009. In this institution, the period between 3/6/2006-31/12/2006 will constitute the first liquidation period, the second and third liquidation periods between 2007 and 2008, and the fourth and final liquidation period between 1/1/2009-15/4/2009.

For corporation;

In the 1st liquidation period …………………. 20,000.- TL……. Profit,

In the 2nd liquidation period …………………….        150.000.- TL……Profit,

In the 3rd liquidation period ……………………..       50.000.- TL…… Profit,

In the last liquidation period, …………………….. 25,000.- TL……. Loss

Were reported.

According to these statements, in the first two periods (4.000 + 30.000 =) 34,000.- TL corporate tax was paid.

However, according to the final result of the liquidation, the profit is [(20,000 + 150,000) – (50,000 + 25,000) =] 95,000.- TL. The corporate tax to be paid on this base will be 19.000.- TL.

In this case (34.000 – 19.000 =) 15.000.- TL will be returned to the corporation.

1.2. Statute of limitations in liquidation

For liquidations lasting more than one year, the assessment statute of limitations starts from the year following the end of the liquidation.

Example 4:

If the liquidation is completed on 4/6/2006 in corporation that went into liquidation on 11/2/2002, the statute of limitations begins as of 1/1/2007 and assessments can be made for the liquidation periods covering 11/2/2002-4/6/2006 until 31/12/2011.

  1. Withdrawal from liquidation

If the liquidation is cancelled, the liquidation provisions do not apply to the corporation. In this case, the decision to cancel the liquidation will be valid from the beginning of the liquidation period when this decision is taken, and the declarations for the liquidation period submitted until the date of the decision to cancel the liquidation will replace the normal operating declarations.

The provisional tax liabilities of the corporation of which liquidation is canceled will start from the beginning of the provisional taxation period covering the date of the decision to cancel the liquidation.

Example 5:

The date of liquidation of the corporation………… : 14/2/2006

Date of withdrawal from liquidation ……………… : 15/4/2008

  1. Liquidation period …………………………………………. …. : 14/2/2006-31/12/2006
  2. Liquidation period …………………………………………. . : 1/1/2007-31/12/2007

Normal declaration period……………………………………… : 1/1/ 2008-31/12/2008

As it can be understood from the example, the normal declaration period begins as of the beginning of the year on which the decision to cancel the liquidation is taken, and provisional tax liability begins as of the beginning of the quarterly temporary tax period (1/4/2008), which includes the date of the decision to cancel the liquidation (15/4/2008).

  1. Liquidation declarations

In case the liquidation started and completed within the same calendar year, the liquidation declaration will be submitted to the tax office to which the corporation is affiliated, within thirty days from the completion date of the liquidation.

If the Start Date to Liquidation and the Completion Date Liquidation are realized in different calendar years, the liquidation declaration for each liquidation period will be given to the tax office of the taxpayer from the first day of the fourth month following the month of liquidation period to the evening of the twenty-fifth day by the liquidator.

The liquidation declaration for the period when the liquidation ended, on the other hand, will be submitted to the tax office to which the corporation is affiliated, within thirty days from the date of the liquidation.

Example 6:

The date of liquidation of the corporation…………………………  : 4/6/2006

The date the liquidation was concluded……………………………. :15 /4/2008

Period of filing the declaration for the prorota period (1/1/2006 – 3/6/2006): 1-25/10/2006

Period to submit a declaration for the 1st liquidation period (4/6/2006-31/12/2006) :1-25/4/2007

Period to submit a declaration for the 2nd liquidation period (1/1/2007–31/12/2007): 1-25/4/2008

III. Period to submit a declaration for the 3rd liquidation period (1/1/2008–15/4/2008): 15/5/2008

A detailed list of the money and other values distributed to the partners according to the balance sheet and income statement and the liquidation balance sheet will be attached to the declarations to be submitted in this way.

  1. Liquidation profit

The tax base of the corporations in liquidation is the liquidation profit. Liquidation profit is the positive difference between the value of wealth at the end of the liquidation period and the value of wealth at the beginning of the liquidation period.

When calculating the liquidation profit;

– Any payments made in advance or in other ways to the shareholders or the owners of the corporation during the liquidation will be added to the wealth value at the end of the liquidation.

– In addition to the existing capital, the payments made by the partners or owners, and the tax-exempt earnings and revenues obtained during the liquidation will also be added to the wealth value at the beginning of the liquidation period.

Moreover, the values of the economic assets distributed, sold, transferred or returned to the owner of the corporation as a deduction for their shares will be determined according to the provisions of the disguised profit distribution through transfer pricing of the Corporate Tax Law as of the day of distribution, sale, transfer or return.

In addition, while calculating the liquidation profit, the provisions of the Law on deductible expenses, loss deduction, other discounts and non-deductible discounts will also be taken into account.

The liability of those who do not have a legal personality among economic public institutions and economic enterprises belonging to associations or foundations, which do not have any provisions regarding liquidation transactions in their special laws, will end with the cessation of the business, as in sole proprietorships. Liquidation in such businesses will be concluded by either selling the existing economic assets or withdrawing them from the business by being invoiced to the institution, association or foundation to which they are affiliated. In this context, the corporate tax returns of the taxpayers who quit the job for the relevant period will be submitted within the period specified in Article 14 of the Corporate Tax Law.

  1. Wealth value

The wealth value at the beginning and end of the liquidation period is the company’s equity, which appears on its balance sheet at the beginning and end of the liquidation period. In liquidations lasting more than one year, the wealth value at the beginning of the following liquidation periods is the wealth value seen in the last balance sheet of the previous period.

All kinds of provisions and undistributed earnings are included in this capital, except for the following:

– All kinds of depreciation and provisions made according to tax laws and technical provisions of insurance companies,

– The portion of earnings to be distributed to shareholders or non-owners.

  1. Liability of liquidators

Liquidation officers cannot make payments to the creditors written in the fourth line of article 206 of the same Law and apportion them to the partners without allocating a provision in accordance with article 207 of the Execution and Bankruptcy Law No 2004. Otherwise, they will be personally and severally liable for the original and increase of these taxes and tax penalties.

As a result of the above-mentioned taxes and the examination of the liquidation process, the originals and increments of the taxes to be levied can be sought from the partners to whom an apportionment is made over the remaining part of the liquidation, as well as from the partners to whom an economic asset is transferred through distribution, transfer, return or sale during the liquidation. No further application will be made to the liquidation officers for the originals of taxes collected from the partners.

Liquidation officers can recourse to the partners to whom an economic asset was transferred or a share from the liquidation remainder during the liquidation due to the originals of the taxes they paid pursuant to Article 17 of the Law. If these values received by the partners are not sufficient to cover the taxes, they can recourse to the creditors who have collected the receivables written in the fourth line of Article 206 of the same Law, in whole or in part, within the rates in accordance with Article 207 of the Execution and Bankruptcy Law.

  1. Examination of liquidation transactions

Tax examinations will begin within three months at the latest, following the submission of the petition containing the request for the examination of the liquidation proceedings to the tax office, and within thirty days following the end of the tax examination, the tax office will notify the liquidation officers about the result of the said tax examination. Accordingly, until the result of the taxes required from the corporation is received, the responsibilities of the liquidation officers according to Article 17 of the Law will continue.

The Ministry of Finance is authorized not to have the liquidation process inspected by taking into account the legal status of taxpayers, the fields in which they operate and the size of their assets at the date of liquidation.

  1. Assessments to be made about corporate taxpayers whose legal personality has been terminated in the trade registry after being liquidated

Regulations regarding all kinds of tax assessment and fines related to the pre-liquidation and liquidation periods are included, regarding the taxpayers whose legal personality has been deleted from the trade registry by liquidation.

Accordingly, in all kinds of tax assessment and fines to be made after 27/3/2018 regarding the corporate taxpayers whose legal personality has been deleted from the trade registry after being liquidated, regarding the pre-liquidation and liquidation periods, the provisions of the fifth paragraph of Article 10 of the Tax Procedure Law must be taken into account.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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How are companies in Turkey taxed in cases of Transfer, Split-off and Share Exchange?

14.07.2021

  1. Taxation and declaration in case of transfer

In the transfers to be made in accordance with Article 19 of the Corporate Tax Law, only the profits of the annulled corporation until the transfer date will be taxed, and the profits arising from the merger will not be calculated and taxed.

The transfer date is the date on which the decision of the authorized board of the company regarding the transfer is registered in the Trade Registry.

The corporate tax return regarding the transfer will be submitted to the tax office to which the annulled corporation is affiliated within thirty days from the date of the announcement of the merger in the Trade Registry Gazette.

The declaration will be prepared and jointly signed by the annulled corporation and the merged corporation as of the date of transfer.

The income calculated as of the transfer date must be included in this declaration and taxed, since the income up to the transfer date is taxed. The income arising from the transactions after this date will belong to the transferee corporation.

In case the transfer is made within the period from the month in which the accounting period is closed to the end of the month in which the corporate tax return is submitted, the corporate tax return to be prepared for the previous accounting period of the annulled corporation will also be submitted together with the corporate declaration regarding the transfer.

The aforementioned declarations must also be signed jointly by the annulled corporation and the merging corporation and submitted to the tax office to which the annulled corporation is affiliated.

Example 1: (A) Ltd Company, of which accounting period is the calendar year, was transferred to (A) A.Ş. by changing its type on 4/6/2007. In this case, (A) Ltd Company’s tax return for the period between 1/1/2007 and 4/6/2007 must be submitted to the tax office to which the annulled corporation is affiliated, until the end of the working hours of 4/7/2007.

Example 2: In the event that (A) Ltd Company transforms into (A) A.Ş. on 11/2/2007, the declaration regarding the promissory period between 1/1/2007-11/2/2007 and the declaration regarding the 2006 accounting period of the annulled corporation (A) Ltd Company must be submitted to the tax office of the annulled corporation until the end of working hours on 13/3/2007.

The merged corporation must undertake to pay the tax liabilities accrued and to be incurred by the annulled corporation and to fulfill its other duties, with a letter of undertaking attached to the corporate tax return to be submitted by the annulled corporation due to the merger.

The largest property officer can also request collateral from the merged corporation in this regard. In the implementation of the Corporate Tax Law, the chief tax officer is the heads of the tax offices in the provinces where the head of the tax office is located, and the bookkeepers in the other provinces.

The statement of undertaking and the balance sheet and income statement regarding the transfer must be attached to the annexes of the declarations to be submitted.

On the other hand, if a corporate tax return is submitted for the same period due to the transfer process before the submission of the provisional tax return, a separate provisional tax return will not be submitted for this period.

Provisional taxes paid by the corporation, which became annulled due to the transfer, until the transfer date can be deducted from the corporate tax to be calculated over the earnings before the transfer to be taxed due to the transfer. If the amount that cannot be deducted remains, this amount will be deducted from the corporate tax of the merged corporation.

  1. Taxation and declaration in case of full split-off

In full split-off to be made pursuant to Article 19 of the Corporate Tax Law, only the profits of the annulled corporation until the date of division will be taxed within the framework of the following explanations; profits arising from the division will not be calculated and taxed.

The date of full split-off is the date when the decision of the authorized board of the company is registered in the Trade Registry.

The corporate tax return regarding the split-off transaction will be submitted to the tax office of the corporation that split up (divided) within thirty days following the announcement of the split-off in the Trade Registry Gazette.

The declaration will be prepared by the split corporation and the corporations that have taken over the assets of this corporation as of the date of the split-off, and will be given by signing jointly.

In order to be able to tax the income up to the split-off date, the income calculated as of the split date must be included in this declaration and taxed. Gains arising from transactions after this date will belong to the transferee corporations.

In case the split-off is made within the period from the month the accounting period is closed to the end of the month in which the corporate tax return is filed, the corporate tax return of the split corporation for the previous accounting period will also be submitted together with the corporate tax return for the split-off.

The said declaration must be signed jointly by the split corporation and the corporations that took over the assets of this corporation and must be submitted to the tax office to which the annulled corporation is affiliated.

Corporations that take over the assets of the split corporation will undertake to pay the tax liabilities accrued and to be incurred by the split corporation and to fulfill its other duties, and they will undertake with a letter of undertaking to be given in the annex of the corporate tax return to be submitted due to the split-off of the split corporation.

The largest property officer can also request collateral from the split corporation and the corporations that have taken over the assets of this corporation.

A copy of the split-off balance sheet and income statement, split-off agreement and the Trade Registry Office letter showing the new capital structure of the corporations that took over the split corporation’s assets will be attached to the split-off declaration.

If a corporate tax return is submitted for the same period due to full split-off transactions before the submission period of the provisional tax return, a separate provisional tax return will not be submitted for this period.

  1. Taxation in case of partial split-off and exchange of shares

Profits arising from partial split-off and share exchange transactions carried out in accordance with Article 19 of the Corporate Tax Law will not be calculated and taxed.

In partial split-off transactions, corporations that take over the assets of the split corporation will be jointly and severally liable for the tax debts accrued or to be incurred until the split-off date of the split corporation, limited to the precedent value of the assets they have taken over.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Tax withholding on earnings and revenues obtained by limited taxpayer corporations through their workplace or permanent representative in Turkey

07.07.2021

Pursuant to the first paragraph of Article 30 of the Corporate Tax Law, the progress payments made to the limited taxpayer companies for the construction and repair works spread over more than one calendar year and the tax deductions of the mentioned institutions will be made on the following, according to the principles specified in the Income Tax Law:

  • Self-employment earnings,
  • Real estate capital gains,
  • Security income, excluding those listed in subparagraphs (1), (2), (3) and (4) of the second paragraph of Article 75 of the Income Tax Law

In the first paragraph of Article 22 of the Law, it is stated that the provisions applicable to full taxpayer corporations will be applied in determining the earnings of limited taxpayer corporations through workplace or permanent representative, unless otherwise stated.

According to Article 15 of the aforementioned Law, tax deductions are made from the progress payments of full taxpayer corporations regarding construction and repair works spread over more than one calendar year, from all kinds of bonds and Treasury bill interests, income from securities issued by the Mass Housing Administration and Privatization Administration, from deposit interests, from dividends paid by participation banks in return for participation accounts, dividends paid in return for profit and loss sharing certificate, repo earnings and from the rent payments made to the immovables belonging to the cooperatives in return for the lease.

Therefore, if the tax deducted earnings and revenues of full taxpayer corporations are obtained by limited taxpayer corporations engaged in commercial activities by having a workplace or permanent representative in Turkey, tax deduction will be made on the said earnings and revenues in accordance with Article 30 of the Corporate Tax Law, in any case.

On the other hand, within the scope of commercial and agricultural activities carried out by corporations subject to limited liability by having a workplace or permanent representative in Turkey, according to Article 30 of the aforementioned Law, no tax deduction will be made on self-employment earnings, real estate capital gains (except for rent payments made to limited taxpayer corporations in return for renting immovable) and security capital gains (excluding dividends and income from securities subject to withholding tax in the first paragraph of Article 15 of the Law) obtained through these workplaces or their permanent representatives.

However, even if the corporations subject to limited liability do not have a workplace or permanent representative in Turkey or vice versa, tax deductions will be made in accordance with Article 30 of the Law from self-employment earnings, real estate capital gains and movable capital revenues excluding dividends, which are not related to the commercial activities they carry out in these workplaces.

For example, according to the first paragraph of Article 30 of the Corporate Tax Law, tax deductions will not be made on the earnings and revenues obtained by the branches of foreign banks in Turkey within the framework of their banking activities. However, tax deductions will be made in accordance with the aforementioned article on the earnings and revenues obtained by these banks outside the branches and not included in the banking activities.

If it is not known whether the limited taxpayer has workplaces or permanent representatives in Turkey, during the payment of limited taxpayers in cash or on account by those who are responsible for withholding tax, it will be required to withhold tax in accordance with the aforementioned article.

On the other hand, regardless of whether these earnings and revenues are included in commercial or agricultural income or not, corporate tax deductions will be made by the responsible persons over the payments made in return for the sale, transfer and assignment of royalties, privileges, passions, businesses, trade names, brands and similar intangible rights. In tax deductions to be made in accordance with the other paragraphs of Article 30 of the Corporate Tax Law, the provisions of the relevant paragraphs will be taken into account.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Discount on capital increase in Turkey

06.07.2021

In the subparagraph (ı) added to the first paragraph of the 10th article of the Corporate Tax Law with the 8th article of the Law on the Amendment of Certain Laws and Decree Laws dated 27/3/2015 and numbered 6637, it is stipulated that 50% of the amount calculated until the end of the relevant accounting period can be deducted from the corporate income, provided that it is separately shown on the corporate tax return in the determination of the corporate tax base, within the relevant accounting period of capital companies, excluding institutions operating in the finance, banking and insurance sectors and state economic enterprises, by taking into account the weighted annual average interest rate applied to commercial loans in TL opened by banks for the year benefiting from the discount by the Central Bank of the Republic of Turkey on the basis of cash capital increases in the paid or issued capital amounts registered in the trade registry or the portion of the paid-in capital paid in cash in newly established capital companies.

1.1. Scope of the discount

In calculating the amount to be subject to discount pursuant to this regulation, which was introduced to strengthen the capital structures of capital companies, until the end of the relevant accounting period, the amount to be calculated according to the provisions of subparagraph (ı) of the first paragraph of Article 10 of the Corporate Tax Law will be taken into account, over the cash capital increases in the paid or issued capital amounts registered in the trade registry as of 1/7/2015 or the cash amount of the paid-in capital in newly established capital companies as of this date.

In this discount application,

  1. a) Cash capital increase refers to the cash increases in the paid or issued capital amounts registered in the trade registry by the capital companies in the relevant accounting period and the portion of the paid-in capital in newly established capital companies in cash.
  2. b) Commercial loans interest rate refers to the “Commercial Loans” (Opened in TL) (Excluding Legal Entity Overdraft Account and Corporate Credit Cards) interest rate from the “Weighted Average Interest Rates Applied to Loans Extended by Banks”, which will be considered as the weighted annual average interest rate applied to commercial loans in TL opened by banks and which was announced last year by the Central Bank of Republic of Turkey (CBRT) for the year in which the discount was used.
  3. c) Duration refers to the ratio of the number of months from the date of deposit (in which the registered capital is deposited to the bank account of the company before the decision regarding the capital increase is registered in the trade registry) to the bank account of the company to the end of the accounting period, compared to the 12 months, when the cash portion of the capital increase registered in the trade registry is deposited in the company’s bank account.

In the calculation of the amount to be subject to the discount; cash capital increases in paid or issued capital amounts in existing capital companies, in newly established capital companies, the part of the paid-in capital that is covered in cash will be taken into account, and discounts will not be available for the portion of the capital that is not covered in cash.

In addition to these, the following will not be taken into account in the calculation of the discount amount.

– Capital increases arising from non-cash asset transfers to capital companies,

– Capital increases arising from the participation of capital companies in merger, transfer and division transactions,

– Capital increases arising from the addition of equity items in the balance sheet to the capital,

– Capital increases made by the shareholders or by persons related to the shareholders within the scope of Article 12 of the Corporate Tax Law, by using loans or borrowing,

– Capital increases realized by adding securities such as stocks, bonds or bills other than cash capital to the company,

– Capital increases realized in the form of offsetting balance sheet items within each other

Example: (A) Ltd. Company lent 1.000,000 TL to Ms. (D), who is a 50% shareholder, on 4/5/2015, and this amount is followed in the “Receivables from Shareholders” account. On 15/7/2015, it was decided to increase the capital of (A) Ltd. Company by 2.000,000 TL in cash and 50% of this amount, 500,000 TL, was deposited into the company’s bank account on the same date. The decision regarding the cash capital increase was registered in the trade registry on 22/7/2015. Ms. (D) has fulfilled her capital commitment by depositing the remaining 750.000 TL in the bank account of (A) Ltd. Company, of which she is a shareholder, on 31/7/2015 and she has not yet paid the debt of 1.000.000 TL that she received from the company on 4/5/2015.

Since the capital increases realized by the shareholders by using loans or borrowing money will not be taken into account in the calculation of the discount amount, for the 1,000,000 TL paid by Ms. (D) in relation to the capital commitment, Ms. (D) has received the 1.000. It is not possible to benefit from the discount until the debt of 1.000.000 TL is paid (in case of partial payment of this debt, limited to the unpaid amount).

1.2. Those who will benefit from the discount

Except for institutions operating in the finance, banking and insurance sectors and state economic enterprises; capital companies that meet the conditions can benefit from the discount. Therefore, institutions operating in the finance, banking and insurance sectors and state economic enterprises will not be able to benefit from this discount.

1.3. Application of Discount

Based on the cash capital increase, the portion of the amount calculated until the end of the relevant accounting period, which corresponds to the rate determined by the Council of Ministers, can be deducted from the corporate earnings of the relevant period, taking into account the commercial loan interest rate announced by the CBRT for the year benefiting from the discount.

The amount that can be deducted from the corporate income will be calculated as follows:

In the application of the discount, the fraction of the month (in which the registered capital is deposited to the bank account of the company before the decision regarding the capital increase is registered in the trade registry) in which the increased capital is paid in cash by the shareholders during the accounting period will be counted as a whole month, and the discount amount will be calculated on a pro-rata basis for the remaining period of the year.

1.3.1. Registration of the capital increase and depositing the increased amount into the company’s bank account

Capital companies will be able to benefit from this discount application as of the accounting period in which the decision of their authorized bodies regarding the partial or full cash capital increase is registered in the trade registry.

The amount of capital increase that can be subject to the discount calculation is limited to the portion of the increased capital actually deposited in cash to the company’s bank account by the shareholders, and the portion of the committed capital that is not actually deposited into the company’s bank account in cash by the shareholders will not be taken into account in the calculation of the discount amount.

This discount can be benefited from for the capital committed in cash, based on the following;

– Registration date for the part of the company deposited into the bank account before the decision on the capital increase is registered in the trade registry

– Date of deposit into the company’s bank account for amounts deposited into the company’s bank account after the registration date

Example 1:  A decision was taken on 15/7/2015 to increase the capital of (B) A.Ş. by 6,000,000 TL in cash and the amount committed by Mr. (F), one of the partners of the company, is 2,000,000 TL and the amount committed by Mr. (K) is 4,000,000 TL. 1,500,000 TL, 25% of the committed amounts, was deposited into the company’s bank account by the partners on 30/7/2015, and then the capital increase decision was registered with the trade registry on 3/8/2015.

Company partner Mr. (F) invested the remaining portion of the capital he has committed, 1,500,000 TL on 6/8/2015, after the registration date of the decision regarding the capital increase, and the other partner of the company, Mr. (K), deposited the remaining 3.000.000 TL of the committed capital to the bank account of the company on 9/11/2015.

The discount rate that (B) A.Ş. can benefit from is 50%, and the commercial loan interest rate announced by the Central Bank of Republic of Turkey as of the end of 2015 is 10%.

It is possible to benefit from the discount based on the registration date of this decision, 3/8/2015, for 25% of the capital commitment deposited in the bank account of (B) A.Ş. before the decision regarding the capital increase is registered in the trade registry

The discount amount will be calculated by taking into account the dates when these amounts are deposited into the company’s bank account, for capital commitments deposited into the company’s bank account by the partners after the registration date of the decision.

From this month until the end of the year, the discount amount can be calculated for the portion of 1,500,000 TL deposited into the company’s bank account, since the decision regarding the capital increase was registered with the trade registry on 3/8/2015, the committed capital must be paid before the registration date of the decision.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 1.500.000 TL x 0,10 x 0,50 x (5/12)

= 31.250 TL

After the date of registration of the decision regarding the capital increase in the trade registry, from the months when these amounts are deposited into the company’s bank account, the discount amount can be calculated until the end of the year, since 1,500,000 TL of the committed capital was deposited by Mr. (F) on 6/8/2015 and the remaining 3,000,000 TL was deposited into the company’s bank account on 9/11/2015 by Mr. (K), the other partner of the company,

For the amount deposited by Mr. (F),

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 1.500.000 TL x 0,10 x 0,50 x (5/12)

= 31.250 TL

For the amount deposited by Mr. (K),

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 3.000.000 TL x 0,10 x 0,50 x (2/12)

= 25.000 TL

Therefore, the total discount amount (31.250 TL + 31.250 TL + 25.000 TL =) calculated over the capital increase of 6.000.000 TL in the 2015 accounting period and to be taken into account in the determination of corporate income will be 87.500 TL.

Moreover, if (B) A.Ş. does not reduce its capital in the 2016 accounting period and fulfills other conditions, it will be able to calculate the discount amount for 12 months over the whole of this capital increase of 6,000,000 TL.

Example 2: With the general assembly decision dated 22/12/2015, it was decided to increase the capital of (C) A.Ş. by 12.000.000 TL and 25% of this amount, 3.000.000 TL, was deposited to the bank account of the company on 29/12/2015.

The said general assembly resolution was registered with the trade registry on 13/1/2016 and the remaining 9.000.000 TL of the capital commitment was deposited in cash on 29/1/2016 to the bank account of the company. (C) A.Ş. will take into account the discount rate in calculating the discount amount of 50%, and the commercial loan interest rate announced by the Central Bank of Republic of Turkey as of the end of 2016 is 10%.

Although the decision regarding the capital increase was taken in the 2015 accounting period, as of 2015 accounting period, it is not possible to benefit from the discount for 25% of the committed capital deposited to the bank account of the company on 29/12/2015, since the registration of this decision to the trade registry was carried out on 13/1/2016.

On the other hand, in determining the corporate tax base for the 2016 accounting period, (C) A.Ş. will be able to benefit from the discount application on the entire amount of its capital increased in cash, since the decision regarding the capital increase was registered in the trade registry in January 2016, and the remaining part of the capital commitment was deposited in the bank account of the company by the partners in this period.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 12.000.000 TL x 0,10 x 0,50 x (12/12)

= 600.000 TL

(C) A.Ş. will be able to benefit from the discount application for the amount of 600.000 TL in the determination of the corporate tax base for the 2016 accounting period.

(Section added with Article 1 of Corporate Tax General Communiqué Serial No. 10) 1.3.1.1. Status of capital advances

In order to be used in the fulfillment of the capital commitment arising from the capital increase to be made in the future, it is possible to consider the amounts deposited to the bank account of the company as a capital advance by the partners before the decision regarding the capital increase, based on the date of registration of the said decision in the trade registry, provided that:

  1. The amounts deposited in the company’s bank account as a capital advance are followed in the “Other Capital Reserves” account, which is among the equity items in the company’s balance sheet, as of the date of depositing the bank account.
  2. Registration of the decision regarding the capital increase related to these amounts to the trade registry until the end of the accounting period of the date the amounts deposited to the bank account of the company as capital advance are deposited into the bank account

Therefore, it is not possible to take into account the amount of capital advance which is not subject to capital increase in the accounting period of the date of deposit in the bank account of the company. Moreover, for the amounts that are not followed in the “Other Capital Reserves” account, which is among the equity items in the balance sheet from the date of deposit in the company’s bank account, it is not possible to benefit from the discount application even if the capital increase regarding these amounts is realized in the relevant accounting period.

Example: Capital advance amounting to 1.000,000 TL deposited by Mr. (T), one of the partners of (B) A.Ş., to the bank account of the company on 10/5/2016, in order to provide the financing needed for the project carried out by the company and to be added to the capital in the future, by (B) A.Ş. It was transferred to the company records by being recorded in the “Other Capital Reserves” account on 10/5/2016. Then, the decision regarding the cash capital increase of (B) AŞ was registered with the trade registry on 30/6/2016, and the necessary accounting records regarding the capital increase related to the said amount were made.

Accordingly, for this amount deposited by the partner Mr. (T) to the company’s bank account on 10/5/2016 and recorded in the “Other Capital Reserves” account on the same date, it is possible to benefit from the discount application as of 30/6/2016 when the decision regarding the cash capital increase was registered in the trade registry.

1.3.2. Benefiting separately for each accounting period

Capital companies will be able to benefit from the discount application for each subsequent accounting period, starting from the accounting period in which the cash capital increase is made, on the cash capital increases they make.

On the other hand, in case of a capital reduction in the following periods, the portion of the cash capital increase equal to the reduced capital amount will not be taken into account in the calculation of the deduction.

Example: (BA) A.Ş.’s general assembly resolution dated 3/8/2015 regarding the increase of 6,000,000 TL in cash was registered with the trade registry on 24/8/2015 and the entire capital commitment was deposited into the bank account of the company within this month.

(BA) A.Ş. will benefit from the discount for a period of 5 months in the 2015 accounting period and also from this discount in the following accounting periods due to this increased capital amount as long as it continues to meet the conditions.

1.3.3. Transfer of the amount that cannot be deducted due to insufficient earnings to the next periods

In case the deduction amount calculated by the capital companies for the cash capital increase cannot be deducted in the determination of the tax base for the relevant accounting period due to insufficient earnings, these deduction amounts can be subject to deduction in determining the base for the following accounting periods without being subject to any indexation.

Example: (D) A.Ş., which calculated a discount amount of 50.000 TL over the cash capital increases realized in the 2016 accounting period, could not benefit from the discount due to its financial loss in this accounting period.

(D) A.Ş.’s discount amount of 50.000 TL, which could not be deducted from the corporate income due to insufficient earnings in the 2016 accounting period, will be carried over to the following periods. If there is a profit in the following periods, this amount that cannot be deducted in the 2016 accounting period can be subject to deduction in the determination of the relevant period’s base without being subject to any indexation.

1.3.4. Capital decrease

If the capital companies benefiting from this discount make a capital decrease later on, it is not possible to benefit from this decrease as of the month following the month in which the decision regarding the capital decrease is registered in the trade registry for the portion of the cash capital increase equal to the decreased capital amount.

On the other hand, if the capital companies have made a capital decrease before the cash capital increase, the portion equal to the decreased capital amount will not be taken into account in the calculation of this decrease.

Example: The general assembly decision was taken on 9/5/2016 regarding the increase of the capital of (E) A.Ş. by 150.000 TL, and 37.500 TL, which is 25% of the capital commitment, was deposited to the bank account of the company by the partners on 11/5/2016.

The decision was registered in the trade registry on 23/5/2016, and the remaining part of the committed capital, 112.500 TL, was deposited in cash by the shareholders to the company’s bank account on 27/6/2016. The discount rate that (E) A.Ş. can benefit from is 50%, and the commercial loan interest rate announced by the Central Bank of Republic of Turkey as of the end of 2016 is 10%.

The general assembly decision regarding the decrease of the capital of (E) A.Ş. by 120.000 TL was registered in the trade registry on 10/7/2019.

The discount amount that (E) A.Ş. can benefit from in the 2016 accounting period will be calculated for the 37.500 TL portion of the subscribed capital, taking into account the date of registration of the decision, 23/5/2016, for the part of 112.500 TL, it will be calculated by taking into account the date of 27/6/2016, when this amount is deposited into the company’s bank account by the partners.

For 37.500 TL;

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 37.500 TL x 0,10 x 0,50 x (8/12)

= 1.250 TL

For 112.500 TL;

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 112.500 TL x 0,10 x 0,50 x (7/12)

= 3.281,25 TL

(E) A.Ş. will be able to deduct a deduction amount of TL 4,531.25 in the 2016 accounting period (1.250 TL + 3.281.25 TL =) in the determination of the corporate tax base. In 2017 and 2018 accounting periods, provided that other conditions are met, the discount amount can be calculated for 12 months over the said cash capital increase, taking into account the commercial loans interest rate announced by the CBRT for these periods.

For the August-December 2019 period, the discount amount can be calculated over the capital amount of 30.000 TL (150.000 TL – 120.000 TL=) considering the capital reduction, since the capital decrease was made on 10/7/2019, over the capital amount of 150.000 TL for the January-July 2019 period.

On the other hand, if (E) A.Ş. makes a capital increase in the following periods, provided that it meets the conditions, it will be able to benefit from the discount application for these increased capital amounts.

1.4. The authority granted to the Council of Ministers regarding the discount application

The authority granted to the Council of Ministers with the fourth paragraph of subparagraph (i) of the first paragraph of Article 10 of the Corporate Tax Law has been used by the Council of Ministers Decision dated 26/6/2015 and numbered 2015/7910.

1.4.1. Discount rates

In the aforementioned Council of Ministers Decision, the general discount rate has been determined as 50%, and depending on their situation, capital companies will be able to benefit from the discount application by adding the following rates to this rate.

1.4.1.1. Discount rate in publicly traded capital companies whose shares are traded on the stock exchange, ratio registered in the trade registry of the nominal amount of the shares followed as tradable shares in the stock exchange at the Merkezi Kayıt Kuruluşu A.Ş. (Central Registry Agency) as of the last day of the year benefiting from the discount, to the paid in or issued capital will be applied by adding the following:

– 25 points for companies with 50% or less,

– 50 points for companies with more than 50%,

Example: The authorized body of (F) A.Ş. has decided to increase the cash capital of 6,000,000 TL on 6/7/2015. 1,500,000 TL, 25% of the capital committed in cash, was deposited into the bank account of the company on 3/8/2015 by the partners. The said decision was registered with the trade registry on 12/8/2015 and the remaining portion of the capital commitment, 4.500.000 TL, was deposited into the bank account of the company until the end of August 2015.

As of 31/12/2015, the ratio of the nominal amount of the shares of (F) A.Ş., which are followed up as tradable shares at the Merkezi Kayıt Kuruluşu A.Ş., to the issued capital is 40%, and as of the end of 2015, the commercial loan interest rate announced by the CBRT is 10%.

Accordingly, the discount rate that (F) A.Ş. will consider in the discount application due to the cash capital increase realized will be (50% + 25%=)  75% provided other conditions are met.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 6.000.000 TL x 0,10 x 0,75 x (5/12)

= 187.500 TL

On the other hand, if the ratio of the nominal amount of the shares of (F) A.Ş. to the issued capital of Merkezi Kayıt Kuruluşu A.Ş., which are followed up as tradable shares, is 80%, the discount rate (50% + 50%=) that will be taken into account in the calculation of the discount amount will be 100%.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 6.000.000 TL x 0,10 x 1 x (5/12)

= 250.000 TL

1.4.1.2. If the capital increased in cash is used in production and industrial facilities with investment incentive certificates, machinery and equipment investments belonging to these facilities and/or land and plot investments allocated for the construction of these facilities, the said discount will be applied by adding 25 points, limited to the fixed investment amount included in the investment incentive certificate.

Example: Authorized body of (G) A.Ş. has decided to increase the cash capital of 24.000.000 TL on 28/8/2015. 6,000,000 TL, 25% of the capital committed in cash, was deposited into the company’s bank account on 8/9/2015.

The decision in question was registered with the trade registry on 15/9/2015 and the remaining portion of the capital commitment was deposited into the company’s bank account by the end of September of the same year. On the other hand, (G) A.Ş. used 10.000.000 TL of this resource obtained from the cash capital increase in the investment of industrial facility with investment incentive certificate, which includes a fixed investment amount of 9.000.000 TL in September of the same year.

The ratio of the nominal amount of the shares of (G) A.Ş. to the issued capital of the Merkezi Kayıt Kuruluşu A.Ş. which are followed as tradable shares in the stock exchange is 80%, and as of the end of 2015, the commercial loan interest rate announced by the CBRT is 10%.

Accordingly, since the ratio of the nominal amount of the shares of (G) A.Ş. to the issued capital of Merkezi Kayıt Kuruluşu A.Ş. which are followed as tradable shares in the stock exchange, is 80%, the discount rate that will be taken into account in the calculation of the discount amount will be (50% + 50%=) 100%.

On the other hand, limited to this amount, the discount rate will be taken into account as (50% + 50% + 25%=) 125% by adding 25 points, since 9.000.000 TL of the 10.000.000 TL used in the investment incentive certificate industrial facility investment of (G) A.Ş.’s cash capital increase is related to the fixed investment amount.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 9.000.000 TL x 0,10 x 1,25 x (4/12)

= 375.000 TL

For the remaining capital increase of (24.000.000 TL – 9.000.000 TL=) 15.000.000 TL, the discount rate will be considered as (50% + 50%=) 100%.

Discount amount = Cash capital increase x Commercial loans interest rate x Discount rate x Duration

= 15.000.000 TL x 0,10 x 1 x (4/12)

= 500.000 TL

Therefore, the total amount that (G) A.Ş. can deduct in its corporate tax return for the 2015 accounting period is (375,000 TL + 500,000 TL=) 875,000 TL.

1.4.2. Limitations on discount application

Different discount rates have been determined to be taken into account in the discount application in the third paragraph of the first article of the Council of Ministers Decision No. 2015/7910.

1.4.2.1. The discount rate will be applied as 0% for capital companies whose income consists of passive income such as interest, profit share, rent, license fee, security sales income other than commercial, agricultural or self-employed activities, which are carried out by employing capital, organization and personnel, 25% or more of which is proportional to the company’s activity.

Example: (H) A.Ş. decided to increase the capital of 10.000.000 TL in cash on 29/7/2015 and this decision was registered in the trade registry on 14/8/2015. However, from the income statement of (H) A.Ş. for the 2015 accounting period, it is seen that 55% of its income consists of the sum of the interest income from the time deposit accounts of the company in the banks and the profit shares obtained from the subsidiaries.

Accordingly, in the calculation of the amount that can be deducted due to the cash capital increase, the discount rate to be taken into account for the 2015 accounting period will be applied as 0%, since more than 25% of (H) A.Ş.’ income consists of passive income.

1.4.2.2. The discount rate will be applied as 0% in the calculation of the deductible amount, for capital companies whose total assets are 50% or more of subsidiaries, subsidiaries and participation shares.

Example: (K) A.Ş. took a cash capital increase decision of 2.000.000 TL on 7/6/2016 and this decision was registered in the trade registry on 10/8/2016. As of the last day of the accounting period in which the cash capital increase decision of (K) A.Ş. was registered, it is seen that 57% of total assets consist of subsidiaries, affiliates and subsidiaries.

Therefore, the discount rate to be taken into account in the calculation of the deductible for the 2016 accounting period will be applied as 0%, since more than 50% of the total assets of (K) A.Ş. consists of subsidiaries, affiliates or subsidiaries.

1.4.2.3. The discount rate will be applied as 0% in the calculation of the deductible amount, limited to the amount corresponding to the portion of the increased cash capital that has been invested in other companies as capital or made available as a loan.

Example 1: (L) A.Ş. made a cash capital increase of 1,000,000 TL on 10/9/2015 and invested 400,000 TL of this fund, which it obtained from the cash capital increase, on 22/10/2015 as capital to the newly established company (KL) Ltd, of which it is a partner.

The discount rate that (L) A.Ş. will take into account in calculating the deductible amount for the 400,000 TL invested as capital in the newly established (KL) Ltd Company of the cash capital increase amounting to 1.000,000 TL will be 0%.

However, (L) A.Ş. will be able to benefit from the discount application according to the rate to be determined in the relevant period, provided that other conditions are met for the remaining 600,000 TL capital increase.

Example 2: (T) A.Ş., which increased its capital in cash by 5.000.000 TL on 17/9/2015, lent 2.000.000 TL of this resource to its partner on 27/10/2015.

The discount rate that (T) A.Ş. will take into account in calculating the deductible amount for the 2,000,000 TL loaned to its partner of the cash capital increase amounting to 5,000,000 TL will be 0%. However, for the remaining 3,000,000 TL portion of the cash capital increase, provided that other conditions are met, it will be able to benefit from the discount application according to the rate to be determined.

On the other hand, it is possible to benefit from the discount application, limited to the amount collected, starting from the period when 2,000,000 TL given as a loan is partially or completely collected.

1.4.2.4. In capital companies investing in land and plot, a discount rate of 0% will be applied in calculating the deductible amount, limited to the amount corresponding to the land and plot investment.

Example: (M) A.Ş., which had a cash capital increase of 1.000.000 TL on 11/1/2016, purchased a land for 800.000 TL on 23/10/2017.

Accordingly, (M) A.Ş. will be able to benefit from the discount application for 12 months in the 2016 accounting period, provided that the conditions are met, taking into account the general discount rate, due to the cash capital increase of 1,000,000 TL in the 2017 accounting period, the 10-month general discount rate will be taken into account, and in the remaining 2 months, the discount rate will be applied as 0%, limited to the amount of 800,000 TL used in the purchase of the land on 23/10/2017.

1.4.2.5. In case of a capital reduction in the period from 9/3/2015 to 1/7/2015 when the subparagraph (ı) of first paragraph of Article 10 of the Corporate Tax Law entered into force, the discount rate will be applied as 0% in the calculation of the deductible amount, limited to the amount corresponding to the reduced capital amount.

Example: The authorized body of (N) A.Ş., which had a capital decrease of 4.000.000 TL on 15/4/2015, decided to increase its capital in cash of 10.000.000 TL on 7/7/2015, and 2,500,000 TL, 25% of this amount, was deposited into the company’s bank account by the partners on the same date.

The said decision was registered in the trade registry on 15/7/2015 and the remaining portion of the capital commitment, 7.500.000 TL, was deposited in cash on 29/7/2015 by the partners to the company’s bank account.

Accordingly, (N) A.Ş. will be able to benefit from the discount application by taking into account the general discount rate for only the portion of (10.000.000 TL – 4.000.000 TL=)  6,000,000 TL of the cash capital increase, if it meets the conditions, and for the remaining 4,000,000 TL, the discount rate will be 0%.

1.5. Other issues

1.5.1. It is possible to benefit from this deduction only as of the fourth temporary taxation period among the temporary tax periods, since the most recently announced commercial loan interest rate for the year utilized by the CBRT will be taken into account when calculating the discount amount.

On the other hand, the amounts that cannot be deducted in the relevant accounting period due to insufficient earnings can be subject to deduction in the determination of the provisional tax bases of the temporary taxation periods for the following accounting period.

1.5.2. Capital companies, for which a special accounting period has been determined, will be able to benefit from the discount by taking into account the commercial loan interest rate announced by the CBRT as of the end of the accounting period, provided that the conditions are met.

1.5.3. Capital companies wanting to benefit from the discount are required to submit the bank account statement approved by the relevant bank branch, in paper form or electronically, containing these transactions regarding the amount of the committed capital increase actually deposited into the company’s bank account, to the tax offices to which they are affiliated in terms of corporate tax within the period of filing the relevant period corporate tax return.

Moreover, within the framework of the explanations in this section of the Communiqué, capital companies wanting to benefit from the discount are required to submit information on the capital they have increased in cash and the amount to be subject to the discount in the annex of the corporate tax return.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Offsetting of Taxes Paid Abroad in Turkey

02.07.2021

  1. Offseting opportunity

The taxes previously paid for the profits obtained abroad and to be taxed in Turkey will be deducted from the corporate tax to be calculated due to these gains in Turkey.

The exchange rate at the time of transfer to the general result accounts of the related earnings will be applied to the taxes paid in foreign currency abroad.

  1. Offsetting duration

If it is not possible to partially or completely deduct the taxes paid on the foreign earnings included in the declarations in Turkey, this right of offsetting can be used until the end of the third accounting period, provided that the limitations below are essential, due to the absence of taxable corporate income in Turkey in the relevant year as a result of loss offsetting or exceptions.

  1. Limit of foreign taxes that can be setoff

Corporate tax and similar taxes paid abroad that can be deducted from taxes to be levied in Turkey and paid on foreign earnings cannot be more than the amount to be found by applying 20% corporate tax rate to earnings obtained abroad, under no circumstances.

When it is requested to setoff the taxes paid abroad from the corporate tax to be calculated in Turkey, the amount of foreign earnings included in the tax base in Turkey must be grossed up to include these taxes.

For example; Corporation (A) has earned a corporate income equivalent to 100,000.- TL at its workplace in country (B). In accordance with the tax legislation in the foreign country, 25% corporate tax and similar taxes were paid on this income. In this case, Corporation (A) will include 100,000.- TL in corporate income in Turkey, but cannot setoff the portion – ie [25,000 – (100,000 x 20%)=] 5,000.- TL-of the tax paid abroad regarding this income from the tax calculated in Turkey, which exceeds the tax calculated in relation to this income in Turkey. It is not possible to setoff this tax in the following years as in the current year.

On the other hand, if the earnings obtained abroad are exempted from corporate tax, it is not possible to setoff the taxes paid abroad on these earnings from the corporate tax calculated in Turkey.

  1. Taxes paid by the controlled foreign corporation

In cases where Article 7 of the Corporate Tax Law is applied, taxes similar to income and corporate tax paid by the controlled foreign corporation, can be setoff from the corporate tax calculated on the income of the said corporation to be taxed in Turkey.

  1. Offsetting of taxes paid on dividends from foreign subsidiaries

From the corporate tax payable in Turkey, the portion corresponding to the dividend amount of the income and corporate tax-like taxes paid on the earnings that form the source of the dividend distribution in the countries where the subsidiaries are can be deducted, over the dividends obtained directly or indirectly from foreign subsidiaries in which resident companies hold at least 25% of the capital or voting rights. The profit share added to the earnings will be taken into account by including taxes such as income and corporate tax paid abroad over these earnings.

Example: The information regarding the participation income obtained from the Corporation (C) abroad, in which the Corporation (A) participates by 30% in its capital, is as follows.

(Dividends in foreign currency and taxes paid abroad are calculated in TL.)

Participation rate …………………………………………. …………………………………….. 30%

Corporate tax rate in foreign country ……………………………………………………… 10%

Tax withholding rate applied to dividends distributed abroad ……………………. 20%

Total corporate income of the corporation (C)………………………….. 1.000.000.- TL

Corporate tax paid by the corporation (C) in a foreign country (10%) ……………. 100.000.- TL

Participation income (gross) of the corporation (A)………………………. 300.000.- TL

The amount corresponding to the participation earnings of the corporation (A) from the corporate tax paid in the foreign country (300.000 x 10%) ………….. 30.000.- TL

The distributable earnings of the Corporation (C)…………………… ……. 900.000.- TL

After-tax profit share of the Corporation (A)  ………………………. 270.000.- TL

The tax deducted abroad from the profit share obtained by the Corporation (A)  at the stage of distribution (270,000 x 20%)…………………………….. ………… 54.000.- TL

The net profit share of the Corporation (A) ……………………….. ….. 216,000.-TL

In this case, Corporation (A) will add the net 216,000.- TL obtained from Corporation (C), which has not been exempted from corporate tax in Turkey, to its corporate income with its gross amount (300.000.- TL), and the part up to 60,000.- TL of the [(100,000 x 30%) + 54.000=] 84,000.- TL (300.000 x 20%=) paid abroad over this income is setoff from the corporate tax calculated in Turkey over this income. There is no offsetting opportunity for the tax amount of 24.000.- TL paid abroad, which is over 60.000.- TL.

  1. Provisional tax offsetting of taxes paid abroad

Taxes paid abroad can be setoff from provisional tax. In case of income obtained from abroad within the provisional taxation period, taxes paid with deductions or other forms in the countries where these incomes are obtained can also be setoff from the provisional tax amount calculated for that period. However, the amount to be deducted cannot be more than the amount to be found by applying the 20% temporary tax rate to the earnings obtained abroad.

  1. Authentication of taxes paid abroad

Unless it is documented that taxes are paid in foreign countries, obtained from the competent authorities and certified by the local Turkish embassies or consulates, or if not by the same qualified representatives of the country protecting Turkish interests, taxes paid in a foreign country cannot be deducted from the tax levied in Turkey.

If the documents showing that the taxes deducted from the corporate tax have been paid in foreign countries, cannot be submitted by the taxpayer at the time of assessment, the tax paid or to be paid in the foreign country will be calculated over the rate known to be current in that country, provided that it does not exceed the 20% corporate tax rate. If the part of the assessment that corresponds to the amount calculated in this way is postponed, the documents to be submitted are submitted to the relevant tax office within 1 year at the latest from the date of assessment, the assessment must be corrected according to the exact amount written in these documents.

If the documents are not submitted within the specified period without force majeure, or if it is understood that there is a lower right of deduction from the deferred tax amount after the presentation of these documents, for the deferred taxes, the default interest will be calculated in accordance with the provisions of the Law No. 6183.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Reduced Corporate Tax Application in Turkey

29.06.2021

Reduced corporate tax can be applied to the income obtained from investments within the scope of investment incentive certificate, starting from the accounting period in which the investment is started to be operated partially or completely, until the investment contribution amount is reached, by taking into account the investment contribution and tax reduction rates within the relevant incentive certificate.

The amount of contribution to the investment refers to the amount to be covered by the Government for the investments by way of tax, the collection of which is waived by applying reduced corporate tax. The ratio to be found by dividing this amount by the total investment amount refers to the investment contribution ratio.

Example 1: The total amount of the investment of (A) A.Ş. within the scope of the investment incentive certificate is 5,000,000 TL and the investment contribution rate is 25%. In this case, the contribution amount to the total investment will be calculated as follows.

Contribution to the total investment =   Total investment expenditure x Investment contribution rate

=             5.000.000 TL x 25%

=          1.250.000 TL

The contribution amount to the total investment in question refers to the corporate tax amount that the Government will refuse to collect by applying reduced corporate tax to the income obtained from the investment.

On the other hand, the Council of Ministers is authorized to limit the proportions of expenditures such as land, buildings, used machinery, spare parts, software, patents, licenses and know-how costs separately or collectively in investment expenditures, in accordance with the Council of Ministers Decisions on State Aids in Investments dated 14/7/2009 and numbered 2009/15199 and dated 15/6/2012 and numbered 2012/3305 issued within the framework of this authority, land, plot, royalty, spare parts and other expenses that are not subject to depreciation cannot be subject to reduced corporate tax. Therefore, in the calculation of the investment contribution amount, land, plot, royalties and spare parts expenses and other expenses that are not subject to depreciation will not be taken into account.

The reduced corporate tax application regarding the earnings obtained from the investments within the scope of the investment incentive certificate is started as of the temporary tax period when the investment is partially or fully operated, from the ad hoc tax period when the investment is started to be operated, corporate tax is applied at a reduced rate until the amount of contribution to the investment that is entitled due to the investment expenditure made on the income from the investment is reached, by not exceeding the investment amount included in the incentive certificate and including tax deduction.

Example 2: The total amount of the completely new investment of the newly established (B) A.Ş., which was started in the 2014 accounting period and within the scope of the investment incentive certificate, is 8,000,000 TL. 1,000,000 TL of this investment, which started to be partially operated in the 2015 accounting period, has been realized.

 

(B) A.Ş. has gained 300.000 TL from the said investment in this accounting period. (Investment contribution rate: 40%, tax reduction rate: 60%)

Contribution to the total investment =   Total investment expenditure x Investment contribution rate

=        8.000.000 TL x 40%

=        3.200.000 TL

Contribution to the investment earned in the 2015 accounting period = Investment expenditure incurred x Contribution rate to investment

= 1.000.000 TL x 40%

= 400.000 TL

Accordingly, the reduced corporate tax rate to be applied to the income obtained from this investment of (B) A.Ş. within the scope of investment incentive certificate in the 2015 accounting period and the amount of contribution to the investment will be as follows.

Reduced Corporate Tax rate = [Corporate Tax rate – (Corporate Tax rate x Tax reduction rate)]

=       [20% – (20% x 60%)] =  [20% – 12%] = 8%

– Income from investment ………………………………………………………… : 300.000 TL

– Corporate Tax to be paid if there was no reduced CT (300.000 TL x 20%)………. : 60.000 TL

– CT calculated according to the reduced rate (300.000 TL x 8%)…………….….. : 24.000 TL

– Contribution amount to the benefited investment (60.000 TL – 24.000 TL)……… : 36.000 TL

By applying reduced corporate tax to the income of 300.000 TL earned in the 2015 accounting period from the partial operation of the investment of the (B) A.Ş. within the scope of investment incentive certificate, the amount of contribution to the investment benefited from is 36.000 TL, so, 364,000 TL of the 400,000 TL investment contribution amount earned in the 2015 accounting period due to the investment expenditures, which could not be used in this period (400,000 TL – 36.000 TL), will be able to be used in the following accounting periods by applying reduced tax rate to the earnings from this investment.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Addressee of Imposition, Date of Imposition and Place of Imposition in Limited Liability in Turkish Corporate Tax Law

29.06.2021

In Article 28 of the Corporate Tax Law, regulations regarding the addressee of the imposition, the time of imposition and the place of imposition in limited liability taxpayers are included.

1.Addressee of imposition

Tax of foreign corporations subject to limited liability is imposed to these corporations’;

  • Managers and representatives in Turkey,
  • Those who provide earnings and revenues to the foreign corporation, if the director and his/her representatives are not available

2 Time and place of imposition

Corporate tax will be imposed by the tax office where the declaration is given or sent

  • on the day of submitting the tax return,
  • within three days of the date it arrives at the office imposing the tax, if the declaration is sent by post.

Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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Earnings for which Special Declaration Time is Determined in Turkish Corporate Tax Law

29.06.2021

In the event that the earnings consist of other earnings and revenues, excluding the fees received in return for the sale, transfer and assignment of the taxable income of limited taxpayers, the copyright, privilege, patent, business, trade name, brand and similar intangible rights written in the Income Tax Law, must be reported to the tax office specified in Article 27 of the Corporate Tax Law with a declaration, within fifteen days from the date of earning by the foreign institution or the persons acting on their behalf in Turkey.

The relevant provisions of the Income Tax Law must be applied in determining other earnings and revenues, and the provisions, conditions, periods and exceptions regarding non-taxation in the provisions regarding other income and revenues will not be taken into account in the determination of other earnings and revenues obtained by limited taxpayer companies. The only exception to this is the provisions regarding foreign exchange gain during the disposal of securities and participation shares obtained in return for cash and in-kind capital brought to Turkey personally. Therefore, the determination of foreign exchange gain in the determination of other earnings and revenues in the Income Tax Law will be valid for limited taxpayer companies.


Source: Revenue Administration of Republic of Turkey – Translated by Karen Audit – The rights of this translation belong to KarenAudit and unauthorized use is prohibited.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.


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