Restructuring of the outstanding tax debts

The new corporate tax law allows taxpayers in Turkey to restructure their outstanding tax debts (also other public receivables like taxes, customs taxes, social security insurance premiums, various administrative fines, and associated interests) and pay in instalments (up to 48 months) only the tax itself without its accrued penalties as the penalties are deleted. The interests on the unpaid taxes are not deleted, however they are restructured with a reduced rate (Producer Price Index) which is in the favour of the taxpayers. If the full amount of the restructured debts is paid at once (without any instalments), then only 10% of the restructured interest is paid since 90% of the interest is deleted in such a case. Taxpayers can make their applications for restructuring their tax debts which have already been accrued as of 12 March 2023.

Finalising tax disputes under tax audit and tax litigation phase

According to the provisions of the new corporate tax law, taxpayers in Turkey can finalise their tax disputes with the tax authority which are in tax audit or tax litigation phases by paying the reduced amount of the taxes claimed by the tax authority, together with the cancellation of the penalties and restructured interests.

In order to finalise tax litigation process, the stage of the lawsuit is important since there are different provisions of the law that regulates how to finalise the lawsuits depending on their stages. Taxpayers who benefit from these provisions must withdraw their court appeals latest by 31 May 2023, and waive the right to sue the tax assessments.

In addition, if the taxpayer settles with the tax authority for their tax liabilities – which might come out from the ongoing tax audits as of 12 March 2023 – by paying 50% of the taxes which are claimed in the tax audit process, the taxpayer does not pay any penalty or interest as the penalties are renounced and the interests will be applied with a reduced rate (according to the Producer Price Index).

Voluntary tax base increase according to the new corporate tax law

According to the new corporate tax law, taxpayers in Turkey can close their past fiscal years 2018, 2019, 2020, 2021 and 2022 to any possible tax audit by increasing their past years’ tax bases. When the taxpayers increase their tax bases, they will not be subject to any tax audit in the future for the related years and for the type of the tax that they voluntarily increase their tax bases provided that the taxpayers pay the related additional taxes on their increased tax bases. Taxpayers can increase their corporate income tax, VAT and some withholding tax (withholding taxes on salary income, self-employment income, rent income, dividend income, long term construction works etc.) bases and can close these tax types and related periods into a possible tax audit in the future. The voluntary tax base increase is a Turkish tax institution that can be considered as a type of tax insurance for taxpayers for eliminating their tax risks. However, it is also worth to state that corporate taxpayers, who increase their corporate income tax bases voluntarily for the past years, will not be able to carry forward 50% of their tax losses. It is important that for fiscal year 2022, 100% of the losses cannot be carried forward, and taxpayers will not be able to be refunded for the excess amount of prepaid corporate income tax which they have paid via their preliminary corporate income tax returns during fiscal year 2022.

Correction of some accounting records

With the Law No. 7440, it is possible for taxpayers in Turkey to correct some of the accounting records given below by paying the advantageous amounts mentioned in the new corporate tax law. Taxpayers can correct their below records by:

• Booking the fair market value records of the commodities, machinery, equipment, and fixtures which are not included in the books, although they actually and physically exist. (The VAT rate that is reduced by the half of the normal rate will be applied)
• Removing from the records the commodities, machinery, equipment, and fixtures that are present in the book records although they do not actually exist (This process can be managed by issuing invoices)
• Correcting the petit cash account(3% tax is paid on the petit cash balance)
• Correcting the shareholder’s receivable account(3% tax is paid on the shareholder’s receivable balance)

Additional tax on deductions and exemptions

The new corporate tax law levies a new tax for corporate taxpayers which is calculated by applying 10% to the deductions and exemptions on the corporate income tax return of fiscal year 2022, and on the tax bases which are subject to reduced corporate income tax rate. This additional tax, the so-called earthquake tax has to be paid in two instalments: the deadline of the first instalment was 30 April 2023, the second has to be paid by 31 August 2023.

If you would like to know more about the new corporate tax law or other tax regulations in Turkey, please visit the homepage of WTS Taurus, the new member firm of WTS Global for Turkey.

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Abolishment of advance tax return for Q4 

Law No. 7338 abolishes the advance corporate income tax return for the fourth and last quarter, which should be submitted to the Turkish tax authorities by 17 February. Thus, the advance corporate income tax return periods will be as follows:

• Q1: 1 January to 31 March
• Q2: 1 April to 30 June
• Q3: 1 July to 30 September

The Q4 advance corporate income tax return is still applicable for the fiscal year 2021, the new periods will be effective for the fiscal year 2022. 

New conditions to reduce tax for compliant taxpayers

According to the current provisions of relevant legislation in Turkey, subject to the satisfaction of certain conditions, eligible taxpayers who consistently file their tax returns on time and have no outstanding tax liability are entitled to a 5% discount (up to TRY 1.5 million – roughly EUR 108,000 – for 2021).

Under the current provisions, the taxpayer should not be subject to any tax assessment by the Turkish tax authorities in the year the discount is applied and in the two preceding years.

Pursuant to Law No. 7338, the scope of this condition is eased by narrowing it down to tax assessments that have been finalised. Taxpayers might still benefit from the deduction if the assessments are not finalised. Furthermore, if the finalised tax assessment amount is less than 1% of the reduced amount limit (which is TRY 15,000 – roughly EUR 1,080 – for 2021) the corresponding condition is deemed fulfilled.

These new conditions will be effective as of 1 January 2022.

National interest deduction on cash capital contributions from abroad 

The current national interest deduction rate is 50% for cash capital contributions from abroad. In accordance with the amendment under Law No. 7338, this deduction rate is increased to 75%.

This amendment entered into force on 26 October 2021, the publication date of Law No. 7338.

Revaluation of assets subject to depreciation

Article 31 of Law No. 7338 amends the title of the repeated Article 298 of the Tax Procedural Law and adds a new paragraph to the article.

In accordance with this amendment, income and corporate taxpayers (except those who apply inflation adjustments and keep their ledgers in foreign currency) who choose to revalue their depreciable economic assets and the depreciation amounts in their balance sheets might realise revaluation under certain conditions if they choose to.

Depreciation, valuation and replacement fund 

Taxpayers in Turkey might be able to extend the depreciation periods of their depreciable assets if the extended useful life is not more than double the useful life and it is not longer than 50 years. However, the depreciation calculation method with respect to these depreciable assets cannot be changed.

New depreciable economic assets (except passenger cars which are subject to pro-rata depreciation) do have the option of being depreciated on a daily basis (for assets acquired after the publishing of Law No. 7338 on 26 October 2021).

The useful life of certain newly acquired depreciable economic assets such as new machinery and equipment acquired by taxpayers who have industrial registration certificates that can be used exclusively in R&D, innovation, the manufacturing industry and design activities might be half the length of the useful life determined and announced by the Turkish Ministry of Finance.

The cost value measure has been clarified by defining mandatory and non-obligatory elements explicitly and in detail.

In accordance with Article 328 of the Tax Procedural Law, capital gains stemming from the sale of fixed assets which will be replaced with similar assets can be kept on a temporary account for three years without triggering any tax liability. However, the beginning of this three-year period was controversial (whether it would start in the year that the fixed asset was sold, or in the following year) and there were uncertainties in this respect. Law No. 7338 clearly states that the three-year period will start from the beginning of the year that the fixed asset was sold in.

Law No. 7338 also amends Article 261 of the Tax Procedural Law in Turkey and adds a definition for “Purchase Value” to the corresponding article.

Mutual Agreement Procedure (MAP) 

In accordance with Law No. 7338, new provisions regarding the MAP have been introduced and the MAP has been added to the Tax Procedural Law.

Bad debts & doubtful receivables

TRY 3,000 (roughly EUR 214) has been determined as the maximum amount for receivables considered too low to be worth litigating and subjecting to administrative action. In this respect, the threshold for a bad debt has also been set at TRY 3,000 (roughly EUR 214).

Remote tax inspection option

Pursuant to Law No. 7338, remote tax inspections will be an option in addition to tax inspections carried out at the taxpayer’s workplace. Thus, tax inspection officers will carry out tax inspections remotely if requested by the taxpayer.

Tax inspections are currently initiated via an initiation document signed by both the taxpayer and the tax inspector. In the future, communication regarding the initiation of the tax inspection will take place by letter (a written notice).

Social media revenues exemption

According to Law No. 7338, income derived from activities carried out on social media by social media content producers will be exempt from income tax, and no income tax returns have to be submitted if the total amount of this income does not exceed TRY 650,000 – roughly EUR 46,260 (fourth and highest tax bracket in Article 103 of the Income Tax Law).

The conditions to be satisfied to benefit from this exemption are:

• opening a bank account at a bank established in Turkey, and
• all the revenue should be collected with this bank account.

Corresponding banks will be required to apply a 15% withholding tax on the amounts transferred to this bank account. 

Irregularity and special irregularity fines

In accordance with this amendment, the scope of reconciliation and pre-assessment reconciliation will also cover irregularity and special irregularity penalties which exceed TRY 5,000 (roughly EUR 355). The reduction to be applied will be 25% for penalties amounting to more than TRY 5,000 (roughly EUR 355) under certain conditions.

RUSF & BITT for asset management companies 

According to the new law, Resource Utilization Support Fund (RUSF) exemption will be permanently applicable for asset management companies. At the same time, Banking and Insurance Transaction Tax (BITT) exemption will no longer be applicable.

Other important amendments within the scope of Law No. 7338

10% of the investment contribution amount that is currently regulated under Article 32/A of the Corporate Income Tax Law could be used to offset against other accrued tax liabilities, except VAT and Special Consumption Tax (SCT) under certain stated conditions. This amendment will enter into force as of 1 January 2022.

In line with Article 31/B of the Capital Markets Law, stamp duty exemption is introduced for certain documents such as receipts and papers issued regarding the collateral subject to the issuance of capital market instruments, including the collateral manager.

The effective date for application of the accommodation tax is postponed from 1 January 2022 to 1 January 2023.

The income of small business tradesmen whose income is determined on a small business taxation basis will be exempt from income tax. This amendment will be applicable for incomes generated from 1 January 2021.

A 60-day additional deadline will be applicable for taxpayers who have situations that require a sworn CPA certification report.

During an ongoing tax inspection, tax returns regarding taxes that are not subject to the inspection can be corrected voluntarily.

Agricultural support payments made by the Turkish Government to support farmers and the agricultural industry will be exempt from income tax, and these payments will not trigger any withholding tax liability.

Taxpayers can establish their tax offices electronically if they choose to do so.

The situations where issuing an expense note is obligatory have been clarified.

If you would like to know more about the new law or other tax regulations in Turkey, please visit the homepage of WTS Turkey.

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Presidential Decree no. 2151 

In accordance with Presidential Decree no. 2151, which was announced on 25 February 2020 and became effective the same day, CbCR regulations in Turkey were implemented within the scope of transfer pricing documentation requirements. These CbCR regulations in Turkey include, among others:

• applicability of the CbCR preparation requirement for the Turkish-resident ultimate parent company of a Multinational Corporation (MNC) that has total consolidated annual revenue of EUR 750 million or above in the previous fiscal year;
• information regarding the method and deadline of the CbCR submission;
• the necessary information the CbCR should include;
• information regarding the necessary conditions, deadline and method of the CbCR submission by the Turkish-resident MNC group member company (or one of the Turkish-resident MNC group member companies on behalf of the others, if there is more than one);
• information regarding the CbCR submission notification liability of Turkish-resident members of MNC that meet the CbCR requirements;
• detailed information regarding the calculation of the EUR 750 million threshold.

Transfer Pricing General Communique no. 4

Following this Presidential Decree, Transfer Pricing General Communique no. 4 was also published the same day in Turkey and took effect as of 1 September 2020. Communique no. 4 includes amendments and additional explanations with respect to the above-mentioned CbCR regulations in Turkey. The most important amendments are as follows:

• The EUR 750 million threshold should be calculated by adding up the total income, revenue and profit amounts that are shown separately in the consolidated financial tables of the MNC.
• If the consolidated financials of an MNC are prepared using a currency other than the EUR, this should be indicated in the corresponding CbCR.
• If the ultimate parent company or the surrogate parent company of an MNC does not have tax residency in Turkey, and the EUR 750 million threshold definition is in their local currency, the local currency equivalent of EUR 750 million should be taken into consideration during the calculation of the threshold.
• If the ultimate parent company of an MNC is tax resident in Turkey, even though the CbCR is submitted in a different jurisdiction by the surrogate parent company of the MNC in accordance with the legislation of the corresponding jurisdiction, it is still mandatory to submit the CbCR in Turkey as well.
• One important step towards digitalisation in CbCR regulations in Turkey is that the CbCR should be submitted via BTRANS (Information Transfer Platform of the Revenue Administration in Turkey) in xml format. Taxpayers should request a user code and password from the registered tax offices. Necessary information and instructions regarding the file formats that can be used are given in BTRANS. BTRANS applications are available on the website of the Turkish Revenue Administration and this application should be completed by the taxpayers, uploading their files to BTRANS in order to be able to start uploading.
• Another new element of the CbCR regulations in Turkey is that an independent accountant financial advisor or a sworn financial advisor (if a service agreement is signed with the taxpayer) can also submit Annex-5 „Notification Form for Country-by-Country Reporting” and Annex-6 „Country-by-Country Report” on behalf of the taxpayer.
• The deadline for the annual notification forms of the years after FY2019 (FY2020 and the special accounting years that begin after 1 January 2020) is 30 June of the following year.
• The CbCR notifications should be submitted electronically every year via the Internet Tax Office. Taxpayers need to request a user code and password from the relevant tax office where they are registered.
• There is an update to the format of the notification form, and so this updated, new notification form should be submitted.
• MNC groups are allowed to make a deadline extension request to the Turkish Tax Authority if their financials for the previous fiscal year have not been consolidated in time. This notification should also include a petition including an explanation in this respect.
• A one-month extension of the notification submission deadline can be granted to make corrections and resubmit the notification if any information is missing or incorrect. If the resubmission is not made after this one-month extension, a tax penalty in line with the Turkish Tax Procedural Law will be imposed.

Circular on Implicit Profit Distribution Through Transfer Pricing / 2

In accordance with the “Circular on Implicit Profit Distribution Through Transfer Pricing / 2” dated 17 December 2020, some elements of the CbCR regulations in Turkey have been amended. Thus the deadline of the

• first CbCR submission for the accounting period 2019 and the
• first CbCR submission for the special accounting period expiring in January 2020, which must be filed via BTRANS by the end of January 2021,

has been extended until 26 February 2021.

If you would like to know more about transfer pricing issues and CbCR regulations in Turkey, please visit the homepage of WTS Turkey!

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