Subject: The Law No. 7338 on the Amendment on Tax Procedure Law and Certain Laws
The Law No. 7338 on the Amendment on Tax Procedure Law and Certain Laws has been promulgated in the Official Gazette dated 26/10/2021 and numbered 31640.
Amendments to the tax legislation made through the Law No. 7338 are summarized in this tax bulletin.
1) The fourth of the advance tax returns has been abolished
With the amendment made in the Repeated Article 120 of Income Tax Law, the 4th Advance CIT return has been abolished and the Advance CIT Return periods will be as follows as of 01.01.2022:
First ACIT Return: January-February-March
Second ACIT Return: April-May-June
Third ACIT Return: July- August- September
This amendment will be effective for 2022 financial year and 2021 returns will not be affected.
On the other hand, filing and payment dates have not been amended by this Law; therefore, the corporate tax and personal income tax filing and payment dates have remained the same.
2) The conditions for benefitting from "tax reduction to the compliant taxpayers" are eased.
According to the implementation of tax reduction to the tax-compliant taxpayers 5% of the tax calculated on tax returns can be deducted from the income or corporation tax that has to be paid by the tax-compliant taxpayers (Maximum 1.5 M TRY for 2021).
As per the current practice, one of the necessary conditions for benefiting from the tax deduction provided to taxpayers is that the company has not been subject to tax assessment by the tax authority for declared taxes for the mentioned year and the 2 previous years.
With the amendment made in this law, conditions for benefiting from the regulation that provides tax deduction to taxpayers in repeated Article 121 of the Income Tax Law are eased.
With this article, two important arrangements have been made to ease the taxpayers in terms of benefiting from tax-compliant taxpayer practice:
a) The taxpayers will not be able to benefit from the deduction only if the assessments are finalized. So even if the taxpayers have been subject to tax assessment they can still benefit from the deduction unless the assessment has been finalized.
b) Also, if the finalized tax assessment amount is less than %1 of the maximum amount of deduction which can be benefitted (i.e. 15.000 TRY for 2021) the finalized assessments will not be considered as a violation of the deduction conditions.
On the other hand, the condition regarding tax assessments is limited to the tax types on the tax returns.
3) In periods when inflation adjustment conditions are not met, revaluation of assets is allowed.
With Article 31 of this Law, the title of the repeated Article 298 of Tax Procedures Code has been changed as Inflation adjustment, revaluation rate and revaluation: and the paragraph (Ç) has been added to repeated article 298.
Pursuant to this amendment, Income and Corporate Taxpayers (excluding taxpayers which apply inflation adjustment and keep their ledgers in foreign currency) will be able to revalue their depreciable assets with the annual revaluation rate and their accumulated depreciation in their balance sheets for periods in which the conditions for inflation adjustment have not been met.
The amendment does not include a provision related to taxation because of revaluation of the assets.
In addition to this, Provisional Artıcle 32 has been added to the Tax Procedures Code.
Provisional Article 32 provides the opportunity to bring the immovable properties recorded on the balance sheets of the companies and the economic assets subject to depreciation to their actual value by performing a revaluation (Domestic-PPI value).
The increases that will occur in the value of immovables and other depreciable economic assets as a result of the revaluation shall be recorded in a special account under the equity section of the balance sheet.
An additional tax amount of 2% shall be applicable over the revaluation difference.
The taxes paid in this manner shall not be deductible from income and corporate tax and shall not be accepted recorded as an expense in determining the income and corporate tax base.
4) Daily Basis in Depreciation Application and Possibility to Extend Depreciation Periods
The depreciation period begins from the accounting period in which the economic assets have been acquired. Economic assets subject to depreciation are depreciated according to their useful lives determined and announced by the Ministry of Treasury and Finance.
With the amendment envisaged in Article 34 of the Law Proposal and Article 320 of the VUK, the choice to calculate depreciation on a daily basis from the date of acquisition is provided to the taxpayer's assets acquired after the publishing of this law (26/10/2021). Additionally, the opportunity to extend the depreciation periods is provided by considering longer useful lifespans.
- In the calculation of the useful lifetime period on daily basis for newly acquired economic assets, the daily depreciation rates will be calculated by dividing the useful lives announced by the Ministry of Treasury and Finance by 365.
- Taxpayers are provided the opportunity to extend their depreciation periods by considering longer useful lifespans, provided that the useful life extended does not exceed twice the useful life determined by the Ministry of Treasury and Finance or 50 years and the same depreciation rate is used each year. For example, generators are currently being depreciated in 10 years and the depreciation period can be extended up to 20 years with the provisions of this amendment. In this case, the depreciation rate of 5% will be taken into account each year and the depreciation period and rate determined in this way will not be changed in the following years.
- For the economic assets which may be depreciated on daily or yearly basis, the calculation method will not be amended after the depreciation method is initially determined.
5) Determination of a Maximum Amount for Bad Debt to be Written off Without Legal Proceedings
The upper limit for receivables to be evaluated as too low to be worth legal or administrative action is determined to be TL 3,000.
Accordingly, doubtful receivables (receivables that have not been paid by the debtor despite protest or written request more than once) not exceeding TL 3,000 can be set aside free of lawsuits or enforcement proceedings
6) Clarification Regarding the Start Date of 3 Year Waiting Period for Renewal Fund
The renewal fund is used in cases where a fixed asset is sold to replace it with a new one. The profit arising from the sale of the fixed asset is kept in an account under equity for a maximum of 3 years without being treated as income.
According to the amendment, the waiting period shall be calculated as 3 years following the year in which the asset is sold. So in case a similar asset is not purchased, the fund shall be added to the income of the 3rd calendar year following the year in which the sale was made.
7) Additional Deduction Opportunity for Cash Contributions Made from Abroad for Capital Increases
As per the Article 10 of the Corporate Tax Law titled "Other Deductions", capital companies except for those that operate in the sectors of Finance, Banking and Insurance such as financial leasing, factoring, financing companies, asset leasing companies; and Public Economic Enterprises are allowed a deemed interest deduction that is equal to 50% of the interest calculated on the cash capital increase in the registered capital of the existing corporations or cash capital contributions of the newly incorporated corporations based on the average interest rate announced by the Central Bank of Turkey for TL denominated commercial loans, from their Corporate tax base of the relevant year.
According to the amendment %50 rate will be applied as %75 for cash contribution made from abroad.
This amendment has entered into force dated 26.10.2021 and be effective for cash contributions made after the publish date.
8) Enabling 10% of the Investment Contribution Amount to Be Used to Eliminate Other Tax Liabilities, Excluding SCT (ÖTV) and VAT (KDV)
In the reduced corporate tax application determined in Article 32/A of the Corporate Tax Law, the government contributes to the cost of investment by not collecting a certain amount of the Corporate Tax for investments made within the scope of the investment incentive certificate. The Corporate Tax rate is applied to income from the investment or the other income in a reduced manner (depending on the region of the investment) until the government contribution amount earned is completely used.
With this amendment, 10% of the investment contribution amount may be used to be offset against other tax liabilities accrued, excluding SCT and VAT, provided that the elimination of other taxes is requested until the end of the second month following the month in which the corporate tax return must be filed.
The contribution used to eliminate the above-mentioned tax amount will be deducted from the total contribution amount earned.
The regulation will come into effect as of 01.01.2022 and be applicable to investment expenditures to be made from 1/1/2022 within the scope of both existing and new investment incentive documents. Contributions amounts earned due to investment expenditures made before 1/1/2022 but have not been used due to lack of earnings are not covered.
9) Submitting Correction Returns With Regret Filing During Tax Examinations
Accroding to Article 371 of Tax Procedures Code regret filing of tax returns was possible only if it was filed before a tax examination was initiated or before the incident was carried to valuation comission. In accordance with this provision, taxpayers could not submit correction returns with regret filing after tax examination was initiated by the tax examination officer.
With the amendment, the restriction to submit correction returns with regret
filing is being limited to the tax type in which the tax examination have been initiated. Thus it will be possible for taxpayers to submit correction returns with regret for the tax types other than the tax type which is subjected to inspection.
10) Inclusion of Irregularity and Special Irregularity Penalties Exceeding 5.000 TRY to the Scope of Tax Settlement and Tax Settlement Before Assessment
With this amendment irregularity penalties exceeding 5.000 TRY are included within the scope of tax settlement and tax settlement before assessment and the 25% discount is granted for irregularity penalties exceeding 5.000 on condition that the penalties are agreed upon between the taxpayer and Tax Administration and also paid on time.
On the other hand, the amendment enables the discount rate defined in Article 376 of the Tax Procedures Code to be applied with a %50 increase for irregularity penalties under 5.000 TRY.
11) Addition of Purchase Value Definition to the Law
Purchase value is added to Article 261 of Tax Procedures Code as a method of valuation. The definition of purchase value in the law will be as follows:
Purchase value, is the purchasing value of a economic asset. Other expenses incurred due to acquisition of the asset is not included in the purchase value.
12) Determination of Obligatory and Non-Obligatory Items to be included in the Cost Value.
Although the definition of Cost Value was made in Article 262 of the Tax Procedures Code the obligatory and non-obligatory elements of the cost value were areas of dispute. This amendment clarifies the elements which are obligatory to be included in the cost value and which are non-obligatory.
The below items will be included in the cost value:
a) Customs expenses, commissions, loading, unloading, transportation, and assembly expenses which are directly related to acquisition or appreciation of the economic asset.
b) Levies and charges, notary, deed, court, value appraisal, consultancy, commission, and announcement expenses which are directly related to acquisition or appreciation of the economic asset.
c) Interest expenses and fx expenses of loans used in the financing of the economic asset or goods;
i) For goods, expenses arising until the date the stock is recorded as inventory,
ii) For economic assets, expenses arising until the end of the financial year in which the asset is acquired (the taxpayers may choose to include the rest of the interest and fx income/expenses in the cost of the asset or in the P&L)
d) Storage and insurance expenses arising until the economic asset is recorded as inventory
e) For immovable properties, expenses due to purchase, demolition, and leveling of the land
Any grants directly related to immovable properties will be deducted from the cost value of the immovable until the end of the financial period in which the immovable is capitalized
Taxpayers are free to choose to include the below expenses in the cost value of the economic assets (except goods) or in the P&L:
Special Consumption Tax, non-deductible VAT, banking and insurance tax, and Resource Utilization Source Fund
13) Adjustments Related to Mutual Agreement Procedure Within the Scope of Prevention of Double Taxation Treaties
The application of mutual agreement procedure for prevention of double taxation treaties signed by Turkey has been explained with the Mutual Agreement Procedure Within the Scope of Prevention of Double Taxation Treaties Guide published on the website of the Income Administration Directorate.
With this amendment, the "mutual agreement procedure" has been regulated in the Tax Procedure Code.
14) Establishment of Tax Office in Electronic Environment
The Ministry of Treasury and Finance is authorized for the establishment of the tax office electronically regardless of the physical environment, ensuring that taxpayers can be served quickly and effectively by determining the tax authorities as branches of other tax authorities, making arrangements to ensure that the transactions made by the tax office are carried out by the tax authorities established electronically.
15) Remote Tax Inspection Option
Tax inspections are made in the workplace of the taxpayer being subjected to inspections.
This amendment will enable tax inspection officers to conduct tax inspections remotely.
16) Tax Inspection Being Initiated With a Written Notice
Currently, tax inspections are initiated with an initiation document signed by the tax inspection officer and the taxpayer.
With this amendment, tax Inspection will not start by signing of the initiation document, but instead with a written notice to the taxpayer.
17) Online Ledger Certificates or Approval Ledgers Held Electronically Will be Considered Certification of Physical Ledgers
Similar to the certification obligation of ledgers kept in the physical environment, receiving approvals (berat) or approval of the ledger electronically for e-ledgers will be deemed to be certified. In case approvals are not received or the procedures are not followed correctly the ledgers will be deemed not certified.
18) Exemption to Be Applied to Revenues Generated on Social Media
With this amendment, revenues generated from content production on social media and application development for mobile devices will be treated as exempted from Income Tax unless the revenues in concern exceed the amount stated in the 4th income tax bracket (650.000 TRY for 2021).
In order to benefit from this exemption, a bank account shall be registered in a bank resident in Turkey and all the revenue shall be collected with this bank account.
Banks will be liable to apply a %15 withholding tax over the amounts to be transferred to this account. The transferred amounts will not be subject to additional withholding tax according to Article 94 of the Income Tax Law.
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