02.03.2023/36
Changes in the Corporate Tax General Communiqué Regarding the Interest Discount on Cash Capital Increase
The changes in the Corporate Tax General Communiqué No. 1, made through the Circular No. 21 published in the Official Gazette dated 01.03.2023 and numbered 32119, are as follows regarding the interest discount on cash capital increases:
1. Application of a 75% Discount Rate for Capital Increase Funded with Foreign Currency
Previously, with Law No. 7338 published in the Official Gazette on 26.10.2021, an amendment was made to Article 10 of the Corporate Tax Law, stipulating that the discount rate for the portion of the cash capital increase funded by foreign currency would be 75%. With the current communiqué (No. 21), this regulation was added to the “10.6. Discount on Capital Increase” section of the Corporate Tax General Communiqué (No. 1) as: “On the other hand, the discount rate for the portion of the cash capital increase funded by foreign currency will be applied at 75%.”
2. Limiting the Right to the Cash Capital Discount to 5 Accounting Periods
With the amendment made by Law No. 7417 dated 05.07.2022, the indefinite benefit period for the discount regulation was restricted, considering the accounting period in which the capital increase decision or the registration of the articles of association during the initial incorporation stage was made, as well as the next four accounting periods.
The “10.6.3.2. Separate Benefit for Each Accounting Period” subsection in the Corporate Tax General Communiqué (No. 1) has been completely revised. The new regulation changes the subsection title to “Benefit from the Discount for Five Accounting Periods.”
This regulation states that for capital increases made after the effective date of the law (05.07.2022), the discount will be applied separately for five accounting periods, including the period in which the capital increase decision or the registration of the articles of association occurred. If capital reduction is made in later periods, the portion of the cash capital increase reduced will not be included in the discount calculation. However, if capital increase is made after a reduction period and the conditions outlined in the communiqué are met, a discount may be applied for the increased capital amount within the specified duration.
2.1. Capital Increase After 05.07.2022
For cash capital increases made after 05.07.2022, the discount can be applied separately for five accounting periods starting from the accounting period in which the increase was made.
Example: The general assembly decision dated 03.12.2022 for the cash capital increase of (BA) Inc. by 10,000,000 TL was registered in the trade registry on 10.02.2023, and the entire capital commitment was deposited into the company’s bank account by the shareholders in the same month. (BA) Inc. will benefit from the discount for 11 months in the 2023 accounting period and, as long as the conditions are met, will continue to benefit from this discount for each accounting period until the 2027 accounting period (inclusive).
2.2. Capital Increase Before 05.07.2022
Companies that made capital increases or were established before 05.07.2022 can continue to benefit from this discount separately for five accounting periods, including the 2022 accounting period.
Example: The general assembly decision dated 03.08.2015 for the cash capital increase of (BB) Inc. by 6,000,000 TL was registered in the trade registry on 24.08.2015, and the entire capital commitment was deposited into the company’s bank account by the shareholders in the same month. (BB) Inc. will benefit from the discount for 5 months in the 2015 accounting period and will continue to benefit separately for five more accounting periods (until the 2026 accounting period) as long as the conditions are met.
3. Carryforward of Unused Discounts Due to Insufficient Profit
With Circular No. 21, it is stated that any discount amounts that could not be utilized due to insufficient profit in the accounting period of the cash capital increase and the following five accounting periods can be carried forward to the subsequent periods without time limitation or adjustment for inflation.
The following examples have been added to the Corporate Tax General Communiqué (No. 1).
Example 2: (DA) Inc., which made a cash capital increase in the 2023 accounting period, calculated a total discount of 800,000 TL by the end of the 2027 accounting period, but could only apply 600,000 TL of this amount due to insufficient profit. The remaining 200,000 TL will be carried forward and used for discount purposes in the following periods, as long as profits are available, without being subject to inflation adjustment.
Example 3: (AB) Inc. made a cash capital increase of 3,000,000 TL on 11.04.2018, which was registered in the trade registry on 24.08.2015. The company could not use the discount for the 2021 and 2022 accounting periods due to financial losses.
(AB) Inc. will be able to carry forward the discount amount that could not be used in these accounting periods due to insufficient profit and apply it in the future periods, without inflation adjustment and without being subject to the five-period limitation in the 2022 accounting period.
4. Discount Benefit Based on Annual Accounting Period
According to the Corporate Tax General Communiqué, the discount amount for each accounting period will be calculated based on the most recent commercial loan interest rate announced by the Central Bank of Turkey. The previous rule stated that this discount could only be used in the fourth temporary tax period. With the removal of the fourth temporary taxation period, this regulation has been changed to: “The discount can now only be used in the annual accounting period.”
You can access the relevant Communiqué here.
Sincerely,
BİLGENER
