13.11.2024/63
Tax Procedure Law Circular No. 176 on Inflation Adjustment has been published
Tax Procedure Law Circular No. 176, which includes explanations on inflation adjustment, was published by the Revenue Administration. The explanations regarding the hesitated issues are summarized below:
1. The expression “previous provisional tax period” in the simple average method that can be used to adjust inventories is the last period for which an adjustment is made.
In order to correctly calculate the coefficients in the simple average method that can be used in the correction of inventories, the price index (D-PPI) at the end of the last temporary tax period or accounting period in which inflation adjustment is applied should be taken into account in the formula in question, instead of the price index (D-PPI) at the end of the temporary tax period in which inflation adjustment is not applied.
Therefore, taxpayers who will apply inflation adjustment in the second provisional tax period of 2024 will use the D-PPI index for the December/2023 period in the formula in question, and in the third provisional tax period, they will take into account the D-PPI index for the June/2024 period. Pursuant to the Tax Procedure Law General Communiqués No. 560 and 563, the taxpayers who will not apply inflation adjustment in the provisional tax periods of 2024, and those who will use the simple average method at the end of the accounting period, will apply the D-PPI index of the December / 23 period as the index at the end of the previous provisional tax period.
2. Annual Construction Works
In accordance with the Tax Procedure Law General Communiqué No. 555, the adjustment differences arising after the inflation adjustment is applied to the costs related to the construction works spread over the years in the “17- Construction and Repair Costs spread over the years” account group and the progress payments in the “35- Construction and Repair Progress Payments spread over the years” account group should be followed in the “697- Inflation Adjustment Account for Construction Spread Over the Years”.
This account will be closed by transferring to “178- Annual Construction Inflation Adjustment Account” or “358- Annual Construction Inflation Adjustment Account” according to the credit and debit balance of the account numbered “697”. In this respect, the adjustments related to the costs and progress payments of the construction and repair works spread over the years should be recorded in the “Inflation Adjustment Account for Construction Spread Over the Years” instead of the “Inflation Adjustment Account” and this account should be transferred to the profit/loss account at the end of the work.
Therefore, the balances in the “178- Annual Construction Inflation Adjustment Account” or “358- Annual Construction Inflation Adjustment Account”, where the remaining balances of the inflation adjustment account, which is the final account, are followed, will not be subject to further inflation adjustment.
3. R&D and Design Expenditures
The expenditures that can be subject to R&D and design deduction must be actually incurred, in other words, the expenditure amounts that can be subject to deduction must be realized within the scope of an activity, and the difference amounts arising from the inflation adjustment of the expenditures capitalized in the “263 Research and Development Expenses” account cannot be subject to R&D and design deduction.
4. Status of Expenses Subject to Adjustment in the Deducted Corporate Tax Account
In the application of reduced corporate tax, it is possible to subject to reduced corporate tax the expenditures actually made related to the investments subject to the incentive certificate or the amounts arising from the revaluation of these expenditures that are not subject to deduction.
Therefore, within the scope of the aforementioned application, the adjustment differences related to the expenditures monitored in the assets of the balance sheet after inflation adjustment will not be taken into account in the calculation of the investment contribution amount and these differences will not be subject to reduced corporate tax application.
5. Consideration of Profit/Loss Resulting from the Adjustment in the Exemption Account of Firms with Exempt Earnings
Taxpayers, some of whose income from their activities are exempt from income or corporate tax, will subject their balance sheets to inflation adjustment at the end of the period and will not take into account the parts of the inflation adjustment profits or losses that correspond to exempt activities in the determination of taxable income.
In determining the portion of inflation adjustment profits or losses corresponding to exempt activities, an appropriate distribution key will be determined by the taxpayers by using elements such as cost or revenue elements between the activities within the scope of exempt earnings and the activities that are not within the scope of exempt earnings.
6. Corporate Tax Rate After Inflation Adjustment for Export Manufacturing Companies
Taxpayers, some of whose earnings consist of activities that constitute the basis for the reduced corporate tax rate within the scope of Article 32 of the Corporate Tax Law, but also have activities to which the reduced rate is not applied, will determine the corporate tax rates to be applied to their profits or losses after inflation adjustment by using an appropriate distribution key.
In other words, taxpayers who have activities to which the reduced corporate tax rate is applied as well as the activities to which the 25% rate will be applied, will use an appropriate distribution by taking into account factors such as cost and revenue, and will determine the corporate tax rate to be applied to their profits or losses resulting from inflation adjustment with this distribution key.
7. Balance Sheet to be taken into consideration in Financing Expense Restriction
For the 2023 accounting period, the amounts in the balance sheet without inflation adjustment will be taken into consideration in determining the tax base. Therefore, in parallel with this practice, calculations should be made by taking into account the equity/foreign equity amounts in the unadjusted balance sheets for the 2023 accounting period in the financing expense limitation.
However, for the period ends, including the temporary tax periods after 1/1/2024, the financing expense limitation should be calculated by taking into account the amounts in the adjusted balance sheets.
8. Expenses for Future Periods
Adjustment differences of future period expenses related to the 2023 accounting period will be considered as PPE. Those related to deposits and guarantees will be shown in other deductions.
9. Equity Accounts
Inflation differences related to equity items can be offset against prior year losses arising from the restatement or can be added to the capital by corporate taxpayers.
In the event that the inflation difference accounts of the equity items added to the capital are distributed to the shareholders due to liquidation, such amounts will be deemed to be withdrawn from the entity.
You can access the relevant Circular here.
Sincerely,
BİLGENER
