14.02.2022/10

14.02.2022/10

Exemption on Gains from Conversion to Turkish Lira Deposits

Summary With the Article 2 of the Law No. 7352 published in the Official Gazette dated 29/01/2022 and numbered 31734, a provisional Article 14 has been added to the Corporate Tax Law No. 5520 and an exemption has been introduced for the income to be obtained from Turkish Lira conversion and currency protected deposit accounts.

In our circular dated 29/01/2022 and numbered (8), the advantages provided by the aforementioned article are stated under the following two headings:

• Conversion to Turkish Lira until the filing date of the Fourth Provisional Taxation Period Declaration
• Conversion to Turkish Lira by the End of 2022

The application procedures and principles of the said exemption are explained in the Corporate Tax General Communiqué Serial No. 19 published on 11/02/2022. In this circular, in the light of the General Communiqué on Corporate Tax Serial No. 19, there are explanations regarding the exemption to be applied in case of conversion to Turkish Lira until the date of submission of the declaration of the fourth provisional taxation period.

Corporations will benefit from the following advantages if they convert their foreign currencies included in their balance sheets dated 31/12/2021 into Turkish Lira at the conversion rate until the date of submission of their declarations for the fourth provisional taxation period (17.02.2022) and use the amount obtained in this way in deposits or participation accounts with a maturity of at least three months[1]:

1. The part of these incomes corresponding to the period between 01/10/2021-31/12/2021 will not be subject to tax for the institutions that have obtained foreign exchange difference income arising from the valuation as of 31/12/2021 due to the foreign currency deposits in their accounts.
2. Exchange difference income from 31/12/2021 until the date of opening the deposit or participation account (until 17/02/2022 at the latest) will also be exempt from corporate tax.
3. All earnings from deposit or participation accounts, including interest, dividends and state subsidies, will be exempt from tax.
4. Amounts in deposit or participation accounts will benefit from exchange rate protection.

A. Principles Regarding the Calculation of the Income to be Subject to Exemption Arising from the End of Period Valuation for the Period 1/10/2021-31/12/2021 in Case the Conversion to Turkish Lira is Realized Until the Submission Date of the Provisional Tax Declaration for the 4th Period of 2021

1. The exemption applies only to foreign exchange gains arising from the period-end valuation for the period 1/10/2021-31/12/2021.
2. Taxpayers may determine their foreign exchange gains according to various methods. However, the first-in, first-out (FIFO) method should be applied for the calculation of the foreign currency outflows and the exemption amount during the period, exclusively for the determination of the exchange difference income to be subject to the exemption.
3. If the foreign currencies in the “Banks Account” of the balance sheet dated 31/12/2021 consist of more than one foreign currency deposit account, the foreign currency deposit accounts related to the foreign currency types included in the scope will be taken into account together in determining the exemption amount.
4. Since deposit accounts denominated in the same foreign currency will be taken into account together in the exemption calculation, more than one foreign currency deposit accounts of the same type will be considered as a single account and transfer transactions between them will not be accepted as foreign currency inflows and outflows.
5. As a result of the calculation, foreign exchange gains and losses will be offset against each other and the exempt income will be calculated over the remaining amount.
6. In the event that there is more than one foreign currency in the “Banks Account”, the exchange rate difference will be calculated separately for these foreign currencies while calculating the amount to be exempted, and if there is a loss from one of them, it will be taken into account together with the profit obtained from the other.
7. Even if taxpayers convert only one of the foreign currencies in their accounts, they should calculate the total amount of exempt earnings by using the FIFO method for all foreign currencies included in the scope while finding the amount of exempt earnings.
8. In the event that the taxpayers convert only a part of their foreign currencies in their balance sheets dated 31/12/2021 into Turkish Lira, the exempt gain will be determined by taking into account the ratio of foreign currencies converted into Turkish Lira to the foreign currency account in the balance sheet dated 31/12/2021 (conversion rate). The conversion rate will be found by proportioning the TL amount of foreign currencies converted into Turkish Lira and the TL equivalent of all foreign currencies in the balance sheet dated 31/12/2021.

Conversion rate= Converted foreign currency amount (TL)/ 31/12/2021 Foreign currency balance (TL)

9. The amount to be exempted shall be found by multiplying the total amount of exempt earnings found as a result of the calculation specified in Article 7 by the conversion rate.

Amount to be exempted = (gain arising from the valuation for the period 1/10/2021-31/12/2021) x Conversion rate

10. In case the taxpayers have more than one foreign currency in the “Banks Account” and convert only one of them, the conversion rate will be found by proportioning the TL amount of the converted foreign currency to the total TL equivalent of the foreign currencies included in the scope kept in the “Banks Account” on 31/12/2021. For example, if a taxpayer who owns US Dollars and Euros converts only US Dollars, the conversion rate is found by the following formula:

Conversion Rate= Converted USD Amount (TL)/ Total USD and Euro Amount Available on 31/12/2021 (TL)

11. Provided that the Turkish Lira deposit account is opened within the scope of the relevant provision of the Law No. 1211, the conversion to Turkish Lira before the publication date of the Law No. 7352 in the Official Gazette will not constitute an obstacle to benefit from the exemption.

12. The amount of foreign currency that can be subject to exemption by converting into Turkish Lira deposits and participation accounts will not exceed the amount included in the balance sheets of the taxpayers dated 31/12/2021. In the event that the taxpayers have included the foreign currency amounts that they have disposed of after this date until the conversion date, there is no obstacle for them to benefit from the exemption for these amounts.

13. Taxpayers who have been assigned a special accounting period, regardless of the special accounting period they are subject to, will be able to benefit from the corporate tax exemption for the earnings arising from the valuation of foreign currencies converted into Turkish Lira as of the end of the provisional taxation period in which the foreign currencies converted into Turkish Lira are included as of 31/12/2021, if they convert their foreign currencies in the balance sheets to be issued for 31/12/2021 into Turkish Lira deposits and participation accounts in the prescribed period and manner.

The explanatory application example in the Communiqué on the subject is set out below:

“(C) A.Ş. has two separate foreign currency deposit accounts, USD 1.000.000 and EUR 1.000.000 in the “Banks Account” in its balance sheet dated 31/12/2021. The account movements of (C) A.Ş., which has no other foreign currency deposit accounts, regarding these foreign currency deposit accounts are as follows.

(C) A.Ş. has converted all of its foreign currency deposit accounts amounting to USD 1.000.000 and EUR 1.000.000 in its balance sheet dated 31/12/2021 into Turkish Lira deposit accounts on 16/2/2022 in order to benefit from the temporary article 14 of the Corporate Tax Law.

(USD exchange rate is TL 8,8433 on 30/9/2021, TL 12,9775 on 31/12/2021, TL 13,2022 on 16/2/2022, Euro exchange rate is TL 10,3135 on 30/9/2021, TL 14,6823 on 31/12/2021, TL 15,3002 on 16/2/2022).

(C) A.Ş.’s foreign currency balance related to this account as of 31/12/2021 is 1.000.000 US dollars and the explanations in this section of the Communiqué will be taken into consideration in determining the part of the period-end foreign exchange gain subject to exemption.

It will be accepted that the sales transactions of USD 100.000 dated 09/10/2021 and USD 1.500.000 dated 23/10/2021 are made from the purchase of USD 2.000.000 dated 01/10/2021.

Accordingly, the exchange difference income at the end of the period (31/12/2021) to be exempted due to USD 1.000.000 converted into Turkish Lira within the scope of the provisional article 14 of this Law will be calculated by taking into account USD 400.000 from the purchase dated 1/10/2021 and USD 600.000 from the purchase dated 15/12/2021, which are accepted to remain as a result of sales transactions.

The functioning of the Euro account of the same taxpayer at Bank (B) is as follows:

(C) A.Ş.’s foreign currency balance related to the Euro account in Bank (B) as of 31/12/2021 is 1.000.000 Euro and the explanations in this section of the Communiqué will be taken into consideration in determining the part of the period-end foreign exchange gain subject to exemption.

It will be accepted that the sales transactions of EUR 600.000 dated 15/11/2021 and EUR 700.000 dated 25/12/2021 are made from the purchase of EUR 1.600.000 dated 1/10/2021.

Accordingly, the exchange difference income at the end of the period (31/12/2021) to be exempted due to EUR 1.000.000 converted into Turkish Lira within the scope of the provisional article 14 of this Law will be calculated by taking into account EUR 300.000 from the purchase dated 1/10/2021 and EUR 700.000 from the purchase dated 17/12/2021, which are accepted to remain as a result of sales transactions.

Therefore, [1.316.700,00TL+(-1.759.380,00TL)=] -442.680,00 TL foreign exchange loss will arise from the valuation of the foreign currency deposit account amounting to EUR 1.000.000 in the balance sheet dated 31/12/2021, limited to the period 1/10/2021-31/12/2021.

If (C) A.Ş. converts all of its 1.000.000.000 US Dollar and 1.000.000.000 Euro foreign currency deposit accounts into Turkish Lira deposit accounts within the scope of the provisional article 14 of this Law on 16/2/2022, the part of the foreign exchange gains arising from the period-end valuation corresponding to the period between 1/10/2021 and 31/12/2021 will be [921.400,00 TL + (-442.680,00 TL)=] 478.720,00 TL.

(C) A.Ş. in the “Example” has converted 500.000 US Dollars and 500.000 Euros from 1.000.000.000 US Dollars and 1.000.000 Euros in two separate foreign currency deposit accounts in the “Banks Account” in its balance sheet dated 31/12/2021 to a Turkish Lira deposit account on 16/2/2022 in order to benefit from the provisional article 14 of the Corporate Tax Law.

Conversion rate = Foreign currency amount converted (TL) / Foreign currency balance (TL) (31/12/2021)

= [(TL 6.488.750 + TL 7.341.150) / (TL 12.977.500 + TL 14.682.300)]

(500.000 USD + 500.000 EUR) / (1.000.000 USD + 1.000.000 EUR)

= TL 13.829.900,00 / TL 27.659.800,00 = 0,50

The amount to be exempted = 478.720,00 TL x 0,50 = 239.360,00 TL.

Therefore, if (C) A.Ş., which has a foreign currency deposit account of USD 1.000.000 and EUR 1.000.000 in its balance sheet dated 31/12/2021, converts its foreign currency deposit accounts of USD 500.000 and EUR 500.000, 50% of the gain of TL 478.720,00 (TL 239.360,00) arising from the valuation for the period 1/10/2021-31/12/2021 can be subject to the mentioned corporate tax exemption, and the remaining TL 239.360,00 will be taxed according to the general provisions.

In the event that the said (C) A.Ş. converts only the entire US dollar account from foreign currency deposit accounts consisting of 1.000.000.000 US Dollars and 1.000.000 Euros into a Turkish lira deposit account on 16/2/2022, the amount to be exempted will be calculated as follows.

Conversion rate = Foreign currency amount converted (TL) / Foreign currency balance (TL)

= [(TL 12.977.500) / (TL 12.977.500 + TL 14.682.300)]

(1.000.000 USD) / (1.000.000 USD + 1.000.000 EUR)

= TL 12.977.500 / TL 27.659.800,00 = 0,4692

Therefore, the conversion rate will be considered as 0,4692 in determining the amount to be exempted. The amount to be exempted= 478.720,00 TL x 0,4692=224.615,42 TL.”

B. Exemption for Foreign Exchange Difference Income from 31/12/2021 to the Date of Opening of Deposit or Participation Account (Until 17/02/2022 at the latest)

Taxpayers who transfer their foreign currencies in their balance sheets dated 31/12/2021 to Turkish Lira deposits or participation accounts until the date of submission of the declaration for the fourth provisional taxation period (17.02.2022) will also be exempt from corporate tax.

Therefore, the foreign exchange gain for the period from 1/1/2022 until the opening date of the Turkish Lira deposit or participation account will be considered within the scope of the exemption.

“Example: (D) A.Ş. converted USD 1.000.000 in the “Banks Account” in its balance sheet dated 31/12/2021 into a Turkish Lira deposit account on 14/1/2022 and realized a foreign exchange gain of TL 562.500,00 for the period 1/1/2022- 14/1/2022.

(1 USD 12,9775 TL on 31/12/2021, 13,5400 TL on 14/1/2022)

Accordingly, (D) A.Ş.’s foreign exchange gain of 562.500,00 TL arising from the foreign exchange valuation for the period 1/1/2022-14/1/2022 is exempt from corporate tax.”

C. Exemption for gains arising from the end-of-period revaluation of Turkish Lira Deposit and Participation Accounts

Corporate taxpayers who transfer their foreign currencies in their balance sheets dated 31/12/2021 to Turkish Lira deposits or participation accounts in the period and manner stipulated in the Law until the date of submission of the declaration for the fourth provisional taxation period (17.02.2022) will be exempt from corporate tax on interest and dividend income accrued as of the end of the period, including the provisional taxation periods ending on a date prior to the maturity of the deposits or participation accounts.

“Example: The interest accrual arising from the valuation of the Turkish Lira deposit account with a maturity of 6 months and 15% interest payment, which was opened as a result of (E) A.Ş.’s conversion of USD 1.000.000 in its balance sheet dated 31/12/2021 into a Turkish Lira deposit account on 14/1/2022, is as follows: (1 USD 13,5400 TL on 14/1/2022)

The interest amount accrued by (E) A.Ş. for the period 14/1/2022-31/3/2022 over the deposit account amounting to TL 13.540.000,00 with a maturity date of 14/7/2022 (USD 1.000.000 x TL 13,5400=) is TL 422.893,15.

(E) A.Ş. will be able to benefit from the exemption under the provisional article 14 of the Corporate Tax Law due to the interest amount of 422.893,15 TL calculated as of the end of the first provisional taxation period.

In addition, (E) A.Ş. will be able to benefit from the same exemption due to the interest amount to be calculated as of the end of the second temporary taxation period (1/4/2022-30/6/2022).”

D. Exemption for Income from Turkish Lira Deposit and Participation Accounts on the Maturity Date

Interest or dividend income and other gains obtained at the end of maturity from Turkish Lira deposit or participation accounts to which foreign currencies converted in the period and manner stipulated in the law will be exempt from corporate tax.

“TL 1.007.153,42, which is the interest income obtained by (E) A.Ş. from the Turkish Lira deposit account with a maturity of 6 months and 15% interest payment at the end of maturity (14/7/2022), will be exempt from corporate tax, taking into account the interest amounts accrued at the end of the temporary taxation periods ending before the maturity date and exempted from corporate tax.

On the other hand, assuming that the exchange rate is 12,2000 TL as of the maturity date (14/7/2022), there will be no additional payment to the interest income to be paid by the bank since the maturity date rate is lower than the conversion rate (13,5400 TL).”

Communiqué Serial No. 19 is available here.

Our circular dated 29.01.2022 and numbered (8) is also available here.

Sincerely,

BİLGENER

^[1] Geçici 14’üncü maddede en az 3 aylık vade öngörülmesine rağmen Merkez Bankasının konuyla ilgili Tebliğlerinde bankalar tarafından yurt içi yerleşik tüzel kişiler için 6 ay veya 1 yıl vadeli Türk lirası mevduat veya katılma hesabı açılacağı düzenlenmiştir. Bu sebeple, değişiklik yapılmadığı takdirde düzenlemeden yararlanmak isteyen mükelleflerin en az 6 ay vadeli mevduat hesabı açmaları gerekmektedir.