17.04.2023/56

17.04.2023/56

Regulation on Additional Tax under Law No. 7440 Published.

The 10th article, 27th paragraph of the Law No. 7440 on Restructuring Certain Receivables and Amending Some Laws, dated 09.03.2023, includes provisions for Additional Tax for corporate tax payers (13.03.2023/39 Circular).

The General Communiqué on Additional Tax under Law No. 7440 (Serial No: 3) was published in the Official Gazette No. 32164, dated 15.03.2023.

All taxpayers subject to the Additional Tax are those included in the 5520 numbered Corporate Tax Law. The Additional Tax payers are as follows:

a) Capital companies,
b) Cooperatives,
c) Economic public enterprises,
ç) Economic enterprises of associations or foundations,
d) Joint ventures,
e) Corporate tax filers for limited taxpayers.

As of 06.02.2023, taxpayers with corporate tax liability in the provinces of Adana, Adıyaman, Diyarbakır, Elazığ, Gaziantep, Hatay, Kahramanmaraş, Kilis, Malatya, Osmaniye, and Şanlıurfa, as well as in the Gürün district of Sivas, are exempt from the Additional Tax provisions.

Exceptions and Deductions Related to the Additional Tax

The exceptions and deductions related to the Additional Tax, as regulated in Law No. 5520 and other laws, are as follows:

Exemptions and Discounts Outside the Scope of the Additional Tax

In the determination of the additional tax, certain exemptions and discounts considered in determining the tax base of corporate tax payers have been excluded from the scope.

The exclusions for exemptions and discounts are as follows:

– The amounts written in the “Other Deductions” or “Other Deductions and Exemptions” sections of the corporate tax declaration for the 2022 fiscal year, despite not being deductions or exemptions in terms of their nature, but rather written in these sections for the purpose of correctly determining the tax base (such as valuation differences between Turkey Accounting Standards/Turkey Financial Reporting Standards and Tax Procedure Law provisions, exchange rate gains resulting from the appreciation of the Turkish Lira in loans considered as concealed capital for the borrowing institution, cancellation of severance pay provisions, deductions for tax liabilities offset and recognized as income under the repealed Article 121 of Law No. 193),

– Amounts that have been deducted in the “Other Deductions” or “Other Deductions and Exemptions” sections of the declaration, related to cases where, under the existing double taxation agreements, Turkey does not have the right to tax or where the income should be exempted from tax in Turkey,

– Amounts exempted from corporate tax according to the provisions of bilateral or multilateral international agreements,

– The technology development zone earnings and R&D and design expenditure deductions calculated by taxpayers classified as micro and small businesses according to the Regulation on the Definition, Characteristics, and Classification of Small and Medium-Sized Enterprises,

will not be considered in the calculation of Additional Tax.

Furthermore, taxpayers classified as Micro and Small Businesses are required to calculate Additional Tax based on other deductions and exemptions within the scope of Additional Tax, and the discounted corporate tax base.

Additionally, by March 12, 2023, taxpayers classified as Micro and Small Businesses must submit the document certifying their status to the tax office they are affiliated with by the end of the month following the month in which the corporate tax return was filed.

Calculation, Declaration, and Payment of Tax

The deductions and exemptions that will be considered in the calculation of Additional Tax are explained in the “Exemptions and Deductions Subject to Additional Tax” section above.

For the 2022 corporate tax declaration, the Additional Tax will be calculated at a rate of 10% on the additional tax base.

Corporate tax base that includes the participation earnings regulated in Article 5, paragraph 1, a, as well as foreign income with a tax burden of at least 15% regulated in paragraphs b and g, will be subject to an Additional Tax rate of 5%.

Similarly, for earnings from the sale of foreign participation shares and foreign construction, repair, and technical services earnings, regulated in paragraphs c and h of the same article, Additional Tax will be calculated at a rate of 10%, but if it is proven with supporting documents that the tax burden in the country where the income was earned is at least 15%, the part of the tax calculated at 10% will be refunded at a rate of 5%. These refunds will be made by the tax offices, as explained in the third section of the Income Tax General Communique (Series No: 252).

For taxpayers with special accounting periods, Additional Tax will be calculated on the corporate tax return issued for the year 2023.

Taxpayers with commercial losses for the 2022 year, taxpayers with losses resulting from exemptions, or those with no taxable corporate tax base, must still calculate Additional Tax on the exemptions and deductions they have utilized.

No Additional Tax will be calculated on losses carried forward under the 2022 corporate tax declaration.

The calculated Additional Tax will be paid in two equal installments, with the first installment to be paid within the corporate tax payment deadline, and the second installment to be paid by the end of the fourth month following this period.

For taxpayers who have been involved in liquidation, mergers, acquisitions, and full divisions prior to March 12, 2023, no additional tax will be calculated on the exemption and deduction amounts used in the corporate tax returns filed prior to this date.

Other Matters

The Additional Tax calculated will not be recognized as an expense or deduction, and will not be offset against any tax payments, including those made abroad.

Deductions and exemptions considered in the calculation of the Additional Tax base must be shown on the declaration. If deductions and exemptions are not shown or if they are not provided in the relevant sections, the additional tax will be collected together with tax loss penalties and late payment interest.

Taxpayers who increase their corporate tax base for the 2022 period will not be exempt from an inspection and assessment for Additional Tax calculation.

Examples

Below are examples provided in the relevant Communique regarding the Additional Tax:

Example: (A) Ltd. Co., engaged in furniture manufacturing, is a taxpayer registered with the Hatay Antakya Tax Office for corporate tax purposes. The company’s corporate income for the 2022 fiscal year is 4,500,000.00 TL. Of this amount, 500,000.00 TL originates from exempt participation earnings, and 600,000.00 TL comes from the exempt earnings of its branch in the Bursa Free Zone. The company has also deducted 100,000.00 TL in the corporate tax return due to a capital increase.

Since the company is located in Hatay Province, which was affected by the earthquake on February 6, 2023, it is exempt from the Additional Tax.

Example 2: (B) Inc., registered with the Mersin Port Tax Office for corporate tax purposes, conducts part of its business activities in Adana Province.

Although part of its activities are carried out in a province affected by the earthquake and listed in the law, the company must calculate the Additional Tax for the 2022 fiscal year due to its tax registration being in Mersin Province.

Example 3: (C) Inc., which operates in the apparel sector and is registered with the Samsun Bafra Tax Office, reported a commercial loss of 4,000,000.00 TL in its 2022 corporate tax return. The company benefited from a 2,000,000.00 TL exemption for participation earnings under Article 5 of Law No. 5520.

In this case, even though the company reported a commercial balance loss, the company will still calculate Additional Tax based on the 2,000,000.00 TL exemption amount (2,000,000.00 TL x 5% = 100,000.00 TL). The Additional Tax will be paid in two equal installments in April and August of 2023.

Example 4: (D) Inc., registered with the Edirne Uzunköprü Tax Office, has a corporate income of 10,000,000.00 TL for the 2022 fiscal year. The company benefited from 1,000,000.00 TL in exempt participation earnings, 700,000.00 TL in exempt real estate sales earnings, and 500,000.00 TL in technology development zone earnings under Law No. 4691.

The company also deducted 100,000.00 TL for donations made to a campaign initiated by the President and 150,000.00 TL for a capital increase in the corporate tax return.

The Additional Tax payable by the company will be calculated as follows:

The donation made by the taxpayer in exchange for a receipt for the aid campaign initiated by the President will not be included in the tax base for the additional tax, and the additional tax calculated under the Law, amounting to 185,000.00 TL, will be paid in two equal installments in April and August 2023.

Example 5: The taxpayer (I) A.Ş., registered with the Kırşehir Tax Office, achieved a corporate profit of 25,000,000.00 TL in the 2022 accounting period, and of this profit, 2,000,000.00 TL was derived from construction work abroad and transferred to the general accounts, 4,000,000.00 TL was from capital gain, and 5,000,000.00 TL was from a sale of real estate to a financial leasing company under the condition of a lease-back arrangement. The said Company has also deducted 500,000.00 TL under the Capital Venture Fund as per Article 325/A of the Tax Procedure Law, and 250,000.00 TL for the donation made to the Cappadocia Regional Directorate, totaling 750,000.00 TL as deductions. No tax has been paid abroad on the foreign construction income.

Therefore, the additional tax payable by the mentioned company will be calculated as follows:

In the 2022 accounting period, the exemption gain from the sale-leaseback transaction, the amount allocated as a venture capital fund under Article 325/A of Law No. 213, and the donation to the Cappadocia Regional Directorate will not be included in the additional tax base. The calculated additional tax of 600,000 TL will be paid in two equal installments in April and August 2023.

Example 6: The taxpayer (H) A.Ş., registered with the Trabzon Akçaabat Tax Office, obtained an investment incentive certificate for an investment in the manufacturing industry in 2017 and completed the investment in 2021. The corporate profit declared by the taxpayer for the 2022 accounting period is 32,000,000.00 TL, with an investment-related tax base of 25,000,000.00 TL. Additionally, the company’s property was transferred to Bank A due to a debt to the bank, resulting in a profit of 4,000,000.00 TL. The company also deducted 2,000,000.00 TL under the R&D deduction and carried forward 1,000,000.00 TL as an investment deduction. 500,000.00 TL of the investment deduction was subject to withholding under the temporary Article 61 of Law No. 193.

In this case, the additional tax payable for the 2022 accounting period will be calculated as follows:

Example 7: The taxpayer (Z) Inc., which is subject to the Istanbul Beyoğlu Tax Office, completed its investment under the investment incentive certificate, which started in 2015, in 2020. The amount of investment contribution that has been earned but not yet utilized under the investment incentive certificate is 120,000,000.00.-TL, and the tax deduction rate is 80%. In the 2022 financial period, (Z) Inc. earned 50,000,000.00.-TL from this investment and 10,000,000.00.-TL from other activities. Therefore, in the corporate tax return for the 2022 financial period, the discounted corporate tax base due to this investment is 50,000,000.00.-TL, and the tax base subject to the general rate from other activities is 10,000,000.00.-TL.

Accordingly, the additional tax to be declared and paid by the taxpayer corporation in the 2022 financial period will be calculated as follows:

Example 8: The taxpayer (H) Ltd. Co., which is subject to the Kocaeli Karamürsel Tax Office, has been a 50% partner in the capital company (K) Gmbh operating in (I) country for over a year. In the 2022 financial period, the company earned 3,000,000.00.-TL as income from its participation in the company. At the same time, the taxpayer also has 6,000,000.00.-TL participation income from a fully taxable company it participated in within the country. (The relevant company’s commercial balance profit for the period in (I) country is 10,000,000.00.-TL, and the income exempt from tax under the local laws of the country is 2,000,000.00.-TL. The corporate tax rate in (I) country is 20%.)

Therefore, before calculating the additional tax to be paid by (H) Ltd. Co., the tax burden in the relevant country from the income earned from the foreign company needs to be determined.

According to Article 5/1-b of Law No. 5520, income exempt from corporate tax and bearing a tax burden of at least 15% in the relevant country, a 5% additional tax will be calculated on the exempt income. Additionally, participation income earned from domestic fully taxable companies will also be subject to the same tax rate.

Therefore, the additional tax to be declared and paid by the taxpayer corporation for the 2022 financial period will be calculated as follows:

Example 9: The company (I) A.Ş., classified as a micro-enterprise under the Regulation on the Definition, Characteristics, and Classification of Small and Medium-Sized Enterprises, operates in a technology development zone. In the corporate tax declaration for the 2022 accounting period, the company reported a commercial balance sheet profit of 3,000,000.00.-TL. Moreover, the company has an exemption income of 1,000,000.00.-TL from activities in the technology development zone. The company also deducted 500,000.00.-TL emission premium income and 500,000.00.-TL cash capital interest discount from its tax base.

In this case, the additional tax to be declared and paid by the taxpayer institution for the 2022 accounting period will be calculated as follows:

Since the taxpayer is classified as a micro-enterprise, the exemption income obtained from the technology development zone will not be subject to the additional tax.

You can access the relevant communiqué here.

Best regards,

BİLGENER