23.03.2023/44

23.03.2023/44

Provisions on Tax Base Increase in the Law No. 7440 on Restructuring Certain Receivables and Amending Some Laws

Provisions on Tax Base Increase in the Law No. 7440 on Restructuring Certain Receivables and Amending Some Laws

The Law No. 7440 on Restructuring Certain Receivables and Amending Some Laws was published in the Official Gazette No. 32130 on 12.03.2023. According to this law, a tax base increase can be made for the years 2018, 2019, 2020, 2021, and 2022 concerning income and corporate tax, value-added tax, and some income and corporate tax withholdings. The provisions on tax base increase are found in Article 5 of the law and Temporary Article 1.

There will be no tax inspection or other assessments for the years in which taxpayers make a tax base increase.

1. Income and Corporate Tax Base Increase

The tax base increase for income and corporate taxes does not have to be made for all the specified years (2018, 2019, 2020, 2021, and 2022). It can be done for the desired year or years.

The increased tax bases will be taxed at a rate of 20%. If the annual tax returns for the year in which the increase is to be made have been filed within the legal deadline, the taxes on these returns and the stamp duties related to the returns have been paid on time, and the provisions of Articles 2 and 3 of this law have not been used for these tax types, the tax will be levied at 15% on the increased base.

Income Tax Payers’ Tax Base Increase Rates and Minimum Increase Amounts
Year of Declaration	Tax Base Increase Rate	Minimum Amount for Business Account Basis	Minimum Amount for Balance Sheet Basis
2018	%35	63,800	94,000
2019	%30	66,400	99,600
2020	%25	70,500	105,800
2021	%20	75,000	112,400
2022	%25	105,000	200,000

In cases where a loss has been declared or there is no taxable base due to deductions and exemptions in the tax returns submitted for the years in which the tax base increase is intended, or no tax return has been filed, the minimum amounts specified in the table above will be taken into account.

The taxes paid on the increased tax bases cannot be considered as costs or expenses. The entire tax paid on the tax base increase is considered a Non-Deductible Expense according to the law.

Tax Base Increase for 2022

For the tax base increase in relation to the year 2022, the terms and conditions are regulated under the temporary article 1 of the relevant law. The conditions are as follows:

• For the year 2022, an income or corporate tax return must have been submitted.
• The tax base declared in these returns must be at least the higher of the amount found by increasing the tax base declared in the 2021 calendar year by 122.93% and the amount found by increasing the tax base declared in the third provisional tax period of 2022 by 40%.
• If taxpayers have filed a tax base reducing correction return after January 1, 2023, the base before the correction will be considered in the comparison above.
• If no tax return was submitted in the third provisional tax period, the amount found by increasing the tax base declared in the second provisional tax period by 100% will be taken into account. If a tax return was only submitted in the first provisional tax period, the amount found by increasing the tax base declared in this period by 300% will be taken into account in the comparison.
• If a loss was declared in the 2021 calendar year or the third provisional tax period of 2022, or there was no tax base due to deductions and exemptions, or no tax return was filed, the calculation will be made based on the minimum amounts specified in the table above.

The 50% of the losses of income or corporate tax taxpayers for the years in which they have made a tax base increase cannot be offset against profits in 2022 or the following years. Additionally, if a tax base increase is made for the year 2022, all losses for this year cannot be offset against profits in 2023 or subsequent years.

If corporate tax payers have income or revenues subject to withholding tax according to article 61 of the Income Tax Law No. 193 and wish to make a tax base increase for the relevant year, the tax base increase rates in the table above will apply.

Moreover, if these income and revenues have not been declared through a withholding tax return, they must be declared with a withholding tax base at least 50% of the minimum amounts in the Corporate Taxpayers table above by May 31, 2023. A tax rate of 15% will be applied on the increased base.

2. Value Added Tax (VAT) Tax Base Increase

For Value Added Tax (VAT) taxpayers, if they increase the VAT declared in the tax returns submitted for each tax period according to the specified rates, no VAT audit or assessment will be conducted for the relevant periods:

VAT taxpayers must increase the relevant tax base for all the tax periods of the year they are increasing. If taxpayers start or cease their activities during the year, they will only increase the tax base for the tax periods in which they have been operational according to the following principles.

For taxpayers benefiting from the deferral-cancellation application under the first paragraph, item (c), and the temporary article 17 of the VAT Law No. 3065, the deferred VAT amounts will be deducted from the calculated VAT when determining the tax base for the increase.

At Least 3 Returns Filed:

If there are at least 3 returns filed within the year, the average of the calculated VAT from all the filed VAT returns will be used to calculate the tax base for the year and the VAT increase will be applied according to the rates in the table above.

No Return or Only Two Returns Filed:

If no return has been filed or at most two returns have been filed for the year, the taxpayer must have made an income or corporate tax base increase. Then, an increase of 18% on the tax base will apply to benefit from the legal provision.

If there is no calculated VAT for any of the returns or if there are no returns filed for the entire year:

In this case, as long as the taxpayer has made an income or corporate tax base increase for the relevant year, they may benefit from the legal provision by increasing the tax base by 18%. Additionally, if there are no calculated VAT for certain returns or the entire year, taxpayers will have to increase the VAT based on the provisions above.

Taxpayers covered by the above provisions will not benefit from the legal provision unless they make an income or corporate tax base increase.

For tax audits or assessments regarding periods for which tax base increase has been requested, the right to make further audits or assessments for VAT transactions subject to cancellation, refund claims, and related tax periods remains reserved.

The VAT paid under the provisions above cannot be used as an expense or cost when determining income or corporate tax bases, and it cannot be deducted from the VAT payable or refunded in any way.

3. Withholding Tax Base Increase

Taxpayers may benefit from the tax audit exemption for certain years, provided they increase the withholding tax base and pay the relevant tax amount as specified below.

Salary Withholding Tax Increase

The increase can be requested for a full year, not just for a specific period. The tax increase rates for the relevant years are as follows:

Income and Corporate Tax Withholding Increase for Some Payments

For construction and repair works subject to withholding tax over several years (GVK 94/3; KVK 15/1-a and 30/1-a), an increase of 1% will apply for all years.

For freelance, rental, and dividend distribution withholding tax (GVK 94/2, 94/5, and 94/6; KVK 15/1-b, 15/2, and 30/3),

For other payments (GVK 94/11 and 94/13), the withholding tax rate is 25% of the rate applicable for the relevant year.

The total gross amounts for these payments in tax returns will be used to determine the base for the increase.

Only the amounts submitted in the returns during the period are considered. The amounts for the entire period are not included.

If no tax return has been submitted for the desired year or if the payment type is not included in the tax return, the minimum amount and rates specified in paragraph (ç) of the second clause of Article 5 of the law will be considered.

For dividend distribution, regardless of whether a tax return is submitted for the year or whether a dividend distribution withholding tax is included in the returns, an increase in the base for corporate tax is required to apply the increase for dividend distribution withholding tax.

If no tax return has been submitted for the year or the returns do not include dividend distribution withholding tax, the relevant corporate tax base for the years will be increased by at least 80%, and a tax of 15% will be paid over the determined amount.

Common Provisions

– Tax base increase can be made until 31.05.2023 (inclusive).

– The first installment of payments and the stamp taxes for the returns should be paid by 30.06.2023 (inclusive).

– Payments can be made in up to twelve installments.

– If all the due taxes are paid in full within the first installment period, a 10% discount will apply, excluding stamp taxes.

– If these taxes are not paid according to the law and under the specified conditions, the last day of the first installment period will be considered the due date, and the tax will be collected with a delay surcharge. However, the tax base increase provisions will not apply.

– Taxes calculated or increased cannot be considered as expenses or cost items for the determination of income or corporate tax base. Discounts, offsets, and refunds are not allowed.

You can access the relevant law here.

Best regards,

BİLGENER