Abandonment of Qualified Investment Contribution Amount from Other Tax Debts May Be Especially Useful for SPP Investments with Low Calculated Earnings

Abandonment of Qualified Investment Contribution Amount from Other Tax Debts May Be Especially Useful for SPP Investments with Low Calculated Earnings

For investments with incentive certificates, a maximum of 80% of the investment contribution amount (ICR) can be used by applying reduced tax on earnings from other activities and the remaining 20% on earnings from the investment. This practice, which can be referred to as advance use of the IIT, is very attractive for enterprises in the inflationary period. For example, a rooftop SPP investment with a budget of 10.000.000 TL with an investment contribution rate of 30% and a tax deduction rate of 70%. For this investment, the total RER and the periods in which it can be used are as follows:

As can be seen, TL 2.400.000 of the TL 3.000.000 total CET can be used during the investment period and TL 600.000 can be used during the operation period. It should also be noted that these amounts may occur if the earnings are sufficient in the investment period. In case of insufficient earnings, a larger portion of the ROE may have to be utilized during the operation period.

Low Earnings in SPPs and Utilization of the RRT

In the absence of the possibility of external energy sales, the return on investment in SPPs is quite low after deducting depreciation and other expenses. For this reason, the utilization of the remaining 20% of the RER takes a long time (detailed information can be found in the article we published on the subject in 2022).

To continue with the example, let’s assume that the income obtained due to energy savings in the investment in question is 2.000.000-TL per year. If normal depreciation is allocated, a depreciation expense of 1.000.000 -TL is calculated over 10%. It can also be assumed that there are 360.000 (30.000*12) wages due to a personnel employed and 140.000 TL expenses due to other operating costs (these assumptions are quite close to the actual situation).

In this case, the gain from the investment will be (2.000.000-1.000.000-1.000.000-360.000-140.000)=500.000 TL.

The tax deduction rate of 70% means that a reduced tax rate of (25-25*70%)=7,5% will be applied. In this case, (500.000*25%)-(500.000*7,5%)=87,500 TL YKT will be used.

Therefore, only TL 87,500 of TL 600,000, which is the maximum ACT that can be used in the operating period, will be used in the first year.

It is possible to index the remaining ACT, but the amount of available ACT will increase only slightly. This is because energy costs are not as high as in the previous period and the depreciation of the SPP will also increase due to inflation adjustment. In the case of accelerated depreciation, or double depreciation based on half of the useful life in accordance with the provisional Article 30 of the Tax Procedure Law, almost no gain on the investment will be calculated in the first years.

In such a case, it may be preferable to write off the GCT against tax liabilities instead of using it by applying a small amount of reduced tax over the years.

Utilization of the ACT by way of Tax Debt Cancellation

In the eighth paragraph added to Article 32/A of the Corporate Tax Law with the Law No. 7338, it is stipulated that 10% of the amount determined by applying the investment contribution rate to the investment expenditure made on the basis of the investment incentive certificate can be used by canceling other accrued tax debts, excluding special consumption tax and value added tax.

Explanations on the subject are included in the Corporate Tax General Communiqué Serial No. 23 published in the Official Gazette dated 28.09.2024 and numbered 32676.

Accordingly, the following issues will need to be complied with for the investment contribution amount that can be used:

1. The amount that can be requested for cancellation cannot be more than half of the amount found after deducting the investment contribution amount used through discounted corporate tax from the investment contribution amount.
2. It will be accepted that the investment contribution amount corresponding to one times the investment contribution amount used through the cancellation of other tax debts is also waived.
3. Thus, the amount of contribution to investment will be reduced by the amount requested for the cancellation of other taxes and the amount of contribution to investment waived due to the cancellation.
4. The cancellation request must be fulfilled until the end of the second month following the month in which the corporate tax return should be submitted.

In the light of these regulations, the amount that can be requested for the above-mentioned SPP investment will be half of what is left after deducting the previously used portion of 2.400.000 TL from the total investment contribution amount of 3.000.000 TL. This amount is (600.000/2)=300.000 TL, which is half of 600.000 TL. This amount is also 10% of the total ACL.

In the event that this amount is used, the YKT up to one times this amount will be waived. In other words, 300.000 TL will be used and the remaining 300.000 TL will no longer be utilized. In this case, since the remaining RIT will be consumed, there will be no RIT that can be utilized within the scope of the investment in question.

Here, a calculation should be made according to the time value of money. Especially in periods of cash flow problems, advantages spread over time may be preferred over those that can be utilized in the current period.

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