Amendments to the Corporate Tax General Communiqué on Interest Deduction in Cash Capital Increase
On 01.03.2023, the 21st Series of the Communiqué was published in the Official Gazette No. 32119, making changes to the 1st Series of the Corporate Tax General Communiqué. The changes related to the cash capital increase and the interest discount are outlined below:
1. Application of a 75% Discount Rate for Capital Increase Funded by Cash Brought from Abroad
Previously, with the Law No. 7338 published on 26.10.2021, an article was added to the Corporate Tax Law No. 10, stipulating that a 75% discount rate would apply to the portion of the capital increase financed by cash brought from abroad. With the current Communiqué (Series No: 21), this provision has been included at the end of the “10.6. Capital Increase Discount” section of the Corporate Tax General Communiqué (Series No: 1) as follows: “On the other hand, a discount rate of 75% will be applied to the portion of the capital increase funded by cash brought from abroad.”
2. Limiting the Cash Capital Discount Right to 5 Accounting Periods
With the change made by Law No. 7417 dated 05.07.2022, the unlimited benefit from the discount arrangement was limited to the accounting period in which the capital increase decision was made or the memorandum of association was registered for the initial establishment, as well as the following 4 accounting periods.
The “10.6.3.2. Separate Use of the Discount for Each Accounting Period” section of the Corporate Tax General Communiqué (Series No: 1) has been completely revised, with the new title being “Benefit from the Discount for Five Accounting Periods.”
According to this new arrangement, for capital increases made after the law came into force on 05.07.2022, the discount will be applied separately for five accounting periods starting from the accounting period in which the capital increase decision was made or the memorandum of association was registered. If capital is reduced in subsequent periods, the portion of the cash capital increase that is reduced will not be included in the discount calculation. However, if a capital increase is made after a reduction, the discount can be applied to the newly increased capital if the conditions stipulated in the Communiqué are met.
2.1. Capital Increase After 05.07.2022
For cash capital increases made after 05.07.2022, the discount will be available for five accounting periods starting from the period of the increase.
Example: The decision to increase (BA) A.Ş.’s capital by 10,000,000 TL was made on 03.12.2022, registered with the trade registry on 10.02.2023, and the full commitment was paid into the company’s bank account within the same month. (BA) A.Ş. will benefit from the discount for 11 months of the 2023 accounting period, and provided that the conditions are met, this capital increase will continue to benefit from the discount until the 2027 accounting period (inclusive) for each of the accounting periods.
2.2. Capital Increase Before 05.07.2022
Companies that made capital increases before 05.07.2022 or were established for the first time can continue to benefit from the discount for five accounting periods, including the 2022 accounting period.
Example: The decision to increase (BB) A.Ş.’s capital by 6,000,000 TL was made on 03.08.2015, registered with the trade registry on 24.08.2015, and the full commitment was paid into the company’s bank account within the same month. (BB) A.Ş. will benefit from the discount for 5 months in the 2015 accounting period, and provided that the conditions are met, will continue to benefit from the discount for the following five accounting periods (until the 2026 accounting period).
3. Carrying Forward the Discount Due to Insufficient Profit
With the 21st Communiqué, it has been regulated that the discount amount, which could not be used in the current period due to insufficient profit during the five accounting periods in which the cash capital increase occurred, can be carried forward to the next periods without a time limitation or adjustment for inflation.
This rule is also reflected in the Corporate Tax General Communiqué (Series No: 1) with examples:
Example 2: (DA) A.Ş., which made a cash capital increase in 2023, calculated a total discount of 800,000 TL until the 2027 accounting period, but due to insufficient profit, only 600,000 TL of this amount could be used. The remaining 200,000 TL, which could not be deducted from the corporate income due to insufficient profit, will be applied to the taxable income in the future periods when there is profit, without any inflation adjustment.
Example 3: (AB) A.Ş., which increased its capital by 3,000,000 TL on 11.04.2018, was unable to use the discount due to financial loss in the 2021 and 2022 accounting periods. The discount amount that could not be deducted from the corporate income due to insufficient profit can be carried forward to future periods when there is profit, and the discount will be applied to the taxable income in those periods, without being subject to any inflation adjustment and regardless of the five accounting periods’ limitation set for 2022 accounting period.
4. Availability of the Discount for Each Annual Accounting Period
Previously, the calculation of the discount amount was subject to the commercial credit interest rates announced by the CBRT for the relevant year, and this discount could only be used for the fourth provisional tax period. With the cancellation of the fourth provisional taxation period, the regulation has been changed to: “The discount can only be used for each annual accounting period.”
You can access the relevant Communiqué here.
Best regards,
BİLGENER
