Determination of the Earnings from Investment and the Investment Contribution Amount that can be Used in Solar Power Plant (SPP) Investments

Determination of the Earnings from Investment and the Investment Contribution Amount that can be Used in Solar Power Plant (SPP) Investments

Summary

Solar power plant (SPP) investments are encouraged within the scope of regional supports according to the Decree on State Aids in Investments No. 2012/3305. In the application of discounted corporate tax, it is necessary to determine the earnings from the investment correctly. The profit from the investment may arise from the cost advantage provided by the investment and the paid sale of the extra energy produced. If this gain is low, it leads to late utilization of the investment contribution amount. For this reason, in SPP investments, it is important to apply reduced corporate tax on earnings from other activities during the investment period.

With the Decree Amending the Decree on State Aids in Investments (Presidential Decree No. 5209) published in the Official Gazette dated 24.02.2022 and numbered 31760, solar and wind power-based electricity generation facility investments were included in the scope of regional supports, provided that they are within the scope of unlicensed activities and limited to the contract power in the connection agreement.

It is regulated in the same Decree that the investments in question can benefit from the regional supports applied in the 4th region if they are realized in the 1st, 2nd and 3rd regions; and in the 4th, 5th and 6th regions if they are realized in the 4th, 5th and 6th regions.

Following this regulation, it is seen that many manufacturing companies have started to invest in the installation of solar energy systems on the roofs of their factory buildings. Of course, the increase in energy costs has a great share in the increase in these investments. Thanks to the SPP investment, energy costs are minimized on the one hand, and on the other hand, a part of the investment is covered by the State by subjecting the earnings from the investment to discounted corporate tax.

1. Investment Contribution Rate/Amount

The portion of the investment covered by the State “investment contribution rate” is expressed as. Although it varies according to the region where the investment is made, since the support elements of the 4th region will be applied for the first 4 regions in SPP investments, the investment contribution rate will be applied as 30%. If the investment is made in the 5th or 6th regions, 40% and 50% rates apply respectively.

For example, (4.000.000*30%) =1.200.000,00-TL (investment contribution amount) of a GES investment of 4.000.000,00-TL to be made in the 1st region will be covered by the State by applying discounted corporate tax. If an investment of the same amount is realized in regions 5 and 6, the investment contribution amounts will be (4.000.000*40%)=1.600.000,00-TL and (4.000.000*50%)=2.000.000,00-TL, respectively.

The investment contribution amount is not a direct support, but is reached through the reduced application of corporate tax. At this point, the question arises as to which earnings will be subject to the reduced rate of corporate tax.

1. Determination of Gain on Investment

The basic logic of the reduced corporate tax, the gain on the investment The corporate tax rate is lower than the normal rate. In other words, it is a question of determining the earnings of the investing enterprise from that investment and applying the corporate tax to the relevant earnings at a reduced rate. Of course, with the amendment made to Article 32/A of the Corporate Tax Law while the investment continues

Discounted corporate tax may also be applied to earnings from other activities. However, since SPP investments are not long-lasting investments, it may not be possible to use a significant portion of the total investment contribution amount with the reduced corporate tax to be applied to earnings from other activities during the investment period. Even if it is possible to utilize the remaining investment contribution amount, it will still be a matter of which earnings will be subject to reduced corporate tax after the investment period.

In this case, the following options may be considered to determine the income to which the reduced corporate tax will be applied:

1. The amount to be found as a result of the calculation to be made by determining the ratio of the investment amount within the economic assets subject to depreciation can be considered as the gain from the investment.
2. The amount to be found as a result of the calculation of the energy cost advantage provided by the investment can be considered as the gain from the investment.
3. The income generated from the sale of surplus energy obtained from SPP investments to the State in accordance with the relevant legislation can be considered as income from the investment.

Each of these options may have its own controversial aspects. It may even be a matter of debate whether these investments will benefit from the advantageous aspects of the provisional Article 8 of Decree 2012/3305. Without going into the controversial issues in this article, let us only refer to an exemplary Privilege regarding the income to which the reduced corporate tax can be applied.

The answer to the question on how to determine the income to be subject to reduced corporate tax upon the company’s gain from this investment by saving costs due to the fact that the electricity produced within the framework of the investment in the status of a complete new investment made within the scope of the incentive certificate for the purpose of generating electricity from waste heat is not subject to sale and used in production by the investor company, is given below in the Specialization No. 68509125-125.01-[2015/01]-11 dated 14.09.2015 of Bolu Treasury:

“From the examination of your special request form and its annexes, it has been understood that a part of the electrical energy requirement for your activities is met from the electricity generated from waste heat within the scope of your complete investment in question, and a smaller amount of electrical energy is purchased from outside, thus the unit production costs of your company are reduced by the difference between the unit price of the electrical energy supplied from outside and the unit cost of the electrical energy produced from waste heat, and that your investment within the scope of the investment incentive certificate is profited by saving on production costs.

Accordingly, as a result of your investment within the scope of the incentive certificate, if the electrical energy produced from waste heat sources and used in your activities is purchased from outside, it is possible to consider the difference between the price to be paid directly for electrical energy (excluding elements related to electricity consumption such as VAT, TRT Share, BTV and Energy Fund) and the costs you incur due to the production of this electrical energy by your company as income to be subject to reduced corporate tax.”

It is seen that the opinion is expressed in the second one of the above-mentioned options as the gain from the investment. Accordingly, the difference between the direct financial equivalent of the amount of energy provided from the investment and consumed in operation (excluding VAT and various fund fees) and the cost incurred to provide this energy (SPP depreciation, labor expenses for its operation, periodic cleaning and maintenance expenses can be counted among the costs) will be considered as the gain from the investment.

3. Investment Contribution Amount that can only be utilized in case of gain from the investment

Let’s try to explain the discounted corporate tax amount to be provided from a SPP investment within the scope of the opinion declared in the special opinion with the help of an example.

Example: (A) Joint Stock Company started a rooftop SPP investment of 6.000.000,00-TL in Uşak province on 05.08.2022 and the investment was commissioned on 30.09.2022. The direct financial equivalent of the amount of energy consumed by being produced and consumed in the enterprise instead of being purchased from outside due to the investment is 2.700.000,00-TL. The cost incurred during the period for the production of energy is TL 700,000.00 (TL 600,000 depreciation and TL 100,000 other expenses).1 The company’s third provisional tax period resulted in a loss of TL 100,000.00, but a corporate tax base of TL 10,000,000.00 at the end of the 2022 accounting period.

Although Uşak is located in the 3rd region, the SPP investment will benefit from the 4th region supports. For this reason, the contribution rate to investment will be considered as 30% and the amount of contribution to investment will be calculated as (6.000.000,00*30%)=1.800.000,00.-TL. Therefore, this amount is the part of the investment to be covered by the State by applying discounted corporate tax.

Since there is no income from other activities during the investment period, only the income from the investment will be subject to reduced corporate tax.

The profit obtained from the investment is the difference between the direct financial equivalent of the amount of energy (2.700.000,00-TL) consumed by being produced and consumed in the enterprise instead of being purchased from outside due to the investment and the total costs of the period incurred for the production of energy (700.000,00-TL). Accordingly, in the 2022 accounting period, (2.700.000-700.000)=2.000.000,00-TL profit was obtained from the investment. This amount also represents the base subject to reduced corporate tax.

The tax base of the company at the end of the accounting period is 10.000.000,00-TL and a reduced corporate tax rate will be applied to 2.000.000,00-TL of this amount and the normal corporate tax rate will be applied to the remaining 8.000.000,000,00-TL.

Accordingly, the company’s corporate tax for the 2022 accounting period and the investment contribution amount utilized will be calculated as follows:

Table 1: Investment Contribution Amount to be Calculated on the Earnings from SPP Investment

*It is assumed that all of the gain arises from manufacturing.

The amount of contribution to investment that the company benefits from by applying discounted corporate tax is 306.800,00-TL. Although it is assumed that the company has a very high profit compared to the investment amount, approximately (306.800/1.800.000*100)= 17% of the investment contribution amount could be used in the first year.

In order to be able to use the remaining investment contribution amount, it is necessary to earn 1.493.200/0,1534=9.734.029,00-TL from the investment.

This raises the possibility that the investment contribution amount may be utilized at a slower pace than expected in SPP investments. This possibility arises because it is difficult to utilize the institution during the investment period due to time constraints. Despite this difficulty, a portion of the investment contribution amount can be utilized, especially during temporary tax periods, by applying discounted corporate tax on income from other activities for expenditures made before the investment is put into operation.

4. Investment Contribution Amount that can be Utilized in case of Income from Other Activities during the Investment Period

It may be more advantageous to use the investment contribution amount by applying discounted corporate tax on earnings from other activities during the investment period than on earnings from SPP.

This can be explained with the help of the above example. Although the data in this example is the same, let us assume that the company has made a profit of TL 5.000.000,00 in the third provisional tax period and that all expenditures have been completed as of this provisional tax period.

As it is known, starting from the date when the enterprises actually start their investments, as a deduction from the investment contribution amount to be calculated;

a) Not exceeding the ratio of the total investment contribution amount determined by the Council of Ministers Decree and

b) Not exceeding the amount of investment expenditure realized

In addition, it is possible to apply discounted corporate tax on the earnings from other activities during the investment period.

The rate to be applied in the determination of the first of the two above-mentioned restrictions is set as 80% in Article 15/5 of the Decree No. 2012/3305.

According to the investment expenditure of 6.000.000,00-TL made as of the 3rd provisional tax period, the investment contribution amount of 6.000.000,00*30%*80%=1.440.000,00-TL can be used during the investment period.

Şirketin dönem kazancı olan 5.000.000,00-TL’ye, kurumlar vergisinin indirimli uygulanması ile yararlanılacak yatırıma katkı tutarı şu şekilde hesaplanır:

Table 2: Investment Contribution Amount to be Benefited in Case of Reduced Corporate Tax on Earnings from Other Activities during the Investment Period

* It is accepted that all of the gain arises from manufacturing.

As can be seen, if the reduced corporate tax is applied during the investment period, it may become possible to use a significant portion of the investment contribution amount (767.000/1.800.000=42%). Since the investment is commissioned as of the end of the third provisional tax period, it will not be possible to apply the reduced corporate tax to the earnings from other activities in the following period. After the investment is commissioned, reduced corporate tax will be calculated only on the income from the investment as in the first example.

At the end of the accounting period, considering the contribution amount of 306.800,00-TL calculated over the profit obtained from the investment, a total of (306.800+767.000)=1.073.800,00-TL contribution amount will be used. This corresponds to approximately (1.073.800/1.800.000*100)= 60% of the total investment contribution amount.

5. Sale of Part of the Produced Energy

In line with the regulations of the Ministry of Energy and Natural Resources, the portion of the energy obtained from SPP investments that exceeds self-consumption can be sold under certain conditions. The restrictions on this sale are included in the Decision of the Energy Market Regulatory Board published in the Official Gazette dated 11.08.2022 and numbered 3120.

Without going into the details of this Decision, it should be noted that enterprises will be able to sell the excess of the energy they produce in proportion to their own consumption for a fee.

In this case, it would be necessary to accept that the income from energy sold for a fee is also a return on investment.Thus, it can be stated that the third of the above options can also be included in the scope.

If we continue with our example on the subject, let’s assume that (A) Joint Stock Company sells 2.700.000,00-TL of the energy it produces as of the end of the accounting period for a fee.

In this case, at the end of the accounting period (10.000.000+2.700.000)=12.700.000,00-TL corporate tax base is formed.

The total gain from the investment within the tax base will be (2.700.000+2.700.000-700.000)=4.700.000,00 TL.

Accordingly, the company’s corporate tax for the 2022 accounting period and the investment contribution amount utilized will be calculated as follows

Table 3: Investment Contribution Amount to be Benefited in case of Sale of Part of the Energy Generated

* It is accepted that all of the gain arises from manufacturing.

The sum of the company’s income from the consumption of the SPP investment and the income from the energy sold is 4.700.000,00-TL. The investment contribution amount calculated over this gain is TL 720.980,00. The amount of contribution to investment used by the company by applying discounted corporate tax to the earnings from other activities in the provisional tax period is 767.000,00-TL. Therefore, the total investment contribution amount utilized is (720.980+767.000)=1.487.980,00-TL. This amount constitutes (1.487.980/1.800.000*100)=82% of the total investment contribution amount.

Conclusion

The above-mentioned explanations and examples demonstrate the importance of starting to benefit from the facility primarily during the investment period in order to utilize the total investment contribution amount that can be utilized in SPP investments in the fastest way possible. In addition, if the capacity is sufficient and it is possible according to the relevant legislation, the sale of the self-consumption surplus also makes it possible to benefit early.

The fact that discounted corporate tax cannot be applied to earnings from other activities during the investment period, and the fact that the energy produced cannot be subject to sale due to low capacity or relevant legislation may cause the investment contribution amount to be used late, and therefore the investment to be financed late by the State. It would be appropriate for those who will make SPP investments to take this into consideration when calculating the tax advantages of the issue.

Author: Ömer BİNİCİ 

Certified Public Accountant

(E. Finance Inspector)

[email protected]

This article In the 2022/December issue of Tax Issues Magazine has been published.

Sincerely,

BİLGENER