Significant changes to tax legislation by Law No. 7417 – Corporation Tax

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  1. LEGISLATION CHANGES

Significant tax changes on the following items have been made by law number 7417 amending the law on public personnel, certain laws and decree-law number 375 (“Right“) published in the Official Journal of July 5, 2022 and numbered 31887.

  1. Deadline for deducting interest on capital increases in cash

50% of the amount calculated until the end of the accounting year concerned and 75% for the share of capital increases in cash which is financed by cash brought in from abroad may be deducted from the company’s result when determining the the corporate tax base taking into account “Weighted average annual interest rate charged by banks for Turkish lira commercial loans (“TRY“)” announced by the Central Bank of the Republic of Turkey for the year in which the reduction will be enjoyed, which is calculated on cash capital increases in the amounts of paid-up or issued capital of joint-stock companies during the relevant accounting period, or on the part of the paid-up capital covered in cash in newly incorporated joint-stock companies, with the exception of institutions operating in the finance, banking and insurance sectors and public enterprises.

With the amendment to the third paragraph of paragraph (ı) of the first paragraph of Article 10 of the Corporation Tax Law number 5520 pursuant to Article 49 of the Law, the benefit period of this reduction is limited to the accounting period during which the decision to increase capital or the articles of association is recorded in the minutes of incorporation and the four financial years following this period. In addition, with the thirteenth paragraph of provisional article fifteen added to the law on corporation tax pursuant to article 50 of the law, it is provided that companies which increase their capital and are incorporated for the first times before July 5, 2022 will benefit from the reduction for five accounting years, including accounting year 2022.

  1. Increase in special fines for irregularity

With the amendments to the first and second paragraphs of Article 353, first paragraph, of the Tax Procedures Act (“DPT“) numbered 213 pursuant to article 27 of the law;

  1. In the event that invoices, expense reports, producer receipts and self-employment invoices which must be issued and received, including those which must be issued in the form of electronic documents, are not issued or received; or any amount other than the actual amount included in these documents; or while these documents must be issued in electronic form, they are issued in paper form except in the mandatory cases determined by the Ministry of Treasury and Finance (“Ministry“) or deemed not to have been issued at all; the special minimum fine for irregularity to be imposed on each of those required to issue and receive such documents has been increased from TRY 240 to TRY 1,000 for each document and the fine limit the total fine for special irregularity to be imposed for each document in a calendar year has been increased from TRY 120,000 to TRY 500,000.

  2. In the event that retail receipts, receipts issued with a payment recorder, entry and passenger transport tickets, delivery notes, waybills, passenger lists, customer lists daily newspapers and documents whose issuance is imposed by the Ministry, including those that must be issued because electronic documents are neither issued, nor used, nor kept; or the originals and copies of these documents contain different amounts; or issued contrary to the fact; or while these documents must be issued in electronic form, they are issued in paper form, except in the compulsory cases determined by the ministry or deemed not to be issued at all; the special irregularity fine for each document has been increased from TRY 240 to TRY 1,000 and the ceiling of the total special irregularity fine for each document has been increased from TRY 12,000 to TRY 50,000 for each determination and from TRY 120 000 TRY to 500,000 TRY for one calendar year.

With the additions made to the first paragraph of article 355 duplicate of the LPT pursuant to article 28 of the law, the following special fines for irregularity will be imposed on natural or legal persons providing services carrying out commercial activities in the electronic environment and/or intermediary service providers natural and legal persons who provide the electronic commerce environment for the economic and commercial activities of third parties governed by the duplicate of article 257 of the TPL:

  1. in the event of non-compliance with the notification obligations concerning their commercial activities,
    • the special fine for irregularity will be applied fivefold for first-class traders and self-employed (3,400 TRY for 2022) and for second-class traders, farmers who keep books and those whose income is determined in simple procedure (TRY 1,700 for 2022),

    • the special fine for irregularity will be applied twice for other natural or legal persons (880 TRY for 2022),


  2. in the event of non-compliance with the obligation to notify the beneficial owner,
    • the special fine for irregularity will be applied threefold for first class traders and self-employed persons.

  1. Authorization to the Ministry to Obtain Beneficial Ownership Information

With the addition of the ninth paragraph to the first paragraph of duplicate article 257 of the LPT pursuant to article 26 of the Law, the Ministry is authorized to determine the perimeter of the beneficial owner in order to determine that the information on the beneficial owner membership of legal persons and associations without legal personality is up to date, complete and accurate, to impose the obligation of notification to those who fall within this scope, to determine the content, format, standard, time limit and method of notification, to make changes to these , to determine the obligation to make notifications by sector, groups of taxpayers and tax liability status, to impose an obligation to protect and submit information and notifications within this framework in an electronic environment, and to determine other procedures and principles concerning the implementation.

  1. Effective date of the change in the corporate tax rate applicable to certain financial institutions

In accordance with article 25 of law number 7394 amending the law amending the valuation of real estate of the Treasury and the law on value added tax and certain laws and decree-laws (“Law numbered 7394“), the corporate tax rate applied to the income of companies falling under Law No. 6361 relating to leasing, factoring, financing and savings financing companies, payment institutions electronic and monetary institutions, licensed foreign exchange institutions, portfolio management companies, capital market institutions, insurance and reinsurance companies and pension companies was set at 25%, and it was regulated that this rate will come into effect “April 15, 2022 and will be applied to corporate profits for the 2023 tax period”.

With the amendment made to subparagraph (c) of the first paragraph of Article 39 of Law No. 7394 pursuant to Article 57 of the Law, the date of entry into force of the rate in question has been specified with the regulation as being “April 15, 2022 which is to be applied to the profits of the company for the tax periods of 2023 and the following years“.

  1. EFFECTIVE DATE

In application of article 65 of the law, articles 27 and 28 of the law published in the Official Journal on July 5, 2022 increasing the special fines for irregularity entered into force on August 1, 2022; article 26 empowering the ministry to obtain information on beneficial owners, article 49 establishing a time limit for deducting interest from capital increases in cash; and Article 57 specifying the date of entry into force of the modification of the corporate tax rate applicable to certain financial institutions which entered into force on the date of publication of the law.

  1. CONCLUSION

Significant changes in certain tax regulations have been made to the law. As part of these amendments, a time limit for the deduction of capital increases in cash defined by the Corporation Tax Act has been introduced, certain special irregularity fines imposed under the TPL have been increased, the Ministry has been authorized to obtain the beneficiary information and the effective date of the change in the corporate tax rate applicable to certain financial institutions has been clarified.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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