In an effort to ensure the sustainability of the national economic growth, reduce the burden of public debts incurred by the private sector and encourage taxpayers to resolve tax law disputes without litigation, the government prepared a new comprehensive law on the restructuring of public receivables. On Aug. 19, 2016, “Law on the Restructuring of Certain Receivables (Law) was published in the Official Gazette and has entered into force.
The Law introduces a new tax amnesty for certain tax receivables and Turkish residents’ assets abroad. Furthermore, the Law also includes a voluntary tax base increase, which provides a protection against tax audits for related taxes.
Tax Amnesty for Tax Receivables at the Tax Inspection or Tax Assessment Stage
Tax inspections and tax assessment that are initialized but haven’t yet been completed by the promulgation date of the Law will continue to be carried out. Once these tax assessments are completed, the 50 percent of the original tax amount, the entire tax loss penalty and the related delay interests will be written off if the taxpayers pay the first 50 percent of the original tax amount and the amount to be calculated based on the Producer Price Index (PPI) monthly rates until the promulgation of the Law.
Tax Amnesty for Tax Receivables at the Litigation Stage
The entire tax loss penalty, the related delay interests and the remaining original tax amount after the following reductions are made will be written off provided that the taxpayer paid the following items:
- Fifty percent of the original tax amount and the amount to be calculated based on the PPI monthly rates until the promulgation of the Law for tax assessments that haven’t yet been finalized in the court of first instance or in the reconciliation process, or if the term of litigation hasn’t yet been passed.
- Twenty percent of the original tax amount and the amount to be calculated based on the PPI monthly rates until the date the Law is promulgated if the last decision on the tax assessment made before the promulgation of the Law has been given in favor of the taxpayer.
If the last decision has been given against the taxpayer before the promulgation of the Law, the entire original tax amount and the amount to be calculated based on the PPI monthly rates until the promulgation of the Law must be paid, for the entire tax loss penalty and the delay interest to be written off.
Tax Amnesty for Finalized Tax Receivables
The tax amnesty addresses tax receivables that haven’t been paid on time, as well as tax receivables whose payment period hasn’t yet expired as of the date the Law is published in the Official Gazette. If the taxpayer pays the entire tax amount and the amount to be calculated based on the PPI monthly rates until the promulgation of the Law, the entire tax loss penalty and delay interests will be written off.
Tax Base Increase Mechanism for Income and Corporate Income Taxpayers
The Law states that if income and corporate income taxpayers increase their annual corporate income tax bases for fiscal years 2011 to 2015, at the rates specified in the Law, no tax inspection or tax assessment will be conducted on these taxpayers regarding the taxation period and tax type of which they increased their tax base.
Within this context, no tax inspection or tax assessment will be conducted for income and corporate income taxpayers if they increase their tax base by no less than: (1) 35 percent for 2011; (2) 30 percent for 2012; (3) 25 percent for 2013; (4) 20 percent for 2014; and (5) 15 percent for 2015.
The increased tax base will be subject to a corporate income tax rate of 20 percent. This rate is reduced to 15 percent if the taxpayers: (1) filed their corporate income tax return in due time for the fiscal year of which they want to increase the corporate income tax base; (2) duly paid the taxes due; and (3) don’t benefit from the tax amnesty for tax receivables at the litigation stage or finalized tax receivables provided in the Law.
Tax Base Increase Mechanism for VAT taxpayers
No tax inspection or tax assessment will be conducted for value-added tax (VAT) taxpayers for the taxation periods in which they increased their annual VAT tax base. The annual VAT tax base increase for each taxation period is: (1) 3.5 percent for 2011; (2) 3 percent for 2012; (3) 2.5 percent for 2013; (4) 2 percent for 2014; and (5) 1.5 percent for 2015.
Business Records Correction
Inventory and fixed assets declarations. Income and corporate income taxpayers can record their inventory, machinery, equipment and fixed assets that aren’t recorded in the company’s books but are physically held in the enterprise without triggering any tax loss penalty.
To benefit from this provision, taxpayers should declare these assets to their tax office through an inventory list that details the assets and their fair market values by the end of the third month following the promulgation of the Law.
If those assets are typically subject to 18 percent general VAT rate, 10 percent VAT should be declared and paid over the declared value of the assets. If the assets are subject to reduced VAT rate, the half rate of the reduced VAT rate should be used while calculating the VAT to be declared and paid.
Recorded assets that aren’t physically present in the enterprise. Income and corporate income taxpayers will be able to correct their business records without triggering any tax loss penalty and delay interests for their recorded assets that aren’t physically present in the enterprise by: (1) issuing an invoice; and (2) fulfilling the related tax liabilities by the end of the third month following the promulgation of the Law.
Recorded cash balance and receivables from shareholders that aren’t present in the enterprise. Corporate taxpayers can correct their business records regarding the cash balance and receivables recorded in their balance sheet as of Dec. 31, 2015, but aren’t present in the enterprise by declaring them to their registered tax office. These amounts will be taxed at a rate of 3 percent. No additional tax assessment will be made for these declared amounts.
To benefit from the tax amnesties and the tax base increase mechanism, taxpayers must apply to their tax office by the second month following the date in which the Law is published. In conjunction with their application, they must pay the required amounts stipulated, either at once or in a maximum of 18 equal installments (in which the installments will be paid on a bi-monthly basis), whose first installment period is the third month following the date in which the Law is published.
As the Law will be published in August, taxpayers will be required to apply for the tax amnesty by October and pay the required amount at once or by the first installment period in November.
If taxpayers pay the required amounts within the scope of the Law at once within due time, they’ll enjoy the following benefits:
- No interest will be calculated from the date in which the Law is published until the payment date.
- The amount to be calculated based on the PPI monthly rates until the promulgation of the Law will be reduced by 50 percent.
If taxpayers prefer to pay the required amount in installments, they must do so in six, nine, 12 or 18 installments. In this case, the required amount will be multiplied by (1) 1.045 for the six equal installments option; (2) 1.083 for the nine equal installments option; (3) 1.105 for the 12 equal installments option; and (4) 1.15 for the 18 equal installments option.
Tax Amnesty for Turkish Residents' Assets Abroad
Legal entities and real persons that are resident in Turkey can bring into Turkey their money, gold, foreign currency, securities and other capital market instruments by or before Dec. 31, 2016.
No tax audit, tax assessment, investigation or prosecution will be conducted due to the arrival of these assets in Turkey. Assets brought from abroad under the amnesty can be recorded in companies’ corporate books. There’ll be no restrictive regulation of the recording process. Adding these assets to companies’ share capital, maintaining them in a special account or using them to pay debts will be at the companies’ discretion.
These assets won’t be taken into account in the calculation of corporate income, and their withdrawal from the company won’t be deemed a dividend distribution. Therefore, they won’t be included in the income tax or corporate income tax basis calculation.
The Law doesn’t provide any information as to how the declaration process will be carried out by the taxpayers who wish to declare their assets abroad in Turkey. We believe that the Law has left this issue to the secondary legislation. We expect that the Ministry of Finance will publish a new communiqué regarding how the notification will be made.
The affected taxpayers should be aware of the Law and take the necessary steps to benefit from the new tax relief.