Significant Tax Amendments to the Law No. 7338

Significant amendments have been made with the Law No. 7338 on Amendments to Tax Procedural Law and to Certain Laws (“Law No. 7338”), published in the Official Gazette No. 31640 and dated 26.10.2021. Please see our other alerts about the provisions introduced with the Law No. 7338 regarding social media content producers and application developers as well as the mutual agreement procedure .

What Changes Does the Law No. 7338 Introduce?

1. Amendments to the Tax Reduction Provided for Tax Compliant Taxpayers

• The conditions for tax reductions provided for tax compliant taxpayers provided under Repeating Article 121 of the Income Tax Law has been bended.
• The reduction was provided under the condition that no additional or ex-officio assessment is made during the year pertaining to the related tax return or the previous two years. The amendment changes this condition and states that additional or ex-officio assessments should be finalized to prevent the application of the reduction. Therefore, the reduction will not be refunded from the taxpayer if an assessment is finalized after the application of the reduction. This condition will be limited with the tax returns listed in the related article (i.e. annual income and corporate tax return, advance tax return, withholding tax return, withholding and contribution return, VAT and special consumption tax returns).
• If a finalized assessment made is less than 1% of the threshold for the reduction (TRY 1.5 million for 2021), the reduction is still applicable.
• The amendment to the reduction for tax compliant taxpayers will come into effect on 26.10.2021 and will become applicable for annual income and corporate tax returns filed as of 01.02.2022.

2.Amendments to the Ordinary Audit Place and the Procedures on Initiation of Tax Audits

• Tax audits used to be conducted mainly at the taxpayers’ workplace. The amendment stipulates that tax audits will be conducted mainly at the offices (workplace of those authorized to conduct an audit). Conducting the tax audits at the tax offices will not prevent to make findings or conduct works at the taxpayers’ workplace; audits can be conducted at workplaces upon taxpayer’s request or based on availability of the workplaces.
• The amendment abolishes the “tax audit initiation minute,” which certifies the initiation of a tax audit and is the basis for the date of the tax audit’s initiation. A written notification indicating the subject and initiation of the tax audit will be notified to the taxpayers.
• The amendment will come into effect on 1.7.2022.

3.Amendments to Valuation, Revaluation, Depreciation and Replacement Fund

• The purchase price criteria used for equities is now included in the law’s existing valuation criteria.
• Matters to be mandatorily or optionally included into the cost value criteria are regulated in detail.
• The revaluation practice is now permanent. Previously, the revaluation practice implemented for twice with temporary provisions and abolished after the last inflation adjustment. Accordingly, fully liable income or corporate tax taxpayers that keep books a on balance sheet basis (except those that benefitted from the past inflation adjustment and those allowed to keep records in a foreign currency) can reevaluate their depreciable economic assets included in their balance sheets by the end of the periods when the conditions for the last inflation adjustment were not met, together with the depreciations recorded for these assets under the liabilities in the balance sheet. This provision will come into effect on 01.01.2022.
• Taxpayers can apply depreciation for the newly recorded assets (excluding automobiles) based on the days the assets remain in the records.
• In addition, taxpayers can freely determine the depreciation period under the condition that it is the same each year and is not less than the related useful life published by the Ministry of Treasury and Finance. However, that depreciation period cannot exceed the two-fold of the asset’s published useful life or 50 years. Taxpayers cannot diverge from their determined depreciation period for the annual or daily basis.
• Implementation of the period to apply depreciation to new machinery and equipment by taking into account half of the useful life period (therefore, twice the depreciation rate) determined by the Ministry of Treasury and Finance, which is regulated in the provisional Article 30 of the Tax Procedure Law No. 213 is extended until 31.12.2023
• Uncertainties about the replacement fund are clarified. Accordingly, replacement fund will also be applicable, if an asset with a similar nature to the sold economic asset, is purchased. The three years period, during which the profit generated from the sale should be kept in a temporary account within the liabilities, will start running at the beginning of the year following the sale. If the profit kept in the liabilities exceeds the depreciation amount of the newly purchased assets, the exceeding part should be added to the profit and loss account of the third calendar year following the sale.

4.Additional Incentive for the Cash Capital Increase

• The interest discount rate provided for the cash capital increase under Article 10 of the Corporate Income Tax Law is increased from 50% to 75% if the capital is paid with cash brought from abroad.
• The provision came into effect on 26.11.2021.

5.Amendments Made to Tax Loss Penalty, Irregularities and Returns Filed within Voluntary Disclosure

• Irregularity and special irregularity fines exceeding TRY 5,000 per event subject to the fine can be subject to reconciliation before or after assessments. In addition, if taxpayers benefit from Article 376 of the TPL for the irregularity and special irregularity fines not exceeding TRY 5,000, the reduction percentage will be 75%.
• The provision on the calculation of the five-year and two-year periods for the repetition practice for tax loss penalties and irregularity fines will start running at the date that the penalties and fines are finalized, instead of the beginning of the year following the finalization. The amount increased due to the repetition cannot exceed the finalized penalty amount (the higher amount will be considered if there are more than one penalty).
• Non-compliance with the electronic book and record keeping obligations is included within the scope of first-degree irregularities.
• With the amendment, taxpayers can file tax returns with voluntary disclosure for taxes types that are not subject to a tax audit or before an event transferred to the valuation commission.

6.Other Significant Amendments

• 10% of the contribution amount calculated during the investment spending made under investment incentive certificate can be used by way of cancelling other accrued tax debts (except VAT and special consumption tax) under the condition that it is requested at the end of the second month following the filing of the corporate income tax return. This provision will be effective for the investment spending made after 01.01.2022.
• Earnings of those using simple accounting method are exempted from income tax.
• The fourth advance corporate tax return is abolished to be effective for the returns to be filed as to 2022.
• Within the scope of Article 31/B of the Capital Markets Law, the receipts and papers issued for guarantees subject to the issuance of capital market instruments, including the collateral manager, and papers issued between the relevant administration and donors regarding donations to be made to general and special budget administrations, special provincial administrations, investment monitoring and coordination offices, municipalities and villages is exempted from stamp tax.
• The stamp duty, fee and the Resource Utilization Support Fund exemption applicable to asset management companies during the calendar year they were established and for the following five years in accordance with the Banking Law No. 5411 is made permanent. This provision will enter into force on 1.1.2022.
• The banking and insurance transactions tax exemption granted to asset management companies is abolished.
• The notification procedure for those abroad is amended, allowing tax office directorates and tax offices to send direct mail to embassies and consulates without first sending them to the Turkish Revenue Administration.
• If the notifications in an announcement exceed TRY 3,600, the announcement can be made on the official website of the Turkish Revenue Administration for tax and tax penalties, and on the official website of the relevant administration for other kind of receivables.
• Obtaining a certificate from the Ministry of Treasury and Finance for the electronic ledger and approval of other electronic ledgers will be deemed as the Ministry’s official approval of these ledgers.
• A 60-day period is given to those taxpayers who have not submitted the required report issued by certified public accountants regarding the exemptions, exceptions, deductions and similar issues that require the submission of a certification. If taxpayers comply with the submission within the 60 days given, these certification reports will be deemed as duly submitted. On the other hand, if the report is not submitted within the legal time limit, a special irregularity penalty of 5% of the amount subject to the submission of the certification report, this percentage of the amount being no less than TRY 50,000 and no more than TRY 500,000, will be imposed.
• Scope of the good and service purchases for which an expense slip can be issued has been broadened. If an expense slip is not issued within 7 days, special irregularity fine will be imposed. If a payment is made through a bank, payment institution or Turkish postal system, the documents (receipts, etc.) issued by these institutions can replace an expense slip. This provision will enter into force on 1.11.2021.
• In the provision regarding doubtful receivables, receivables TRY 3,000 and less were defined as receivables not worth litigation and enforcement proceedings. In addition, taxpayers who keep books on the basis of operating accounts have the opportunity to record a provision for doubtful receivables.
• The effective date of the accommodation tax is postponed from 1.1.2022 to 1.1.2023.
• Ministry of Treasury and Finance is authorized to establish a tax office in the digital environment.

Conclusion

The Law No. 7338 addresses and clarifies controversial provisions in Turkish tax legislation and tax problems frequently encountered in practice.

Tax payers affected by the aforementioned law changes should review their operations and take any necessary actions.