The "Law on Amending Certain Laws and Legislative Decree
No. 375 with Tax Laws Numbered 7524" - omnibus law, the Law-
is published in the Official Gazette dated 02.08.2024.
The law consists of 61 articles, some relevant to tax issues. A
brief explanation of changes in the tax regulations is as
follows:
-
Introduction of Pillar II: Global Minimum Taxation
Articles 37-49 of the Law stipulates that local and minimum top-up
tax of up to 15% shall be imposed on multinational enterprises
(MNE) whose worldwide annual consolidated revenues exceed the
Turkish lira equivalent of EUR 750 million in at least two of the
four accounting periods preceding the accounting period in which
the income is reported.
The introduced law is mostly the same as the OECD Pillar 2
regulations.
Taxpayers in the scope of the rules calculate their effective tax
rate (ETR) and pay top-up tax for the difference between, their
effective tax rate per jurisdiction and the 15% minimum rate.
The ETR of an MNE group with net country-based income is calculated
separately on a country-by-country basis for each accounting
period.
To determine whether top-up tax is owed, rules stipulate that the
ETR be calculated in each jurisdiction where the MNE operates. This
requires calculating the income and the tax on that income.
A liability to top-up tax for a member of an in-scope MNE group
arises under two types of provisions: Income Inclusion Rule (IIR)
and Undertaxed Payments Rule (UPTR).
Provisional Safe Harbors are stipulated as below (Until the
end of the 2026 accounting period):
- De minimis test exclusion: The jurisdiction has a total Country by Country Report (CbCR) revenue of less than €10 million and a CbCR profit of less than €1 million.
- Simplified ETR test exclusion: The jurisdiction's ETR is
equal to or greater than the transition rate for the fiscal year.
The 'simplified ETR' is calculated by dividing the
simplified covered taxes by the profit reported in the MNE
Group's CbCR. Transition rates are as below:
- 15% for fiscal years beginning in 2024;
- 16% for fiscal years beginning in 2025; and
- 17% for fiscal years beginning in 2026
- Routine profits test exclusion: The tested jurisdiction's
profit or loss before income tax for the jurisdiction is equal to
or less than the substance-based income exclusion (SBIE), which is:
- For the 2024 period, 9,8 % of annual payroll costs and 7,8 % of net tangible fixed assets (These rates will be reduced by 0.2% for the following 4 accounting periods, and by 0.8% for the payroll costs and by 0.4% for net tangible fixed assets for each of the four accounting periods starting from the 2029 accounting period.
Permanent Safe Harbors are stipulated as
below:
1- De minimis test exclusion: The jurisdiction has a total
jurisdiction revenue of less than €10 million and a
jurisdiction profit of less than €1 million.
2- Routine profits test exclusion: The tested jurisdiction's
profit or loss before income tax for the jurisdiction is equal to
or less than the substance-based income exclusion (SBIE), which is
5% of annual payroll costs and 5% of tangible fixed assets.
Declaration Date:
Global minimum top-up tax: In 15 months following the month in
which the accounting period is closed. (In 18 months for the 2024
accounting period)
Domestic minimum top-up tax: In 12 months following the month in
which the accounting period is closed.
This regulation will become effective for the earnings obtained in
2024 and subsequent taxation periods (for institutions subject to
special accounting periods, for the earnings obtained in the
special accounting period starting in the 2024 calendar year, and
subsequent taxation periods).
-
Introduction of Domestic Minimum Corporate Income Tax (CIT)
According to Article 36 of the law, the CIT calculated by companies
(including quarterly provisional tax periods) cannot be less than
10% of the corporate income before the deduction of discounts and
exceptions.
Corporate income before deduction of discounts and exceptions
refers to the amount calculated by adding non-deductible expenses
to the company's commercial profit.
When calculating the domestic minimum CIT, the following exemptions
and discounts can be deducted from the corporate income:
- Participation exemption for domestic income
- Emission premium exemption
- Return exemption for cooperatives
- Sale-leaseback exemption
- Fund income exemption specified in Article 5/1-d of the Law
(excluding those obtained from real estate)
- Venture capital fund discount
- Disabled employee support discount
- Earnings exempted from tax within the scope of the Turkish
International Ship Registry Law
- Earnings exempted from tax within the scope of the Free Zones
Law,
- Technology Development Zone and R&D Discount
- Investment Incentive Discount
This regulation will become effective for the earnings obtained in
2025 and subsequent taxation periods (for institutions subject to
special accounting periods, for the earnings obtained in the
special accounting period starting in the 2025 calendar year, and
subsequent taxation periods).
-
Regulations on Benefits Provided to Employees Through Granting of Shares
Within the scope of contracts made with employees, employees may be
given the right to purchase shares of employer or group companies
free of charge or at a discount, provided that they work for the
employer for a certain period of time and meet certain performance
and similar criteria.
The nature of the benefits provided to employees by giving them
free shares is controversial, especially those provided by group
companies other than their employers because there is no legal
regulation that stipulates that these should be considered
salary.
According to the Advance Rulings provided by the Tax Authority,
regardless of whether they are issued by an employer or group
company, these shares are subject to tax when they become legally
and economically available for use (vesting date). The tax base
shall be the difference between the fair market value shares and
its cost to the employee at the vesting date.
As per Article 2 of the Law, the portion of the market value of the
shares given to employees free of charge or at a discount will be
exempt from tax up to the annual gross salary of the employee in
that year. This exemption will be valid only for Techno-Enterprise
companies according to the criteria determined by the Ministry of
Industry and Technology.
In order to encourage the retention of shares granted to employees
for a longer period, the exemption will be applied at different
rates depending on the retention period of shares acquired by the
employees.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Precious Metals will be Subject to Valuation According to Stock Market Value
Articles 7 and 8 of the law stipulate that the stock market value
shall be used as the criterion in valuing precious metals such as
gold, silver, platinum, and palladium traded on precious metal
exchanges. In cases where the stock market value does not exist or
is formed fraudulently, the cost price shall be taken as the basis
of the valuation.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Free Zone Exemption is Limited Only for Export Activities
According to the current regulations, all profits obtained from
manufacturing activities in free zones are exempt from corporate
income tax, regardless of whether these products are sold
domestically or abroad.
Article 24 of the Law stipulates that profits obtained by
institutions operating in free zones exclusively from sales abroad
(exports) will remain exempt, while the exemption granted to
profits obtained from sales made domestically will be
abolished.
This regulation will become effective for the earnings obtained in
2025 and subsequent taxation periods.
-
Deduction of Deferred VAT is Limited to 5 Years
With the arrangements made in Articles 30 and 58 of the VAT Law and
Articles 20 and 22 of the Law, it is regulated that deferred VAT
amounts of 5 calendar years or more will be removed from the
deferred VAT accounts and transferred to a special account and that
these amounts will be taken into account as an expense based on the
results of the tax audit to be conducted on the taxpayer's
request within 3 years.
If a request is not made within 3 years, the VAT cannot be written
off as an expense or deducted as input VAT. These amounts can be
removed from the records by being considered non-tax-deductible
expenses.
This regulation will become effective on 01/01/2030.
-
Transfer of Deferred VAT in Merger, Acquisition, and Division Transactions will be Required Tax Inspection
According to the current regulations, the acquiring company can use
the acquired company's deferred VAT without any inspection in
mergers and acquisitions and division activities.
Article 19 of the Law stipulates a tax inspection to use the
deferred VAT of the acquired company.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Tax Principal is Excluded from the Scope of Tax Settlement
With Article 14 of the Law, the principal tax is removed from the
scope of tax settlement and the relevant articles of Tax Procedure
Law are being regulated in this regard.
The current reconciliation applications are envisaged to be
finalized according to the pre-amendment provisions of the Tax
Procedure Law.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
VAT Exemption for Services Provided at Marinas to non-commercial Marine Transport Vehicles is Abolished
Article 17 of the Law stipulates that VAT exemption for rental,
maintenance, etc., services provided at marinas to marine transport
vehicles used in non-commercial activities such as travel,
entertainment, and sports will be abolished.
This regulation will become effective on 1 September 2024.
-
Revenue Audits will Commence
Article 3 of the law establishes an institution to determine the
actual income of those who are liable for commercial or
professional activities.
It is envisaged that the monthly and annual revenue amounts of
taxpayers will be determined by taking the average of the daily
revenue amounts determined through the inspections to be conducted
with the taxpayers.
The revenue amounts determined in this way will be compared with
the revenue amounts declared by the taxpayers for the period in
which they were active, and if the difference found as a result of
the comparison is more than 20 percent, taxpayers will be invited
to provide explanations.
This regulation will become effective on 01.01.2025.
-
Some Payments within the Scope of e-Commerce Will be Subject to Withholding
Under Articles 4, 33, and 34 of the Law, payments made by
intermediary service providers and electronic commerce intermediary
service providers operating based on the provisions of Law no 6563
are included in the scope of personal or corporate income tax
withholding.
On the other hand, the President is given the authority to
determine rates for payments subject to withholding based on the
fields of activity, payment types, sectors, business groups, and
types of business.
This regulation will become effective on 01.01.2025.
- Penalties for Forged Documents are Increased
Article 5 of the Law stipulates collateral and penal obligations
for those identified by the tax audit report as having been
established solely to prepare forged documents and for persons
related to them. Otherwise, a special irregularity penalty is
envisaged.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Information Obligation for e-Commerce Transactions
Article 6 of the Law regulates the information obligation of banks
and payment institutions for the persons who engage in commercial
activities such as buying, selling, renting, advertising, and
posting on all kinds of digital platforms.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Tax Penalties Against Shadow Economy Increased
Article 9 of the Law stipulates that a tax penalty will be imposed
on those who work without the knowledge of tax administration and
operate off the record.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Some Irregularity Penalties are Increased
Articles 10, 11, 12, and 13 of the law stipulate that the amounts
of special irregularity penalties will be increased to increase
their deterrent effect.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Special Consumption Tax (SCT) Regulations
Article 18 of the Law eliminates the difference between the
exemptions for deliveries and services to national security
institutions for national defense and internal security needs in
accordance with the VAT and Special Consumption Tax Laws and the
exemption provision on the same subject in the Customs Law.
Article 25 of the Law removes the limitation of up to 20% of the
minimum lump sum tax amount collected from certain tobacco
products.
This regulation will become effective on 1 November 2024.
-
VAT Exemption for Aids Provided by Foreign State Institutions Related to Earthquake
Article 23 of the Law provides VAT exemption for deliveries of
goods and services related to aid provided by foreign state
institutions and organizations due to an earthquake.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
-
Corporate Income Tax Exemption for Funds and Partnerships Investing in Real Estate
Article 32 of the Law stipulates that funds and partnerships
investing in real estate will benefit from the corporate tax
exemption if they distribute 50% of the profits, they obtain from
the real estate they own.
Also, it is regulated that the participation income exemption can
be used for profit shares obtained from investment funds and
partnerships that do not meet the profit distribution criteria and,
therefore, cannot benefit from the above exemption.
This regulation will become effective for the earnings obtained in
2025 and subsequent taxation periods.
-
Increase in Corporate Income Tax Rates for Public-Private Partnership Model
Article 35 of the Law stipulates that a 30% (normally it is 25%)
corporate income tax will be calculated on all profits of the
institutions operating in projects carried out within the framework
of the build-operate-transfer model according to Law No. 3996 and
in projects carried out within the framework of the public-private
partnership model according to Law No. 6428.
This regulation will become effective for the earnings obtained in
2025 and subsequent taxation periods.
-
Some Transactions Required to Obtain "Tax Clearance Certificate"
Payments to be made upon court decrees and payment or enforcement
orders of enforcement offices are included among the payments and
transactions for which it is mandatory to seek a Tax Clearance
Certificate.
This regulation will become effective on the date of publication of
the Law (2 August 2024).
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.