Turkey launched a brand new tax amnesty – company / industrial law

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Last week the Turkish government introduced a new tax amnesty. Provisional Article 93 has been added to the Income Tax Law with Law No. 7256 on New Tax Amnesty, which brings some assets to Turkey that may be either in Turkey or abroad for legalization without tax. The last day of the tax amnesty application deadline is June 30, 2021.

Provisional Article 93 contains:

  • Natural or legal persons who have reported their assets abroad to banks or intermediate companies in Turkey can use these assets without restrictions
  • Income or corporate taxpayers can register their domestic assets that are present but not on their records.

Let’s look at the issues related to tax amnesty requests that will end in the end June 30, 2021.

1. Which assets are covered?

The following assets fall under the tax amnesty:

  • Cash, gold, foreign exchange, securities and other capital market instruments from natural and legal persons who are located abroad, and
  • Cash, gold, foreign exchange, stocks, and other capital market instruments not included on statutory income books and corporate taxpayers.

2. Who can benefit from a new tax amnesty?

  • All natural and legal persons with regard to assets abroad,
  • Turkish income or corporate tax payer in relation to assets in Turkey.

3. How do you report or declare assets?

Foreign assets must be reported to a bank or intermediary in Turkey using the notification form attached to the appendix to the General Communiqué on Tax Amnesty Request.

Domestic assets must be reported to the affiliated tax office of the income or corporation taxpayer either using the tax return form attached to the above General Communiqué or electronically.

4. Status of assets acquired from third parties

Legal representatives, shareholders of the companies or their agents who were authorized to value the assets with a valid power of attorney or agency agreement drawn up by the agents before November 17, 2020 can benefit from a tax amnesty. These people can either:

  • Repatriation of assets located abroad by transferring them to Turkey or transferring them to an account with a bank or an intermediary company in Turkey; or
  • You benefit from a tax amnesty for assets that are located in Turkey but were not recorded until 11/17/2020 by declaring these assets on behalf of the company.

The assets that belong to the company or its shareholders but are used by the proxies, shareholders or other persons must be notified or explained on behalf of the company.

In addition, it is also possible to benefit from a tax amnesty for assets that are used by companies abroad, provided that a real person who is a shareholder or representative of this company declares the relevant assets as part of the tax amnesty.

5. Are the assets previously brought to Turkey subject to tax amnesty?

It is possible to use the assets abroad by 06/30/2021 at the latest to conclude the loans used by banks or financial institutions abroad and entered in the legal books from 11/17/2020. In this case, taxpayers do not need to bring these assets to Turkey.

In addition, capital advances that are entered in the legal books as of November 17, 2020 can benefit from a tax amnesty if these capital advances were realized with money, gold, foreign exchange, securities and other capital market instruments brought to Turkey before this date. The capital advances benefited from the tax amnesty must be deducted from the accounting records.

6. Are taxes paid?

No tax is paid on the value of the declared assets.

7. How is the declaration or the declared value of the property determined?

In communications or declarations, the Turkish Lira equivalent of the assets will be used as the basis and, from the date of the communication or declaration, the assets will be valued using the following valuation criteria:

  • Money in Turkish lira at its face value;
  • Gold at fair value;
  • Foreign exchange with the exchange rates of the Central Bank of the Republic of Turkey;
  • Securities and other capital market instruments:
    • Shares such as shares with their market value, if there is no market value, with their current value, if this price cannot be determined, with their purchase price, if the purchase price is not known, with their nominal value;
    • Credit instruments such as bonds, bills of exchange and Eurobonds with their exchange rate, if there is no market value, with their current value, if this price cannot be determined, with their purchase price, if the purchase price is not known, with their face value;
    • Certificates of participation for investment funds with the closing price determined on the relevant market;
    • Derivative instruments such as futures and options contracts at their market value, if there is no market value, at their current value, if this price cannot be determined, at their purchase price, if the purchase price is not known, their face value.
  • Properties with their current value.

8. What are the benefits of tax amnesty?

a) No tax audit and assessment is carried out:

Under no circumstances will a tax audit or tax assessment be carried out on declared assets provided that:

  • Assets abroad will be brought to Turkey or transferred to an account with a bank or intermediary company within three months from the date of notification to be opened in Turkey
  • Assets other than real estate have been deposited in accounts with a bank or an intermediary corporate account.

In the following, assets that were entered in the legal books by November 17, 2020 are not to be brought to Turkey to apply for a tax amnesty:

  • Assets with which loans are closed by June 30, 2021, or
  • Assets used to clear capital advances from legal books.

The date of acquisition of these assets does not matter if the taxpayer brings these assets abroad to Turkey within three months of the date of the asset declaration.

b) Assets can be taken out of business and no tax is paid:

Notified or declared assets can be recorded in statutory books by taxpayers who keep books in accordance with the Tax Procedure Act.

The property under the tax amnesty can be either included in the business without taking into account the income in the period, or withdrawn from the business without taking into account the distributable profits.

Taxpayers who keep books based on the balance sheet open a special fund account for liabilities for the assets they have recorded in their legal books. The account can be used freely, added to the capital or distributed to the shareholders. This account will not be taxed in the event of the company’s liquidation, nor in the event of a merger, transfer and spin-off under Article 81 of the Income Tax Act and Articles 18, 19 and 20 of the Company’s corporate income tax law.

In addition, no withholding tax will be levied on the distribution of profits if the amounts associated with these assets are distributed by corporation taxpayers. The distributed profit made by a natural person or a shareholder of the corporation taxpayer is not taxed.

9. Expenses, Losses, and Depreciation

As part of the tax amnesty:

  • The tax paid cannot be recognized as an expense and cannot be deducted from any other tax.
  • Losses on the subsequent sale of recognized assets will not be accepted as an expense or deduction in relation to income or corporation tax application.
  • Provisions on depreciation in the Tax Procedure Act do not apply to real estate that is transferred to statutory accounting records.

The content of this article is intended to provide general guidance on the subject. You should seek advice from a professional about your particular circumstances.

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