Important tax changes introduced by Law No. 7417

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Law No. 7417 brought important changes related to tax legislation. These modifications relate to: the introduction of peace on new assets, a time limit on the deduction of notional interest, the increase in special penalties for irregularity to be applied to certain acts, the authorization of the Ministry of the Treasury and of Finance to determine the procedures and principles relating to the notification of ultimate beneficial ownership; clarification of the effective date of the increase in the corporate tax rate applied to certain financing entities.

New developments

Law No. 7417 on Certain Amendments to the Law on Civil Servants and Certain Laws and Decree-Law No. 375 (“Law No. 7417“), which was published in the Official Journal of 05.07.2022 and n° 31887, introduces various changes related to tax legislation. You can find the details of the patrimonial peace introduced by Law No. 7417 in our bulletin here. In this bulletin, the time limit for imputed interest deduction and other important changes are summarized.

What does Law No. 7417 introduce?

I. The implementation period of the notional interest deduction has been limited

According to Article 10/1-(ı) of the Corporation Tax Law, Turkish resident companies can deduct 50% (this rate is applied to 75% if the capital is paid with cash imported from Turkey). foreign) interest to be calculated. on the amounts of capital increases in cash and the cash portion of the initial capital for newly created entities from their corporate tax base. The amount of deductible interest is calculated by applying the latest “weighted average annual interest rate applied to loans granted by banks” announced by the Central Bank of Turkey to the capital increases paid in cash and the cash part of the initial capital for new establishments. entities.

No time limit is provided for benefiting from the incentive to deduct interest since the date of entry into force of the provision, i.e. 2015.

However, in accordance with the amendment made to Law No. 7417, the period of implementation of the notional interest deduction has been limited to the accounting period during which the decision to increase capital or the articles of association are registered in the incorporation stage, and for the following four accounting periods.

Thanks to the provisional article 15 added to the law on corporation tax, it is provided that the notional interest deduction can also be granted for capital contributions in cash made before the date of publication of law no. 7417 and for companies created for the first time before this date. date for 5 accounting periods, including 2022.

ii. Special penalties for irregularity have been increased

The amounts of the special penalties for irregularity applied in the event of failure to issue and receive invoices, expense reports, producer receipts, self-employment receipts, in accordance with article 353 of the tax procedure law and if amounts different from the actual amount are included in these documents issued, and these documents are issued in paper form instead of electronic documents have been increased on the basis of the amounts valid for 2022 as follows:

  • The minimum amount of the special irregularity penalty to be applied for each document has been increased from TRY 500 to TRY 1,000.
  • The upper limit of special irregularity penalties for each type of document within a calendar year has been increased from TRY 250,000 to TRY 500,000.

The amounts of the special penalties for irregularity applied in the event of failure to issue, use and keep the retail receipt, the receipt given to the payment recording devices, the entry and passenger transport ticket , delivery note, waybill, passenger list, daily room list, etc. have been increased on the basis of the amounts valid for 2022 as follows:

  • The minimum amount of the special irregularity penalty to be applied for each document has been increased from TRY 500 to TRY 1,000.
  • The upper limit of special irregularity penalties that can be applied for each determination has been increased (i) from TRY 25,000 to TRY 50,000, and (ii) from TRY 250,000 to TRY 500,000 for one calendar year.

Special sanctions for irregularity to be applied in the event of non-compliance with reporting obligations to service providers who are natural or legal persons who carry out commercial activities in the electronic environment and/or to intermediary service providers who are natural and legal persons who provide the environment of electronic commerce for the economic and commercial activities of third parties concerning their commercial activities are as follows:

  • As fivefold in terms of first-class traders and self-employed (TRY 3,400 for 2022) and second-class traders, farmers who keep books and taxpayers who are subject to single-entry bookkeeping. (1,700 TRY for 2022).
  • Double for other natural or legal persons (880 TRY for 2022)

In addition, in case of non-compliance with reporting obligations for beneficial owners, a special irregularity penalty will be applied to first-class traders and self-employed persons (TRY 3,400 for 2022) in three instalments.

In addition, the special penalty for irregularity applied to traders and first-class self-employed (which is TRY 3,400 for 2022) will be applied in three installments in the event of non-compliance with the reporting obligations for beneficial owners.

Changes to special penalties for irregularity will come into effect on August 1, 2022.

iii. The Ministry of Treasury and Finance has been authorized to regulate the notification of ultimate beneficial ownership The General Communique of the Tax Procedure Law No. 529, published in the Official Gazette of 13.07.2021, introduced the obligation for corporation tax taxpayers and certain other persons to file a notification of ultimate beneficial ownership. The amendment made to the Tax Procedure Law by Law No. 7417 authorized the Ministry of Treasury and Finance to determine the scope of the ultimate beneficial owner, to require the declaration of those who come under it, to determine the content, the format, standard, period and method of filing, to make changes thereto, to determine the obligation to make the filing according to sectors, types of taxpayers or taxpayer status, to introduce and implement implement the obligation to maintain and submit information and notifications under this framework and determine other procedures and principles.

iv. The effective date of the change in the corporate income tax rate applicable to certain financial institutions has been clarified

Law No. 7394, published in the Official Gazette of 15.04.2022, determined the corporate tax rate applicable to the commercial profits of companies within the framework of Law No. 6361 on leasing, financing and leasing. savings Financial companies, electronic payment and monetary establishments, authorized foreign exchange establishments, portfolio management companies, capital market establishments, insurance and reinsurance companies and pension companies at 25%. However, Law No. 7394 has stated that it is effective “to be applicable to business profits during the accounting period 2023” and this statement has caused some hesitation as to the application of the amendment to periods after 2023.

Law No. 7417 provided that the modification of the corporate tax rate is applicable not only for 2023 but also for the following years and it clarified the hesitations.

Conclusion

In addition to the new patrimonial peace and the limitation of the notional interest deduction, the amendments introduced by Law No. 7417 not only clarified certain hesitations on the current legislation, but also increased the special fines for irregularity in order to ensure tax compliance. taxpayers. It would be useful to monitor communiqués from the Ministry of Treasury and Finance to ensure compliance with the amendments.

The content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This may qualify as “lawyer advertising” requiring notice in some jurisdictions. Prior results do not guarantee similar results. For more information, please visit: www.bakermckenzie.com/en/client-resource-disclaimer.


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