The Omnibus Bill proposal, which has long fascinated and sparked controversy among the public, was finally sent to the Presidency of the Turkish Grand National Assembly yesterday (16 July 2024). The proposal is expected to be enacted by the end of July.
Many more changes were envisaged in the initial public presentation. It was shared with the public that some changes were abandoned due to the reaction and some of them will be evaluated within the scope of the upcoming Omnibus Bill, which is expected to be on the agenda in the autumn.
The document sent to Parliament is understood to be the basis of a presentation made by Finance Minister Mehmet Şimşek to non-governmental organisations on 1 July, but its scope is narrowed. Criticisms from the business community raised at the meeting appear not to have been taken into account. The most significant change that I can detect is the abolition of the tax threshold on revenues in the national corporate minimum tax…
Criticism of the regulation aimed at limiting the deduction of VAT incurred to five calendar years and considering the VAT that cannot be deducted within this period as an expense in determining income tax or corporate tax through tax audits if the VAT amount reaches the amount. It is expected that the amount deducted in the VAT return cannot be eliminated by the five-year deduction and will not be taken into account. I think this provision is the most controversial in the Omnibus Bill. Today, we can say that this regulation will give rise to many disputes on the grounds of the restriction of property rights.
Of course, changes may be made and new provisions may be added as the proposal progresses through the Planning and Budget Committee, and it is expected that restructuring regulations regarding established taxes and insurance liabilities will be added to the bill.
In today’s post, we will provide information and evaluation of the proposed domestic corporate tax minimum provision, and will address other editorial suggestions in future posts when the opportunity arises.
The proposal would impose a national corporate minimum tax on corporate taxpayers. In the justification, the regulation is presented as a new tax guarantee authority that would be established to determine the corporate tax calculated by corporate taxpayers.
According to the proposal, corporate tax calculated taking into account the provisions of Articles 32 and 32/A of the Corporate Tax Law cannot be less than 10 percent of the company’s revenue before deductions and exemptions.
When making this assessment, the following exemptions are deducted from the corporate income, which means that the minimum corporate tax amount is not calculated for these amounts (it can be seen that there is no error in the temporary addition of corporate tax): Domestic minimum corporate tax amount:
– Exemption from participation income (Article 5/1-a of the KVK);
– Exemption from emission fee income (Article 5/1-d of KVK);
– Exemption from the income of investment funds and partnerships listed in Article 5, paragraph 1 (d) of the KVK, except income derived from real estate owned.
– Listern exception in cooperatives (KVK Art.5/1-i),
– exceptions applicable to profits derived from sale-leaseback transactions with finance leasing companies and asset leasing companies (Article 5, paragraphs 1-j and k of the KVK);
– Profits exempt from tax within the scope of Turkish International Ship Registration Law No. 4490 and its amendments under Decree Law No. 491;
– Discount on venture capital funds (KVK Art. 10/1-g),
– Protected workplace discounts (KVK Article 10/1-h),
– Technology Development Zone profits and research, development and design discounts within the scope of the exception for small and medium-sized enterprises as provided for in Article 407 of the Presidential Decree on Presidential Organization No. 1.
Other than these exceptions and concessions are taken into account in calculating the minimum corporate tax of 10 percent.
The minimum corporate tax amount, calculated at a 10% tax rate on the amount remaining after applying the above-mentioned special provisions and discounts (the minimum corporate taxable amount), is compared with the normal corporate tax amount. The higher amount is used as the basis for accruals, subject to reporting under the current provisions.
Of course, the corporate income (base) subject to the 10% minimum tax is the amount included in the profit and loss statement of the commercial balance sheet plus non-legally recognized expenses, minus the exemptions and discounts mentioned above. It is good to see this issue mentioned in the due process.
Although not mentioned in the Treklif text and justification, they are listed in the lines “Other deductions” or “Other deductions and exceptions” in the corporate tax return, but are not essentially within the scope of deductions or exceptions. , However, these lines in the return are listed for the purpose of accurately calculating the tax base (valuation differences between Turkish Accounting Standards / Turkish Financial Reporting Standards and the provisions of the Tax Procedures Law, exchange difference income resulting from price appreciation). The cancellation of the Turkish lira No. 193 retirement allowance provision of the borrowing institution in the borrowing considered as disguised capital is offset against tax liabilities and is considered as income (such as deduction rights within the scope). Insurance premiums, etc. under the provisions of Article 121 of the Corporate Tax Law) are also deducted from corporate income and are the basis for the minimum taxable amount of corporate tax.
In addition, the rights provided by the current reduced tax rates must be protected. As a matter of fact, the relevant articles of the proposal provide for a 2-point discount on the corporate revenues of institutions that offer at least 20 percent of their shares to the public for the first time on the Borsa Istanbul Stock Market; a 5-point discount on the corporate tax based on the taxpayer’s own declaration and on the revenues of export institutions derived only from industrial registration; a certificate obtained only from production activities, actually engaged in production activities and investment contributions within the scope of the promotion certificate received from the Ministry of Industry and Technology under the provisions of Article 32. Article A of the Law envisages the protection of the rights of the existing reduced tax rates and the rights within the scope of the investment promotion certificate by giving the opportunity to deduct the unpaid corporate tax due to the application for corporate tax reduction from the corporate tax paid due to the reduction in the calculation of the minimum tax. It is quite appropriate that these vested rights, which were not included in the text reflected in the presentations and the press until now, have been protected. Thus, many disputes will be prevented.
Taxpayers who start working for the first time are not subject to the minimum corporate income tax for three accounting periods from the accounting period in which they start working.
The President has stated that the minimum corporate tax rate is 10 percent, and that it may be allowed to be reduced to zero or increased up to one percent, either individually or collectively, depending on the sector, field of activity, line of business or region of production.
I make it a point to remove from the text the much-criticized provision that requires the calculation of the minimum tax on profits/turnover and comparing this amount with the minimum tax calculated on the basis of the corporate income before exemptions and the corporate tax calculated on the return, on two counts.
First, it prevented inappropriate regulations by taking into account the public’s reaction for the first time in a long time…
I find this constructive approach, taking into account public reactions and suggestions, very accurate and valuable.
Secondly, by avoiding this mistake, many conflicts have been prevented…
This is a welcome change of attitude and signals an abandonment of the approach that has mired our tax system in conflict in recent years.
The proposal and its justification can be found here.
Who is Erdogan Salam?
Erdogan Salam was born in Ankara, but Çorum is considered his birthplace by the population.
He attended high school as a boarding student at the Istanbul Finance School. Therefore, he entered this profession very early. After that, he graduated from the Department of Economics, Faculty of Political Science, Ankara University. There is a curse of graduating from high school/teacher in the second year, etc. The first is the second.
After graduating from university, he passed the Ministry of Finance Tax Specialist Examination. After working as an accounting specialist for seven years, he left the company in 1994 to join the private sector. He served as the financial director of a group of companies for one year.
He then joined BDO Turkey (Denet), an international consulting and auditing firm, where he remains active today as a partner and director. He loves his wife and his job very much.
He contributes to many professional non-governmental organizations, especially the Tax Council and TÜSİAD’s tax research.
He published many articles on tax issues in Milliyet newspaper from 2003 to 2010 and in specialist magazines throughout his career. He started writing for T24 in May 2020.
He does not have a book yet because he does not want to write technical books. He wants to write at least one book of poetry and a mystery novel in the future. He is a licensed financial consultant and independent auditor.
