Fiscal Bulletin: 2021/2- The New Tax, Tax Penalty, Late Interest Fee, Social Security Premium and Revaluation Amnesty in Turkey.

COVERAGE OF THE TAX AND SOCIAL SECURITY AMNESTY

The Amnesty which has been enacted by Law no 7326, applies to the following areas:

All taxes, public fees, penalties, late fees and interests pertaining to the years before 2020 accrued with a tax return under the laws no 7326 and 213 that have been filed before 30.04.2021(inclusive),
All taxes, public fees, penalties, late fees and interests pertaining to the year 2020 accrued before 30.04.2021(second installment of the motor vehicle tax of 2021 excluded),
Tax penalties that have been determined before 30.04.2021(inclusive) and also which are not based on a tax base,
Many types of public fines that were issued before 30.04.2021,
Those fines which are not covered in the above paragraphs but collected by the public bodies and/or tax offices,
Stock of goods, receivables from the shareholders, and hand-on-cash that are physically not found in the company but found in the books or stock of goods, machines, equipment and fixed assets that are found physically in the company but not in the books,
Customs duties, late fees, penalties, etc,
Social security payments (premium, late fee, penalty etc) that are covered and collected under the law no 7326; and those labor costs that are to be assessed according to the benchmarks of construction businesses,
Stamp tax, contribution to the education, special transaction tax accrued before 30.04.2021,
All receivables that are accrued by the Municipality Private Administration,
Local town halls’ taxes, penalties, late fees, real estate and environmental cleaning taxes (excluding the year 2021); other receivables of the local town halls, contributions to the local town halls, water disposal fees, garbage fees,
Fees pertaining to the cultural and historical sites, and assets.

ACCRUED PUBLIC RECEIVABLES

As of 9 June 2021, of which receivables that are followed up by the Ministry of Treasury and Finance, Special Administration of Province and local town halls, the collection of the following ones has been forgiven partially;
1. Principal of the taxes and the late fees and interests based on the taxes whether payment term limit has been ended or to be ended;
2. Penalties that are not based to a principal of taxes whether payment term limit has been ended or to be ended;
3. Administrative fines whether payment term limit has been ended or to be ended;
4. Essential public receivables and their derivatives such as late fees, interests etc that are not included into those listed above;
5. Those receivables that are supposed to be collected according to the Reconciliation Law no 5736;
As of 9 June 2021, of which receivables that are followed up by the Ministry of Trade, the collection of the following ones has been given up partially;
1. Principal of the customs duties and the late fees and interests based on the duties whether payment term limit has been ended or to be ended;
2. Penalties that are not based to a principal of duties whether payment term limit has been ended or to be ended;
3. Administrative fines based on the import value that is subject to customs duty whether payment term limit has been ended or to be ended;
If a tax return has been filed with a reserve on it, then the principal of taxes and duties, penalties and late fees may be forgiven partially.
If a public receivable has been accrued after a trial but if not yet noticed to the taxpayer, then the taxpayer can benefit from this amnesty, given this bill is deemed a notification to the taxpayer.
Those fees pertaining to the wastes, waste waters or solid wastes that have been accrued by local town halls but not paid as of 30.04.2021 can take advantage of this law.
Those fees pertaining to the wastes, waste waters or solid wastes that have been accrued also by Greater City halls but not paid as of 30.04.2021 can take advantage of this law.
Those fees pertaining to the wastes, waste waters or solid wastes that have been accrued by water administrations but not paid as of 30.04.2021 can take advantage of this law.
YIKOB’s contributions to the immovable cultural assets that are not paid as of 30.04.2021 can take advantage of this bill.
In order to benefit from the amnesty, the applicants should obey the conditions written in the respective paragraphs also they shouldn’t bring a trial or create any other dispute against the tax office or they have to give up any trial they have already brought against the tax office.

UNACCRUED OR DISPUTED TAX RECEIVABLES

Following cases can also take advantage of the tax amnesty:
1. As of 9 June 2021, all taxes that are subject to a first degree tax suit or cases that might be brought to the court may take advantage of the amnesty.
2. As of 9 June 2021, all taxes that are at appeal court or taxes that might be brought to the appeal court may take advantage of the amnesty.
3. As of 9 June 2021, all taxes that are subject to a tax suit at a first degree court or taxes that are at the stage of being subject to a trial at a court may take advantage of the amnesty.
4. The tax or customs fines that are at the stage of a court trial.
5. Other fines that are not covered in paragraph iv.
6. Taxes that were filed before 9 June 2021 with regretfulness letters but not paid on time or the taxes that were filed before 9 June 2021 without regretfulness and were subject to fine.
7. Taxpayers who are claimed to violate a tax rule through by ‘participating(assisting)’ to a main crime.
8. In this article, the decision means the last decision that is notified to any party related to an issue under question.
9. Taxes that are subject to a reconciliation given the application is made but reconciliation meeting was not held or was held but the period for bringing a suit is not over.
10. If a taxpayer applies for amnesty but if he doesn’t pay two or more installments or doesn’t pay the exact amount of two installments in a year, then the taxpayer loses his right to use the amnesty.
11. In order to take advantage of the amnesties listed above, the taxpayer should give up a trial(if any) or should not bring a trial or should not apply for any other legal procedure.
12. If a taxpayer applies for this amnesty but not accomplish the necessary payment procedures, then the rest of the tax liabilities are enforced without any further notification. However, if the verdict is about the ratification of a tax imposition given before 9 June 2021, then the tax liability that is ratified with this last verdict will be followed up for collection.

TAXES THAT ARE IN THE PROCESS OF INVESTIGATION or IMPOSITION of ACCRUAL

If a tax investigation has been started but not ended yet, then the investigation goes on until it is finished and then the outcome of the investigation is evaluated according to paragraph C above.
Those who participated to an offense and those who applied for regretfulness process also may take advantage of the amnesty.
If an investigation report or a tax appreciation committee estimates a tax, then it is also possible to use the amnesty for such tax appreciations.
After such appropriations, if reconciliation is not done, or done but not agreed upon and not yet notified to the taxpayer, then it is possible to apply for the tax amnesty.
Those cases that are subject to the amnesties stated in paragraph C and D (i.e. this paragraph), then taxpayers cannot apply for reconciliation, any other kind of tax reduction.
In order to determine the starting date of an investigation, it is referred to Article 140 of Tax Procedure Law (VUK).
If a customs duty investigation has been started but not ended yet, then the investigation goes on until it is finished and then the outcome of the investigation is evaluated according to paragraph C above. The same rules apply to the customs duty for similar cases like the ones stated in D/i-vi above.
In order to benefit from this amnesty, taxpayers should not bring a suit against the taxes and/or customs duties.
If taxpayers or customs duty payers file their due returns as of 30.04.2021 either with or without regretfullness and before any legal notification of the tax office or customs administration before 31 August 2021, then they can also enjoy the amnesty.
If those wage earners classified as ‘other wages’ (see Individual Income Tax Article 64) apply to their tax offices before 31 August 2021 and get their wage tax calculated for 2018, then their previous year earnings of wages will not be inspected.

INCREASING THE BASE OF THE TAXES FOR AVOIDING TAX INSPECTIONS

This is also a kind of tax amnesty. Taxpayers will not be subject to a tax inspection if they increase their tax bases for the years 2016, 2017, 2018, 2019 and/or 2020 before 31 August 2021. Every year and every tax will be treated severally. Taxes and periods will be evaluated as a year; not as a whole tax and not as five-year period.
This amnesty is valid for corporate income tax, individual income tax, VAT and withholding tax returns.
Payments may be made in one installment or in 6, 9, 12 or 18 equal installments. If all payment is made before the deadline of the first installment at once, then the late fee based on the is discounted by 50% more.
If corporate and individual income taxpayers benefit from it, then 50% of the carry forward losses of those years for which tax base increases are made cannot be used for reduction from the tax bases of 2021 and on.
Taxes paid for this amnesty cannot be expensed or deducted from payable VAT.
Those taxpayers who violated the ‘article for the tax evasion crime’ cannot benefit from this amnesty. But if taxpayers are under inspection now and after the end of the investigation if they appear to be innocent, then they can apply for the amnesty.
The rates of the increases of the tax bases are as follows:

Corporate Income Tax Base Increase:

TABLE 1: INCREASE IN THE CORPORATE INCOME TAX BASE (TL)
YEAR	RATE OF THE INCREASE IN THE TAX BASE	AMOUNT OF MINIMUM INCREASE (For those which do accounting according to the balance sheet method)	TAX RATE	REDUCED TAX RATE
2016	%35	94.000
2017	%30	99.600
2018	%25	105.800	%20	%15
2019	%20	112.400
2020	%15	127.500

Individual Income Tax Base Increase:

TABLE 2: INCREASE IN THE INDIVIDUAL INCOME TAX BASE(TL)
YEAR	Rate of Increase	Amount of Minimum Increase (TL)					Tax rate	Reduced Tax rate
YEAR	Rate of Increase	Taxpayers who keep books as ‘small enterprise basis method’.	Taxpayers who keep books according to the balance sheet method and independent service suppliers.	Taxpayers who keep books as ‘simple basis method’.	Only immovables and rights’ revenue earners	Other type of income earners.	Tax rate	Reduced Tax rate
2016	35%	31.900	47.000	4.700	9.400	31.900	%20	%15
2017	30%	33.200	49.800	4.980	9.960	33.200
2018	25%	35.250	52.900	5.290	10.580	35.250
2019	20%	37.500	56.200	5.620	11.240	37.500
2020	15%	42.500	63.700	6.370	12.740	42.500

Withholding Tax Increase:

TABLE 3: WITHHOLDING TAX INCREASES
	On the payments to the Laborers	On the Payment to the Independent Personal Service Suppliers	On the Payments for Rental of the Immovables	On the Payments for the Construction in Progress
YEAR	On the gross annual wage payments	On the gross annual service payments	On the gross annual rental payments	On the gross annual construction payments(*)
2016	%6	%6	%6	%1
2017	%5	%5	%5	%1
2018	%4	%4	%4	%1
2019	%3	%3	%3	%1
2020	%2	%2	%2	%1

(*) If there was no filing for the construction work over the years, then 3% of the personal or corporate income tax base is accepted for the withholding tax for construction payments.

This withholding tax base increase that is made for wage earners do not necessitate to apply for the social security premium increase.

VAT Tax Base Increase:

TABLE:4 VALUE ADDED TAX INCREASE
YEAR	Increase in the Tax Base
2016	%3
2017	%3
2018	%2,5
2019	%2
2020	%2

CORRECTION OF THE ENTRIES OF SOME ASSETS IN INVENTORY

This amnesty aims at correction of the following entries that are already in the books in the years 2016, 2017, 2018, 2019 and 2020. The subject of the corrections can cover the following inventory:

If the goods, machinery, equipment and/or fixed assets are physically in the inventory but not entered the books,
If the goods are recorded in the books but not physically exist,
If the cash-on-hand and receivables from shareholders are recorded in the books but not physically exist.

Taxpayers may adjust their inventory with respect to the above topics and thus equate the physical inventory with the recorded inventory by paying some lower rate taxes. There will be no fine or penalty over such adjustments.

The goods, machinery, equipment and/or fixed assets are physically in the inventory but not entered the books:

Taxpayers may apply for this amnesty until the end of the day dated 31/8/2021. Taxpayers must fill the list announced in the related communique and file the list attached to a return.

These assets must be shown with their market price in the list. Market price is the normal purchase-sale price of an asset.

Tax Burden

Tax will be imposed on the market price of the assets as follows:

If the delivery of the assets like machinery, equipment, fixed assets are subject to 18% reverse charge VAT, then 9% tax will be filed and paid,
If the delivery of the assets like machinery, equipment, fixed assets are subject to 1% or 8% reverse charge VAT, then 0,5% or 4% tax will be filed and paid.

Moreover, if the purchase document of the asset cannot be shown and if taxpayers file the Private Consumption Tax of the asset (if applicable) on the market price and then pay it while filing the VAT return, then it will not be subject to a penalty.

If these assets are sold in the future, their sale price will not be the price entered the books.

These assets will not be subject to depreciation and may not be subject to VAT rebate.

VAT paid for these assets in reverse charge method cannot be used as tax credit with respect to VAT liability.

Cash-on-hand and receivables from shareholders are recorded in the books but not physically exist

If the cash-on-hand and the net of liabilities and receivables from shareholders are recorded in the books and at the same time filed to the tax office until the end of 31/8/2021 and 3% tax is paid on the amounts that is subject to corrections, then these transactions will not be elaborated by the tax authorities. This is valid for both personal and corporate taxpayers.

Tax Burden

The value of the goods must be determined at arm’s length basis.

Accordingly;

The normal VAT rate must be applied to the goods and then filed in the return;
The sales revenues must be recognized in the annual tax base.

Pharmacies may file those products if they do not physically exist in the inventory until the end of 31.8.2021. In this case, they have to file the products and pay 4% VAT on these products. VAT paid cannot be deducted from the VAT payable.

OTHER AMNESTIES
1. Accrued Social Security Premium:

Instead of the premium and the other liabilities such as late fees pertaining to the period of March 2021 and backward, the taxpayers may pay only the principal of the premium and the increases that are based on the domestic producers’ price index. There are many other details under this item.

Premium of the Workers of a Construction that are Under Investigation and Determination Process and the Unaccrued Fines:

If the taxpayers apply until 31 August 2021, the taxpayers may benefit from the amnesty to reduce the burden of the premium that is stemming from the determination of the construction workers’ deemed absent work hours. This amnesty is valid only for the private construction works that have been completed until 30.04.2021. In some cases, even 50% of the fines can be cancelled by the authorities.

PAYMENT OF THE TAXES AND SOCIAL SECURITY LIABILITIES AFTER THE CORRECTIONS
1. Payments of the Taxes in the deadline of the First Installment at once:

Except some special deadlines mentioned in above paragraphs, taxpayers must apply to the authorities till the end of August 2021. The payment of the first installment of the taxes is made till the end of September; the first installment of the social security premium and fines are paid until the end of August 2021.

If the taxes are paid in one installment, then there will be no late fee coefficient will be applied that are applicable in case of payments in installments. In this case, instead of the normal late fees etc, the domestic producers’ price index will be applied but then 90% of this increase will be abolished; in case of paying the tax in two installments, then 50% of this price increase will be applied instead of normal late fee, which is 1,60% month.

In order to understand the discounts and reductions in the taxes and late fees, one should refer to the law for details.

Paying in Installments:

If it is paid in installments, then the amount of the tax installments will be increased by the following coefficients:

1) 6 equal installments the coefficient for the increase will be (1,09),

2) 9 equal installments the coefficient for the increase will be (1,135),

3) 12 equal installments the coefficient for the increase will be (1,18),

4) 18 equal installments the coefficient for the increase will be (1,27),

Each installment is paid in two-month period. For example, 6 installments are equal to 12-month period.

This Bulletin is a very short summary of the amnesty law no 7326. There might be other details pertaining to this amnesty that might be affect the taxpayers’ decisions. Please refer to the full translation of the Law.

I. REVALUATION OF THE ASSETS

The full tax liability taxpayers may apply until 31 December 2021 in order to reevaluate their immovables and their assets subject to depreciation and amortization that are shown in the ‘balance sheet’ as of 9 June 2021.

The immovables that are subject to ‘sell-lease-and-buy back’ cannot be subject to this temporary opportunity.

The reevaluation will be made on the values that are entered in the books. The cumulative amortizations are also subject to reevaluation.

The reevaluation coefficient is found by using the domestic producers’ price index (PPI). The reevaluation coefficient is found by dividing the reevaluation index for May 2021 by the PPI index that is announced for the next month after the immovable was purchased (written as an asset). If the asset is reevaluated previously, then for finding the reevaluation fund, PPI for May 2021 must be divided by the PPI for May 2018.

The amount that is pertaining to the reevaluation is shown in the ‘liabilities’ side of the balance sheet as a fund, which is a part of equity. The amount of this reevaluation is found by the following formula:

Amount of the Reevaluation Fund=

(The value(cost) of the immovable after the Reevaluation- the amount of the cumulative amortization after the Reevaluation) - (the value(cost) of the immovable before the Reevaluation - the amount of the cumulative amortization before the Reevaluation)

After the reevaluation, the amortization will be made on the reevaluated values of the immovables and depreciable assets. Therefore, this opportunity will affect (decrease) the tax base if the immovable is kept in the balance sheet.

Taxpayers must pay 2% tax on the reevaluation fund until the end of the following month of the reevaluation and then paid in three equal instalments, first one is paid with the tax return, and the second one is paid in the second month after the reevaluation and the third one is paid in the fourth month after the reevaluation. If the tax is not paid, this reevaluation cannot be used. The tax that is paid is not allowable from the tax base. The reevaluation can be added only to the paid-up capital. It cannot be treated as profit. If it is distributed, it is subject to the tax. If the immovable is sold, the reevaluation is not deducted from the sale price (i.e. It is not taken into the calculation of the tax base of the capital gains tax).

It seems that this fund will increase the assets, the equity of the taxpayers and the depreciation expenses but will not decrease the tax on the inflationary profits of the immovables if they are sold.

If you have any queries on this Bulletin, please feel free to contact us. We always recommend you to obtain an updated opinion before you implement any bulletin that might be downloaded from any websites including ours at www.penetra.com.tr because fiscal regulations change frequently.

Dr. İbrahim Tutar

Sworn in Financial Advisor