New Tax Amnesty Comes Into Effect – Tax


New Tax Amnesty Comes Into Effect – Tax

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Recent development

Law No. 7326 on Restructuring of Certain Receivables and
Amendments to Certain Laws (“Law No.
7326
“), which includes provisions regarding the
restructuring of various public receivables including tax
receivables, has come into effect by being published in the
Official Gazette dated 9 June 2021.

What does the law introduce?

Tax amnesty law covers tax receivables related to the periods
before 30 April 2021, the delay interest and tax penalties derived
from these tax receivables, and other penalties not derived from a
tax principal.

1. Finalized tax receivables

Please note the following regarding tax receivables not paid on
time and tax receivables of which the payment period had not
expired as of 9 June 2021 (inclusive), which is the publishing date
of the Law No. 7326:

  • If the entire unpaid part of the tax principals and the amount
    to be calculated, instead of delay interest, based on the monthly
    Domestic Producer Price Index (“D-PPI“)
    rates applied until 9 June 2021 is paid within the periods and
    procedures stipulated in the Law No. 7326, the entire tax penalty
    and delay interests will be written off.
  • If 50% of the tax penalties, which are not derived from a tax
    principal or that arose from participation, and the amount to be
    calculated, instead of delay interest, based on monthly D-PPI rates
    applied until 9 June 2021 is paid within the periods and procedures
    stipulated in the Law No. 7326, remaining 50% of the penalty and
    the entire delay interests will be written off.

2. Tax receivables that are not finalized or are in
litigation

a) Tax assessments in litigation before first degree
courts or whose deadline for filing a lawsuit had not expired as of
9 June 2021

If 50% of the tax principal and the amount to be calculated,
instead of delay interest, over 50% of the tax principal based on
monthly D-PPI rates applied until 9 June 2021 is paid within the
periods and the procedures stipulated in the Law No. 7326,
remaining 50% of the tax principal and entire tax penalty
(including the delay interest and other penalties derived from a
tax principal as well as the delay interest pertaining to these
penalties) will be written off.

Taxes under reconciliation, taxes where the reconciliation date
is not determined or taxes where reconciliation could not reached
and the deadline for filing a lawsuit has not expired fall within
the above scope.

b) Tax assessments whose deadline for filing an appeal
or objection did not expire, those that are in appeal or in
correction of decision, or those whose deadline for the correction
mechanism did not expire

In these situations, the amounts written off depend on the last
court decision rendered before 9 June 2021 as to the cancellation,
approval or reversal. In this regard:

  • In case the last decision cancels the tax assessments, if 10%
    of the tax principal and the amount to be calculated, instead of
    delay interest, over 10% of the tax principal based on monthly
    D-PPI rates applied until 9 June 2021 is paid within the periods
    and procedures stipulated in the Law No. 7326, remaining 90% of the
    tax principal and entire tax penalties (as well as remaining 90% of
    the penalties that are not derived from a tax principal if the
    remaining 10% thereof is paid) will be written off.
  • In case the last decision approves the tax assessments or
    approves them with amendment, if entire approved tax principal, 10%
    of the reversed tax principal and the amount to be calculated,
    instead of delay interest, based on monthly D-PPI rates applied
    until 9 June 2021 is paid within the periods and procedures
    stipulated in the Law No. 7326, remaining 90% of the tax principal
    and entire tax penalties (as well as remaining part of the
    penalties that are not derived from a tax principal if 50% thereof
    is paid) will be written off.
  • In case the last decision reverses the decision, if 50% of the
    tax principal and the amount to be calculated, instead of delay
    interest, over 50% of the tax principal based on monthly D-PPI
    rates applied until 9 June 2021 is paid within the periods and
    procedures stipulated in the Law No. 7326, remaining 50% of the tax
    principal and entire tax penalties (as well as remaining 75% of the
    penalties that are not derived from a tax principal if 25% thereof
    is paid) will be written off.
  • In case the last decision is on a partial approval and partial
    reversal:
    • For the approved part, if entire approved tax principal, 10% of
      the reversed tax principal and the amount to be calculated, instead
      of delay interest, based on monthly D-PPI rates applied until 9
      June 2021 is paid within the periods and procedures stipulated in
      the Law No. 7326, remaining 90% of the tax principal and entire tax
      penalties (as well as 50% of the penalties that are not derived
      from a tax principal if the remaining part thereof is paid) will be
      written off.
    • For the reversed part, if 50% of the tax principal and the
      amount to be calculated, instead of delay interest, over 50% of the
      tax principal based on monthly D-PPI rates applied until 9 June
      2021 is paid within the periods and procedures stipulated in the
      Law No. 7326, remaining 50% of the tax principal and the entire tax
      penalties (as well as 75% of the penalties that are not derived
      from a tax principal if the 25% thereof is paid) will be written
      off.

3. Taxes under tax audit or assessment

Tax audits and assessments initiated but not completed by 9 June
2021 will continue to be carried out without prejudice to the
provisions of the Law No. 7326 regarding tax base increases.

If 50% of the tax principal, assessed as a result of a tax audit
initiated before 9 June 2021 and concluded until that date, and the
amount to be calculated, instead of delay interest, over 50% of the
tax principal based on monthly D-PPI rates applied until 9 June
2021 is paid within the periods and procedures stipulated in the
Law No. 7326, remaining 50% of the tax principal and entire tax
penalties (as well as 75% of the penalties that are not derived
from a tax principal if the 25% thereof is paid) will be written
off.

4. Tax base increase mechanism

The Law No. 7326 also introduces a tax base increase mechanism
for income/corporate income tax, VAT and certain withholding
taxes.

Tax base increases made based on the below explanations would
not prevent tax audits or valuation procedures that are initiated
before 9 June 2021. However, if the tax audits and the valuation
procedures initiated for the taxpayers, who increased their tax
base, are not completed until 2 August 2021 (inclusive), these
proceedings will not continue. The audit and the valuation
procedures occur when the audit reports and valuation commission
decisions are reverted to the tax offices’ records.

a) Corporate income tax base increase

If taxpayers increase their corporate income tax base by no less
than: (i) 35% for 2016; (ii) 30% for 2017; (iii) 25% for 2018; (iv)
20% for 2019; and (v) 15% for 2020 as of 31 August 2021, no
corporate income tax audit will be conducted and no other
assessment will be made regarding the corporate income tax for
those taxpayers.

The increased tax base will be subject to a corporate income tax
rate of 20%. This rate is reduced to 15% if the taxpayers: (i)
filed their corporate income tax return in due time for the fiscal
year of which they want to increase the corporate income tax base;
(ii) duly paid the taxes accrued; and (iii) do not benefit, for
these taxes, from the provisions provided for tax receivables at
the litigation stage or finalized tax receivables provided in the
Law No. 7326.

If the taxpayers declared in their corporate income tax returns
of the years they wishes to increase the tax base that they are
operating at a loss or no tax base is incurred due to reductions
and exemptions, or if they did not file any corporate income tax
return at all, the tax bases to be considered for the taxation and
the increased tax bases cannot be less than: (i) TRY 94,000 for
2016; (ii) TRY 99,600 for 2017; (iii) TRY 105,800 for 2018; (iv)
TRY 112,400 for 2019; and (v) TRY 127,500 for 2020.

b) VAT increase

If taxpayers declare the VAT, which is determined by no less
than: (i) 3% for 2016; (ii) 3% for 2017; (iii) 2.5% for 2018; (iv)
2% for 2019; and (v) 2% for 2020 over the sum of the calculated VAT
amounts in the tax returns that the taxpayers filed for each of the
taxation periods, as a tax increase until 31 August 2021, no VAT
audit or VAT assessment will be conducted for those taxation
periods.

5. Business records correction

The Law No. 7326 allows taxpayers to correct their business
records without triggering any tax assessment, tax penalty or delay
interests.

a) Commodity, machinery, equipment and fixed assets not
recorded in the company’s books but physically held in the
enterprise

Income and corporate income taxpayers may declare the these
assets to their tax office through an inventory list that details
the assets and their fair market values, determined by themselves
or the professional organizations they are associated with, by 31
August 2021. The assets included in the declaration will not be
subject to depreciation.

The VAT to be calculated based on half of the price of
commodity, machinery, equipment and fixed assets should be declared
with a separate return within the reverse charge mechanism and paid
in due time.

b) Recorded assets that are not physically present in
the enterprise

Income and corporate income taxpayers may correct their business
records for their recorded assets that are not physically present
in the enterprise by (i) issuing an invoice including the gross
profit rate determined according to the current year’s figures
for the same type of commodity and (ii) fulfilling the related tax
liabilities until 31 August 2021.

c) Recorded cash balance and receivables from
shareholders that are not present in the enterprise

Corporate income taxpayers may correct their business records
regarding the cash balance and receivables from shareholders
recorded in their balance sheet as of 31 December 2020, which are
not present in the enterprise, by declaring them to their
registered tax office until 31 August 2021. 3% withholding tax will
be calculated over the declared amounts and paid within the period
for filing the tax return.

6. Payment methods

To benefit from the restructuring opportunity, taxpayers should
apply to their tax office by 31 August 2021. Taxpayers may pay the
amounts calculated under the Law No. 7326 either in cash at once or
in installments.

If taxpayers prefer to pay in installments, they should make the
payment in maximum of 18 equal installments on a bi-monthly basis
as of September 2021. In that case, taxpayers should choose the
installment options among 6, 9, 12 or 18 equal installments during
the application. The amount to be paid will be multiplied by: (i)
1.09 for the 6 equal installments option; (ii) 1.135 for the 9
equal installments option; (iii) 1.18 for the 12 equal installments
option; and (iv) 1.27 for the 18 equal installments option.

If entire calculated amount is paid in cash at once within due
time for the first installment, above ratios will not be applied
and 90% of the amount calculated, instead of delay interest, based
on monthly D-PPI rates applied until 9 June 2021 will be written
off.

Conclusion

The restructuring opportunity introduced by the Law No. 7326
aims to provide relief to taxpayers facing financially hard times
due to the COVID-19 pandemic and an additional income for the
Treasury. We recommend that taxpayers falling within the scope of
the law take action by considering their current positions.

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.

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