Republic of Türkiye
REVENUE ADMINISTRATION
Istanbul Tax Office Directorate
Income Laws, Income and Corporate Taxes Group Directorate
Date: 14.08.2020
Reference: 62030549-120[37-2019/1371]-E.596266
Subject: Revenue-based income determination
Regarding: The private ruling request form dated 16/10/2019 and numbered 3304186 submitted via the Interactive Tax Office System.
Upon examining your private ruling request form and its attachments, it has been understood that, in addition to your activity of urban passenger transportation with a private public bus, you are also engaged in the operation of a commercial taxi under a separate activity code. You have requested our Directorate’s opinion on whether the income obtained from your urban passenger transportation activities can be taxed under the revenue-based income determination and revenue-based taxation methods within the scope of Income Tax Law No. 193 and Value Added Tax Law No. 3065. Below is the explanation provided by our Directorate on the matter.
I- REGARDING THE INCOME TAX LAW:
In the first paragraph of Article 37 of the Income Tax Law No. 193, it is stated that profits arising from any kind of commercial and industrial activities are considered commercial income.
Commercial activity is based on a type of labor-capital organization, and the intention or purpose of profit-making does not affect the classification of the activity as “commercial activity” when performed by such an organization. However, for an activity to be classified as “commercial activity,” it is not necessary to have the intention or purpose of profit-making, but it should be understood that the organization performing the activity must have the potential to generate profit when evaluated with all its elements.
In Article 113 of the same law, titled “Revenue-Based Income Determination,” it is stated:
“Taxpayers engaged in urban passenger transportation activities and obtaining all their revenues from these activities through electronic fare collection systems can request to have 10% of their gross revenues (including the amount of VAT calculated for taxpayers taxed under the revenue-based taxation method in accordance with Article 38 of the Value Added Tax Law No. 3065 dated 25/10/1984) considered as taxable income for these activities. In determining the taxable income in this way, the expenses related to the activity are not considered, and no deduction or exemption is applied to this income.
For those whose income is determined under the first paragraph:
a) Their expenses or costs related to this activity are not considered in determining their taxable income or other revenues.
b) The provisions of this article do not apply to other taxable income or revenues apart from this income.
c) It is not possible to exit this method before two years have passed.
Taxpayers who have been fined twice in a calendar year according to the first and second paragraphs of Article 353 of the Tax Procedure Law No. 213 dated 4/1/1961 cannot benefit from the provisions of this article for the income related to the year in which the penalty was imposed and the following two calendar years.”
Furthermore, in Article 3 of the General Communiqué on Income Tax No. 309, titled “Taxpayers Eligible for the Application and Conditions for Benefiting”:
“(1) Taxpayers engaged in urban passenger transportation activities and obtaining all their revenues from these activities through electronic fare collection systems (including those whose income is determined under the simplified method) and who request it can benefit from the revenue-based income determination application.
(2) To benefit from the revenue-based income determination application:
a) Taxpayers wishing to benefit from the application must be engaged in urban passenger transportation activities.
b) All revenues from these activities must be obtained through electronic fare collection systems.
c) A written request must be made to the tax office to which they are affiliated in terms of income or corporate tax to benefit from the application.
In this context, if taxpayers engaged in urban passenger transportation activities do not obtain all their revenues from these activities through electronic fare collection systems, it is clear that they cannot benefit from this application.”
In light of the above provisions and explanations, it is not possible for you to benefit from the revenue-based income determination method because the transportation fees you have earned from your commercial taxi operation, considered as part of urban passenger transportation activities, are not obtained through electronic fare collection systems.
II- REGARDING THE VALUE ADDED TAX LAW:
Article 38 of the Value Added Tax Law No. 3065 states:
“Those whose commercial income is determined according to the operating account basis and those whose professional income is determined according to the professional income book, who fall within the sector and professional groups determined by the President, may, if they request, pay the VAT they have calculated, based on the (including VAT) consideration for taxable transactions, not exceeding the highest rate determined under Article 28 of this Law, by applying the rate determined by the President for the relevant sector or professional group, without associating it with deductible VAT.
Taxpayers who are taxed under the revenue-based taxation method in the first paragraph may consider the VAT shown on the purchase documents due to the deliveries and services made to them and the VAT they have declared and paid according to the revenue-based taxation method as an expense or cost, depending on the nature of the transaction, and may consider the VAT calculated for the deliveries and services they perform as income.
Taxpayers who switch to the revenue-based taxation method cannot exit this method before two years have passed.
The President is authorized to include income and corporate taxpayers who keep books on the balance sheet basis under the provisions of the Tax Procedure Law into the revenue-based taxation method according to the annual business volumes determined by sector and professional groups, and the Ministry of Treasury and Finance is authorized to determine the procedures and principles for the implementation of this article.”
In the section titled “V/A-2.2. Taxpayers Eligible for the Application” of the General Communiqué on VAT Implementation:
“Only those taxpayers who fall within the sector and professional groups included in the revenue-based taxation method by Presidential Decision can benefit from the revenue-based taxation method. Those wishing to be taxed under this method must apply to the tax office to which they are affiliated. The tax office will review the application, verify the taxpayer’s information, and notify the taxpayer with a letter if they are deemed eligible for taxation under this method. These taxpayers must declare the VAT they will calculate according to the revenue-based taxation method for the relevant taxation periods starting from the period following the period in which the notification was delivered to them. Taxpayers who switch to the revenue-based method cannot exit this method before two years have passed.”
In the section titled “2.5. Those Included in the Application”:
“…
Furthermore, to be taxed under this method, taxpayers must be exclusively engaged in public transportation by bus. Taxpayers engaged in other activities in addition to this activity cannot benefit from this application.
Example: (Z) Urban Service and Transportation Ltd. Co., operating under a license obtained from the municipality, is engaged in urban passenger transportation with 5 private public buses. In addition, it provides student transportation services to (Y) College with 20 minibuses. Accordingly, since (Z) company is not exclusively engaged in private public bus operations, it cannot benefit from the revenue-based taxation method.
Those taxpayers who meet the conditions specified in Presidential Decision No. 718 and keep books on the operating account or balance sheet basis can benefit from this application regardless of their annual business volume.
Taxpayers wishing to be taxed under this method must submit the supporting information and documents related to the conditions specified in Presidential Decision No. 718 in their application to the tax office to which they are affiliated.
Those taxed under this method must also include other revenues related to their private public bus operations (such as sales of depreciable economic assets, advertising revenues, etc.) in the revenue-based taxation base.”
Furthermore, the Presidential Decision No. 718, dated 06/02/2019, published in the Official Gazette No. 30679, dated 07/02/2019, prepared to determine the sector and tax rate for which the revenue-based taxation method will be applied, and which will come into force as of 01/03/2019, states:
“(1) For bus operators licensed by municipalities under the Metropolitan Municipality Law No. 5216 dated 10/07/2004 and the Municipality Law No. 5393 dated 03/07/2005, who lease public transportation routes, provide public transportation services through service procurement methods, and collect all their revenues through electronic fare collection systems (excluding bus operators of municipalities and companies with directly or indirectly more than 51% of their capital owned by municipalities), the tax rate to be applied to the revenues related to their public transportation activities exclusively within the city limits (with a minimum of eight seating places, including the driver) according to the revenue-based taxation method stated in Article 38 of Law No. 3065 is set at 1.5%.
(2) To be taxed under this method, taxpayers must be exclusively engaged in the activity defined in the first paragraph. Taxpayers engaged in other activities in addition to these activities cannot benefit from this application.”
According to the above provisions and explanations, it is possible for taxpayers who keep books on the operating account or balance sheet basis and who fall within the sector and professional groups determined by the President and who wish to be taxed under the revenue-based taxation method to be taxed under this method, provided they meet the conditions specified in Presidential Decision No. 718 and the related Communiqué, effective from 01/03/2019.
Therefore, since you are not exclusively engaged in public transportation by bus and have other activities in addition to this activity, it is not possible for you to benefit from the revenue-based taxation method under Article 38 of the VAT Law.
…
Source: Revenue Administration
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