How will inflation adjustment be applied in the event of a company merger?
Article 25 of the Tax Procedure Law Communiqué No. 555;
Merger premium (Positive or negative differences arising from the tax-free takeover of institutions with which there is a partnership relationship)
ARTICLE 25- (1) In the section titled “19.1. Transfer” of the General Communiqué on the Corporate Tax Law No. 1, it is stated that if the capital increase to be made by an institution due to the takeover of another institution in which it has a subsidiary or in which it has a subsidiary, is less than the amount corresponding to the said subsidiary shares, this will not constitute a violation of the conditions specified in the first paragraph of Article 19 of the Corporate Tax Law; It has been stated that if the value in the affiliate account is not equal to the nominal value of the affiliate shares, the positive or negative difference between them can be monitored in temporary accounts without being related to the determination of the taxable income of the institution and that it is also possible to terminate these temporary accounts in the institution records without being related to the determination of the taxable income of the institution.
In this context, the merger premium, which is not an active or passive item according to the tax laws, is a temporary account that balances the active and passive, and this characteristic will not change regardless of which account it is monitored in. Therefore, the merger premium arising as a result of the transfer transactions made within the scope of the first paragraph of Article 19 of the Corporate Tax Law should not be taken into account in the inflation adjustment.
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Article 19 of the Corporate Tax Law
Transfer, division and share change
Article 19
(1) In the application of this Law, mergers that occur under the following conditions are deemed as transfers: a) The legal or business centers of the institution dissolved as a result of the merger and the merged institution are located in Turkey.
b) The balance sheet values of the dissolved institution on the date of transfer are taken over as a whole by the merged institution and are transferred to its balance sheet as is.
(2) The change of type of institutions under the above conditions are also deemed as transfers.
(3) The following transactions are deemed as division or share exchange:
a) Full division: The transfer of all assets, receivables and debts of a fully liable capital company to two or more existing or newly established fully liable capital companies at their registered values by dissolving without liquidation and in return, granting participation shares representing the capital of the transferring capital company to the partners of the transferred capital company is deemed as full division in the application of this Law. The cash payment of up to 10% of the nominal value of the participation shares to be given to the partners of the transferred company does not prevent the transaction from being considered as a division.
b) Partial division: The transfer of one or more of the participation shares or production or service enterprises owned by a fully liable capital company or a foreign institution with the status of a capital company, which are included in the balance sheet of the workplace or permanent representative in Turkey (phrase amended by Article 20 of Law No. 7456; Entry into force: 1.1.2024) and (*) held for at least two full years, to an existing or newly established fully liable capital company as capital in kind, based on their registered values, is deemed as partial division in the application of this Law. However, in the transfer of production or service enterprises, it is mandatory to transfer all the active and passive items necessary for the continuation of the activity in a way that preserves the integrity of the enterprise. In partial division, the shares of the transferee company acquired in return for the transferred assets may remain in the transferring company or may be given directly to the partners of this company. (Expression amended by Article 20 of Law No. 7456; Entry into force: 1.1.2024) In the transfer of participation (**) shares within the scope of this clause, if the shares of the transferee company are given to the partners of the transferring company, the transfer of the debts related to the transferred (Expression removed from the text by Article 20 of Law No. 7456; Entry into force: 1.1.2024) (***) participation shares is also mandatory.
c) Exchange of shares: If a fully liable capital company takes over the shares of another capital company in a way that it acquires the management and majority of the shares of this company and in return gives the partners of this company who transferred the shares, the participation shares representing the capital of its own company, this is considered as an exchange of shares in the application of this Law. The cash payment of up to 10% of the nominal value of the participation shares to be given to the partners of the company whose shares are taken over does not prevent the transaction from being considered as a share exchange.
(4) In the divisions to be made according to this article, the accounts regulating the assets and liabilities shall be transferred together with the relevant active or passive account.
(5) The Ministry of Finance is authorized to determine the procedures regarding transfer, division and share exchange transactions.
(*) Previous form: with immovables
(**) Previous form: immovables and participation
(***) Previous form: immovables
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