Republic of Türkiye
REVENUE ADMINISTRATION
Istanbul Revenue Office
Department of Income Laws, Income and Corporate Taxes
Date: 24.09.2024
Number: E-62030549-125[5-1/e-2024]
Subject: Whether tax exemption can be utilized for the amounts paid for expropriated real estate.
Upon examining your private ruling request form registered in the subject, it has been understood that an administrative decision was made regarding the expropriation of the land registered in your company’s assets as of 01/06/2008, which was expropriated by the Housing Development Administration on 30/01/2018, a lawsuit was filed concerning this expropriation decision, and the administrative court decided to reject the case. It was noted that the registration of the mentioned land was completed at the land registry on behalf of the Ministry of Environment, Urbanization, and Climate Change on 28/02/2024, and an invoice was issued on 25/03/2024. You have requested an opinion regarding whether you can benefit from the 50% exemption on capital gains from real estate sales as per Article 5, Paragraph 1(e) of the Corporate Tax Law due to the expropriation decision made on 30/01/2018 regarding the land registered in your company’s assets. Below is the opinion of our Revenue Office.
According to Article 5, Paragraph 1(e) of the Corporate Tax Law before the amendment made by Law No. 7456 dated 14/07/2023, it is stipulated that 75% of the capital gains from the sale of shares in subsidiaries held by companies for at least two full years, as well as 50% of the capital gains from the sale of real estate held in their assets for the same period, are exempt. This exemption will apply in the period when the sale is made, and the part of the sale proceeds benefiting from the exemption must be kept in a special fund account until the end of the fifth year following the year of sale. Furthermore, it is stipulated that the sale price must be collected by the end of the second calendar year following the year of sale, and any unpaid taxes due to the exemption on the sale proceeds during this period will be deemed as lost.
In addition, Article 22 of Law No. 7456, which was enacted on 06/02/2023 and includes provisions related to the economic losses caused by the earthquakes, states in the Temporary Article 16 added to the Corporate Tax Law that:
“The provisions of Article 5, Paragraph 1(e) of this Law, prior to the amendments made by this article, shall apply to real estate located in the assets of institutions before this article comes into force. However, the 50% rate stated in Paragraph 1(e) of Article 5 of this Law shall be applied as 25% for capital gains from real estate sales made after this article comes into force.”
Furthermore, in Section 5.6.2.4.1 of the Corporate Tax General Communiqué No. 1, titled “Transfer, Conveyance, Exchange, and Expropriation of Real Estate and Shares Without Monetary Consideration,” it is stated that in order for the exemption to apply, real estate and shares must be sold, and a profit must be generated from this transaction, leading to an improvement in the financial structure of the selling company. Therefore, transactions such as transfers and exchanges without monetary consideration do not fall within the scope of the exemption. However, since expropriation transactions will enhance the financing opportunities of companies, they should be evaluated within the framework of exemption application. As the sale price must be collected by the end of the second calendar year following the year of sale and no specific determination has been made regarding expropriation transactions, disputes regarding the sale price in expropriation transactions must be resolved within the two-year collection period stated in the article. If an additional amount is received, 75% of it must be transferred to the fund account for real estate sales made as of 5/12/2017, and 50% of it during this period, so that it is possible to benefit from the exemption during the period in which the dispute is resolved.
Based on the above provisions and explanations, even though the expropriation decision regarding the land registered in the company’s assets was made on 30/01/2018, the registration date for the sale at the land registry (28/02/2024) must be considered. Thus, provided that the other conditions stated in Article 5, Paragraph 1(e) of the Corporate Tax Law are also met, it is possible for the 25% portion of the capital gains you obtained from this sale to be exempt from corporate income tax.
Source: Revenue Administration
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