Republic of Türkiye
REVENUE ADMINISTRATION
ANKARA TAX OFFICE DIRECTORATE
(Department of Taxpayer Services, Income Taxes Group Directorate)
Date: 11/06/2015
Number: 38418978-125[34-14/3]-636
Subject: Regarding whether deductions made from interest income can be refunded in cash or offset.
In your private ruling request, you ask whether the income tax deductions made from the interest income your company earns from banks can be refunded in cash or offset.
According to Article 1 of the Corporate Tax Law No. 5520, the earnings of capital companies are subject to corporate tax. Article 2, paragraph 1, states that joint-stock companies, limited companies, and partnerships with divided shares established under the provisions of the Turkish Commercial Code, as well as funds subject to the regulations and supervision of the Capital Markets Board, are considered capital companies. Under paragraph (d) of Article 5, titled “Exemptions,” the earnings of real estate investment funds or partnerships established in Türkiye are exempt from corporate tax.
Furthermore, in Article 5/1 of the “Communiqué on Principles Regarding Real Estate Investment Partnerships,” published in the Official Gazette No. 28660 on 28/5/2013, it is stated:
“Partnerships may be established for the purpose of investing in a specific project or real estate or operating in a specific field, or without such limitations, they may be established to operate a portfolio consisting of the assets and rights listed in paragraph (l) of Article 3 of this Communiqué.”
In paragraph (l) of Article 3, titled “Definitions and Abbreviations” of the same Communiqué, it is stated that the partnership’s portfolio consists of real estate, real estate-related projects, real estate-based rights, capital market instruments, Takasbank money market and reverse repo transactions, Turkish Lira or foreign currency deposits or participation accounts, and other assets and rights approved by the Board.
On the other hand, Article 15, paragraph 1 of the Corporate Tax Law, titled “Withholding Tax,” stipulates that public administrations, public economic institutions, other institutions, trade companies, joint ventures, associations, foundations, economic enterprises of associations and foundations, cooperatives, fund managers, traders, and self-employed persons who are required to declare their real income, and farmers who determine their agricultural income based on balance sheets or operating accounts, must withhold taxes from the payments they make to institutions, including advances, in the amounts specified in the article, to be offset against the corporate tax liabilities of the entitled recipients.
Paragraph 3 of the same article stipulates that, except for the earnings of pension funds, tax will be withheld from the earnings listed in paragraph (d) of Article 5 of the Law, whether distributed or not. The withholding rate has been set at zero by the Council of Ministers Decision No. 2009/14594.
Paragraph 4 of the Provisional Article 67 of the Income Tax Law No. 193, added by Article 30 of Law No. 5281 and effective from 1/1/2006, stipulates that tax must be withheld by the payers from the capital gains listed in paragraphs (7), (12), and (14) of the second paragraph of Article 75 of the Income Tax Law. Paragraph 5 states that the withholding tax is not affected by whether the income earner is a real or legal person, resident or non-resident, whether they are subject to tax, exempt from tax, or whether the income is exempt from tax.
Section 34.6 of the Corporate Tax General Communiqué No. 1, titled “Offsetting Taxes Paid on Income of Funds and Investment Partnerships,” states:
“The earnings of the funds and investment partnerships listed in paragraph (d) of the first paragraph of Article 5 of the Corporate Tax Law are exempt from corporate tax. These funds and partnerships must first offset the taxes withheld from their income in accordance with Article 15 of the Corporate Tax Law or Provisional Article 67 of the Income Tax Law against the corporate tax calculated on the corporate tax return. After this offset, the withholding tax amounts that cannot be offset due to the absence of a tax base (because no taxable income was declared on the corporate tax return) can be offset against the withholding tax declared on the withholding tax return in accordance with the third paragraph of Article 15 of the Law. However, for this tax offset to be valid, the taxes withheld must have been paid to the relevant tax office by the tax withholders. If, after the offset through the withholding tax return, a remaining tax amount cannot be offset, this tax deduction will be refunded to the taxpayer upon application within the framework of the principles set forth in the General Communiqué on Income Tax No. 252.”
The regulations and explanations regarding the offset of taxes withheld through withholding and the refund of any remaining amounts are provided in the General Communiqué on Income Tax No. 252. Section 1.3.1 of the aforementioned Communiqué outlines the procedures and principles for refunds through offset, and Section 1.3.2 outlines those for refunds in cash.
Within the framework of the provisions and explanations provided above, the deductions made from the interest income your company earns from banks can be offset against the corporate tax calculated on these earnings included in the corporate tax return, and any remaining amount that cannot be offset through offset can be refunded to your company in accordance with the General Communiqué on Income Tax No. 252.
Source: Revenue Administration
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