Can CPAs record their expenses for suits and similar items they use for work as expenses?

In a special circular issued by the Revenue Administration, it was stated that since the outerwear used in the performance of the Financial Advisor profession is not exclusive to the performance of the activity, and the outerwear in question is suitable for use in private life outside of work, since a direct link cannot be established between the specified outerwear expenses and the earning or maintenance of income, the expenses related to the outerwear used by the professional in the performance of the freelance accountant and financial advisor services cannot be evaluated within the scope of Article 68, subparagraphs 1 and 2 of the Income Tax Law, and the aforementioned expenses cannot be taken into account as expenses in determining the freelance earnings.

Special Circular: Regarding the taxable aspect of outerwear expenses of freelancers

In the special circular request form registered in the interest, our Presidency is asked for its opinions on whether your outerwear expenses can be deducted in the determination of your freelance earnings by stating that you are engaged in freelance work as an independent accountant and financial advisor.

### I) IN TERMS OF INCOME TAX

According to Article 65 of the Income Tax Law No. 193, titled “Definition of Income from Independent Professional Services,” it states that “Income from any kind of independent professional activity is considered income from independent professional services.

An independent professional activity is a job that is carried out on one’s own behalf and under personal responsibility, based more on personal labor, scientific or professional knowledge, or expertise rather than capital, and which is not of a commercial nature…”

In the first paragraph of Article 67 of the same law, titled “Determination of Income from Independent Professional Services,” it is stated that “The income from independent professional services is the difference remaining after deducting the expenses incurred due to this activity from the money, assets, and other benefits that can be represented in money, received in return for the independent professional services within an accounting period.”

Furthermore, in Article 68, titled “Professional Expenses,” the deductible expenses from the gross revenue for determining income from independent professional services are listed in clauses. In the first clause of the first paragraph, it states, “General expenses incurred for the acquisition and maintenance of professional income (those using a part of their residence as a workplace can deduct all of the rent paid for the residence, and half of other expenses such as heating and lighting. Those who own the workplace as their own property can deduct depreciation instead of rent; those who own the residence and use a part of it as a workplace can deduct half of the depreciation as an expense).” In the second clause, it states, “Expenses for the sustenance and accommodation of servants and workers at the workplace or in the premises of the workplace, treatment and medication expenses, insurance premiums, and retirement contributions (provided that these premiums and contributions are paid to insurance companies or retirement and relief funds established in Turkey without the right of recovery, and provided that the retirement and relief funds have legal personality), and the clothing expenses written in Article 27.”

In the first paragraph, clause (2) of Article 27 of the same law, it states, “Clothing provided as inventory (clothing provided to the employees by public or private offices and institutions as required by the job and retrieved upon their departure from the job).”

For the general expenses listed in the first clause of the first paragraph of Article 68 of the Income Tax Law to be deductible from the income from independent professional services, there must be a clear and direct connection between the expenses and the acquisition and maintenance of income, they must be appropriate to the nature of the work, and proportionate to the business scale.

The clothing expenses listed in clause 2 are limited to the clothing provided to servants and workers at the workplace, where the use of such clothing by the workers is a requirement of the job. These clothing items must be provided as ready-to-wear and as goods, it must be customary for the employer to supply such clothing according to commercial customs, and they must be returned if the workers leave the job.

Considering these provisions and explanations together, the outerwear items you mentioned that you use in the conduct of your profession are not exclusively intended for the performance of your professional activities, and since these outerwear items are also suitable for use in your private life outside of work, it cannot be said that there is a direct connection between these outerwear expenses and the acquisition or maintenance of your income. Therefore, the expenses related to the outerwear used personally by you in the conduct of your independent accounting and financial advisory services cannot be considered under clauses 1 and 2 of Article 68 of the Income Tax Law, and it is not possible to take these expenses into account as deductions in determining your income from independent professional services.

### II) IN TERMS OF VALUE-ADDED TAX (VAT)

According to the VAT Law:

Article 1/1 states that deliveries and services performed within Turkey in the context of commercial, industrial, agricultural activities, and independent professional activities are subject to VAT.

Article 29/1 states that taxpayers can deduct the VAT shown in the invoices and similar documents issued to them for deliveries and services related to their activities, calculated over the transactions subject to tax.

Article 30/d states that the VAT paid for expenses that are not deductible in determining income according to the Income Tax and Corporate Tax Laws cannot be deducted from the VAT calculated over the taxpayer’s taxable transactions.

Accordingly, since the expenses for outerwear, which are not mandatory for the performance of your profession and are your personal expenses, are considered non-deductible expenses in determining income according to the Income Tax Law, it is not possible to deduct the VAT incurred due to these expenses according to Article 30/d of the VAT Law.

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Can outerwear expenses be written off as clothing expenses?

In your special notice request form registered in the interest; it is stated that your company is engaged in advertising, publishing, magazine printing and various organizational activities, that you conduct shootings and interviews due to your job, that you attend openings and invitations; that you need to pay attention to your clothing and appearance because your job appeals to visuality; therefore, you have clothing, shoes, hairdresser and cosmetic expenses; and our Presidency’s opinion is requested on whether these expenses can be deducted by your company in terms of the Corporate Tax Law and the Value Added Tax Law.

IN TERMS OF THE CORPORATE TAX LAW:

In Article 6 of the Corporate Tax Law No. 5520; it is stipulated that the provisions of the Income Tax Law regarding commercial income will be applied in determining the net corporate income. According to this provision, the expenses in Article 8 of the Corporate Tax Law and Article 40 of the Income Tax Law will be deducted from the corporate income to be determined.

Article 40 of the Income Tax Law No. 193 lists the expenses to be deducted in determining net income, and in the first paragraph (1) of the same article, it is stated that general expenses incurred for the acquisition and maintenance of commercial income can be deducted as expenses in determining net income.

General expenses incurred for the acquisition and maintenance of commercial income are expenses incurred in connection with the commercial organization, other than the expenses that are not legally accepted as listed in the Income and Corporate Tax Laws, and these can also be called business expenses.

According to these provisions and explanations; since the outerwear, hairdresser and cosmetic expenses that you stated that you used in the performance of company activities are not exclusive to the execution of your activity, it cannot be said that there is a direct connection between your stated expenses and the acquisition or maintenance of corporate income.
Accordingly; it is not possible to take into account the clothing, shoes, hairdresser and cosmetic expenses you made as expenses in determining corporate income.

IN TERMS OF VALUE ADDED TAX LAW:

Value Added Tax Law:

-In subparagraph (1) of the first paragraph of Article 1; it is stipulated that deliveries and services made within the framework of commercial, industrial, agricultural activities and freelance professional activities in Turkey are subject to VAT

-In subparagraph (1) of Article 29; it is stipulated that taxpayers can deduct the VAT calculated on the taxable transactions they make, and shown on invoices and similar documents issued for deliveries and services made to them in relation to their activities

-In subparagraph (d) of the first paragraph of Article 30; it is stipulated that VAT paid for expenses whose deduction is not accepted in determining the income according to the Income and Corporate Tax Laws cannot be deducted from the VAT calculated on the taxable transactions of the taxpayer

Accordingly; Since the expenses in question are expenses for which deduction is not accepted in determining the profit according to the Income and Corporate Tax Laws, it is not possible for your company to deduct the VAT incurred due to these expenses in accordance with subparagraph (d) of the first paragraph of Article 30 of the said Law.

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Source: Istanbul Chamber of Certified Public Accountants
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