Republic of Türkiye
Revenue Administration
Istanbul Tax Office Presidency
Income Taxes and Corporate Taxes Department
Date: 11.07.2024
Number: E-62030549-125[10/2022]-…
Subject: Interest Discount Arising from Cash Capital Increase in the Event of a Change in Company Type
In the special inquiry request form referenced, it is stated that your company has changed its type from a limited company to a joint-stock company, and this change was registered and announced as of … date. It is also mentioned that the corporate tax return for the interim period … will be submitted within thirty days from the date of announcement in the Trade Registry Gazette. Therefore, our Presidency is requested to provide its opinion on whether the cash capital increase interest discount can be utilized in the corporate tax return for the interim period as a limited company and whether the interest discount arising from the cash capital increase can be utilized in subsequent accounting periods as a joint-stock company, and what the applicable Central Bank of Turkey (TCMB) commercial credit interest rate should be.
Article 19 of the Corporate Tax Law No. 5520 states: “(1) Mergers occurring under the following conditions are deemed as transfers for the application of this Law: a) The legal or business centers of the merged institution and the merging institution being located in Turkey. b) The balance sheet values of the dissolved institution on the transfer date being entirely transferred and recorded as is by the merging institution. (2) Changing the type of institutions under the above conditions is also deemed as a transfer.”
Article 20 of the same Law, titled “Taxation in Cases of Transfer, Split, and Share Changes,” provides that if the conditions specified in the article are met, only the income obtained by the dissolved institution up to the date of transfer will be taxed; profits arising from the merger will not be calculated or taxed.
Additionally, detailed explanations on the subject can be found in sections “19” and “20” of the General Communiqué on Corporate Tax No. 1.
Article 10 of the same Law, titled “Other Discounts,” paragraph 1 specifies the following deductions from corporate income, provided they are shown separately on the corporate tax return. According to item (ı) of the same paragraph: “Cash capital increases or the cash portion of paid capital in newly established capital companies, excluding those engaged in finance, banking, and insurance sectors and public economic enterprises, that are registered in the trade registry within the relevant accounting period, will be calculated considering the “Weighted Average Annual Interest Rate” announced by the Central Bank of Turkey for the year of the discount utilization. The discount amount will be 50% of the amount calculated until the end of the relevant accounting period.
(Paragraph added by Law No. 7338, Article 59; Effective: 26.10.2021) For cash capital increases covered with cash brought from abroad, this rate is applied as 75%.
(Paragraph amended by Law No. 7417, Article 49; Effective: 05.07.2022) This discount can be utilized separately for the accounting period in which the capital increase decision or the articles of incorporation were registered and for the following four accounting periods. In case of capital reduction in these periods, the reduced capital amount will not be considered in the discount calculation.
The discount amount to be calculated under this article is determined by counting the fraction of the month in which the capital is paid as a full month and calculating it for the remaining months of the accounting period. Amounts that cannot be utilized as a discount due to insufficient tax base in the relevant period will be carried forward to subsequent accounting periods. In the implementation of this paragraph, capital increases arising from the transfer of assets other than cash, mergers, transfers, and splits of capital companies, or those realized by borrowing or using credit by partners or related parties under Article 12 of this Law, will not be considered in the discount calculation.”
Moreover, paragraph 13 of the provisional Article 15 added to the Corporate Tax Law by Law No. 7417 states, “The amendment made to item (ı) of the first paragraph of Article 10 of the Law by the Law establishing this article shall apply to companies that made a capital increase or were newly established before the effective date of this article for five accounting periods, including the 2022 accounting period.”
In the section titled “10.6.1. Scope of the Discount” of the General Communiqué on Corporate Tax No. 1: “This regulation, aimed at strengthening the capital structures of capital companies, considers cash capital increases or the cash portion of paid capital in newly established companies registered in the trade registry from 1/7/2015 until the end of the relevant accounting period in the calculation of the discount according to item (ı) of the first paragraph of Article 10 of the Corporate Tax Law.
In the application of this discount: b) The commercial credit interest rate will be considered as the “Weighted Average Annual Interest Rate” for TL commercial credits announced by banks and the “Weighted Average Interest Rates on Loans” announced by TCMB for the year of discount utilization.”
Based on the above provisions and explanations, it is possible to consider the discount amounts calculated for cash capital increases by the limited company in previous years but not utilized due to insufficient earnings, as well as the cash capital discount amount calculated for the interim period in the tax return submitted due to the change in company type.
In this context, the discount amount to be utilized for the interim period should be determined considering the last announced commercial credit interest rate by TCMB as of the month of the type change registration in the trade registry. Furthermore, since all obligations related to the tax liability of the limited company will be transferred to your company through universal succession and the transferred institution will continue its operations within your company, the cash capital increase discount calculated by the acquired company and, if applicable, not utilized due to insufficient earnings, as well as the cash capital increase discounts calculated by your company in subsequent years, can be considered in the determination of the corporate tax base in your company’s corporate tax return.
Source: Revenue Administration
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