Republic of Türkiye
REVENUE ADMINISTRATION
Antalya Tax Office Directorate
Income Laws Group Directorate
Date: 12.08.2020
Number: 49327596-125.02[KVK.2019.ÖZ.39]-E.124257
Subject: Offsetting past losses in case a taxpayer who has ceased operations resumes business
In your request for a private ruling, it was stated that your company was forcibly closed in 2016, resumed operations on 28.03.2018, and you inquired whether you could offset the VAT carried forward from the last VAT return submitted in 2016 in your April 2018 VAT return and whether you could deduct the loss amounts for the years 2014, 2015, and 2016 in your corporate tax return.
Article 9 of the Corporate Tax Law No. 5520, titled “Offsetting losses,” states that losses shown in previous years’ tax returns can be deducted in the calculation of the corporate tax base, provided they are carried forward for no more than five years and that amounts for each year are shown separately in the corporate tax return.
In section 9.1 of the General Communiqué on Corporate Tax No. 1, under the heading “Losses from previous years,” it is explained that losses shown in the tax returns of previous years can be deducted from corporate income, provided that the amounts for each year are shown separately in the corporate tax return and are carried forward for no more than five years. If the loss incurred in one fiscal period cannot be offset by profits earned in the following five fiscal periods, the offsetting opportunity is lost.
Accordingly, for losses from previous years to be deducted when determining the corporate tax base, the amounts for each year must be shown separately in the corporate tax return and deductions must be made in the periods where there is income.
Furthermore, Article 153 of the Tax Procedure Law No. 213 states that individuals starting a business must notify the tax office, including those engaged in taxable trade and professions, freelancers, corporate taxpayers, and partners of collective, ordinary, and commandite companies. The notification requirement is considered fulfilled when a commercial registry office submits a copy of the application documents of corporate taxpayers to the relevant tax office.
Article 154 specifies that the following situations indicate “starting a business” for merchants: opening a workplace, registering with the trade registry or a professional association even if no workplace is opened, or starting a business in person for those whose income is determined by simple accounting methods.
Article 160 explains that individuals who cease operations must notify the tax office. If it is determined that a taxpayer has ceased operations but failed to notify the tax office, or if they cannot be found at their registered address and no information is obtained about continuing operations at another address, the taxpayer is considered to have ceased operations. However, ceasing operations does not relieve the taxpayer of obligations from previous periods, and if they are found to have continued operations, tax liabilities and penalties will apply for those periods.
Additionally, according to the internal circulars (No. 2016/5, 2018/1, 2018/3), and internal circular No. 2016/2, a company’s taxpayer registration can be retroactively cancelled based on the date determined by official records or the date of the last tax return filed.
In light of the above, as there was no information or documents found to indicate your company continued operations, the taxpayer registration of your company was retroactively cancelled as of 31.12.2016. After it was confirmed that your company resumed operations on 28.03.2018, the taxpayer registration was re-established from this date.
Since the company did not show its past year losses in the corporate tax returns before the retroactive cancellation in 2016, it is not possible to deduct these losses in the 2018 corporate tax return.
Moreover, under Article 29 of the VAT Law No. 3065, the procedures and principles of VAT deduction are outlined, while Article 30 specifies which VAT amounts cannot be deducted.
As your company was retroactively deregistered as of 31.12.2016, and your new taxpayer registration was established on 28.03.2018, it is not possible to carry forward the VAT credit from the period before deregistration to the first VAT return after re-registration.
…
Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
