Afyonkarahisar Governorate
Directorate of Revenue
Date: July 12, 2024
Reference Number: E-63611781-125.19[KVK.ÖZLG.2023/3]-…
Subject: Partial Division
- Your company operates in four main areas: hotel management, shopping mall management, residential construction, and aluminum-PWC-glass production.
- You intend to partially divide the aluminum-PWC-glass production activities within the same factory to enhance operational efficiency.
- The hotel, shopping mall, and residential construction activities will remain with your existing company.
You have asked whether it is possible to transfer the factory buildings and all related assets and liabilities of the aluminum-PWC-glass production activities to another company through partial division.
According to Article 19(3)(b) of the Corporate Tax Law, prior to its amendment by Law No. 7456, “Partial division: The transfer of one or more of the real estate, shares, or production/service businesses of a fully taxable capital company or a foreign institution of capital company nature in Turkey to an existing or newly established fully taxable capital company at their recorded values is considered a partial division under this Law. However, for the transfer of production or service businesses, it is mandatory to transfer all assets and liabilities necessary for the continuation of the business while maintaining business integrity. Shares of the acquiring company obtained in return for the transferred assets can remain with the transferring company or be given directly to its shareholders. When real estate and share transfers under this paragraph involve the transfer of debts related to the transferred real estate and shares, this is also mandatory.”
The new Article 20 of the Corporate Tax Law, introduced by Law No. 7456, excludes real estate from this provision, effective from January 1, 2024.
Article 20(3) of the Corporate Tax Law states, “Profits arising from the transactions specified in Article 19(3)(b) and (c) of this Law are not calculated or taxed. For partial division transactions under Article 19(3)(b), the dividing company and the acquiring companies are jointly liable for the tax liabilities accrued and to be accrued until the division date, limited to the fair value of the assets acquired.”
Section 19.2.2.1.2 of the General Communiqué on Corporate Tax states, “Real estate that is physically or technically integral to production or service businesses and cannot be separated from these businesses is considered included in these businesses. However, if a factory building houses two separate production businesses, transferring one of the businesses does not require dividing and transferring the entire factory building.”
Based on these provisions and explanations, it is possible to partially divide your aluminum-PWC-glass production business by transferring the entire factory building and all necessary assets and liabilities to maintain business integrity.
Source: Revenue Administration
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