REPUBLIC OF TÜRKİYE
REVENUE ADMINISTRATION
İZMİR TAX OFFICE DIRECTORATE
(Taxpayer Services Income Taxes Group Directorate)
Date: 23/02/2012
Ref: B.07.1.GİB.4.35.16.01-176300-244
Subject: Whether compensation payments due to work accidents can be recorded as expenses
In the private ruling request referenced, it is stated that your company’s business activity involves extracting coal from coalfields owned by Turkish Coal Enterprises, and that your personnel working in this field are unionized. Despite necessary precautions taken by union representatives, safety officials, and your company during the production phase, work accidents may still occur due to the high-risk nature of the job, momentary carelessness of employees, or natural factors. As a result of these accidents, injured employees or their heirs may choose to file lawsuits. You have requested our Directorate’s opinion on whether compensation paid as a result of such lawsuits, or paid through settlement without awaiting a court decision, can be recorded as an expense when calculating corporate tax.
According to Article 6 of the Corporate Tax Law No. 5520, corporate tax is calculated on the net corporate profit earned by taxpayers within a fiscal period, and the provisions of the Income Tax Law regarding commercial income apply in determining the net corporate profit.
Additionally, under Article 11, paragraph (g) of the Corporate Tax Law titled “Non-Deductible Expenses,” it is stipulated that, excluding compensations set as penalties in contracts, material and moral compensation expenses resulting from the crimes of the institution itself, its shareholders, administrators, and employees shall not be deductible in determining corporate profit.
Furthermore, Article 40 of the Income Tax Law enumerates items that can be deducted as expenses, listing in clause (3) that compensation for losses or damages paid under a contract, court decision, or legal requirement may be written off as expenses, provided they are related to the business.
Therefore, for a compensation payment to be written off as an expense, it must be business-related and paid in accordance with a contract, court ruling, or legal obligation. Compensation paid due to damages unrelated to the business or resulting from personal fault of the institution, shareholders, administrators, or employees, cannot be recorded as an expense.
In light of the above provisions and explanations, for work accidents occurring during coal extraction at fields owned by Turkish Coal Enterprises:
- Compensation and interest paid by your company to the injured employee or their heirs as per court ruling, due to the company’s fault, and
- Compensation paid through either negotiation based on an employment contract or collective bargaining agreement, or directly via settlement without any contract or agreement,
shall not be deductible as expenses when determining corporate profit, in accordance with Article 11, paragraph (g) of the Corporate Tax Law.
Source: Revenue Administration
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