Additional Corporate (Earthquake) Tax Entered into Force
Through Article 10/27 of the Law No. 7440 on Restructuring of Certain Receivables and Amendments to Certain Laws (Law No. 7440) published in the Official Gazette dated 12 March 2023 and numbered 32130, an additional corporate (earthquake) tax at the rate of 10% is imposed against some corporate taxpayers. The main objective of the additional (earthquake) corporate tax is determined as to create resources for the development of earthquake area in Kahramanmaraş and neighboring provinces.
The Scope
The above mentioned additional corporate (earthquake) tax liability will be imposed for some corporate taxpayers;
- At the rate of 10% over the exemption and deduction amounts applicable on the corporate income and over the tax base subject to reduced corporate tax within the scope of Article 32/A of the Corporate Tax Code No. 5520 (CTC), without being associated with the period income,
- At the rate of 5% over the amounts subject to participation exemption as per 5/1-a of the CTC and over the participation income obtained abroad which is subject to tax at the rate of 15% at least.
Payment Period
The first installment should be paid within the corporate tax payment period. The second installment should be paid four months later.
Specific Exemption and Deduction that are Outside the Scope of the Additional Corporate (Earthquake) Tax
- Turkish investment fund and partnership exemption
- Risturn exemption,
- Exemption for gains arising from Sale & Lease Back transactions,
- Exemption regarding income gained from the the sale of assets and rights with the aim to lease certificate issuance,
- Exemption for income gained from Currency Protected Deposit accounts,
- Sponsorship expenses,
- Donations and aids that are limited with 5% of the income and made in return for a receipt,
- Donations and aids for the construction of schools, health facilities, student dormitories, kindergartens, orphanages, nursing homes, care and rehabilitation centers, and places of worship and for the continuation of the existing facilities' activities,
- Donations and aids made to places supported or deemed appropriate by the Ministry of Culture and Tourism,
- Donations that are made to aid campaigns initiated by the President,
- Donations or aids made to the Turkish Red Crescent Society and the Turkish Green Crescent Society in return for a receipt
- The portion not exceeding 10% of the declared income of the amounts allocated as venture capital funds in accordance with Article 325/A of the Tax Procedure Code (TPC),
- Protected workplace deduction,
- Investment allowance exemption,
- The income of micro and small enterprises - which are defined within the scope of Article 407 of the Presidential Decree on the Presidential Organization dated 10/7/2018 and numbered 1- obtained from technology development zones and R&D and design centers which are subject to exemption or deduction,
- Donations and aids that can be deducted from the corporate income in accordance with the relevant laws.
Our Evaluations in terms of Constitutional Rights
This additional tax regulation is considered to be in violation of the constitutional taxation principles such as legality of tax, predictability and non-retroactivity.
Retroactivity test in tax law commences with the criteria of real and non-real retroactivity and should continue the test of legitimate legal purpose and reasonable means (excessive and heavy burden).
Therefore, even if the additional earthquake tax is considered to be introduced within the scope of non-real retroactivity, retroactive taxation should be also examined in terms of legitimate legal purpose and reasonable means, as stated in many decisions of the European Court of Human Rights.
Apart from this, the additional earthquake tax contradicts the principle of equality. Within this legislation, a different treatment is created between the taxpayers who benefit from the deductions /exemptions provided for them in various legislations and the taxpayers who do not/cannot benefit from any deduction/exemption. This different treatment (i) does not pass the "justification test" as defined in the doctrine and the decisions of the Constitutional Court and the ECHR, and (ii) constitutes a violation of the principle of equality.
Additionally, some taxpayers may evaluate to waive from the relevant deductions/exemptions with the aim to avoid additional corporate (earthquake) tax. In this case, a utility analysis should be made considering the total amount of tax burden that would occur as a result of the above-mentioned additional tax of 10% & the amount of tax that would be paid in case of waiver from the deduction/exemption. In its recent rulings, Turkish Tax Administration claims that taxpayers do not have the right to waive from the exemptions envisaged to some field of activities & not depending on the consent of the taxpayers. This issue would be also required to be evaluated in terms of the principle of equality.
Therefore, we believe that it would be efficient for the relevant corporate taxpayers to submit their corporate tax returns pertaining to Fiscal Year 2022 and allege the breach of constitutional principles argument to the first instance tax court before which a tax refund case would be initiated.
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