Constitutional Court Decision on Inflation Adjustment
Introduction
Through its decision dated 30 November 2023 and No. E. 2023/105 K. 2023/208 ("Decision"), the Constitutional Court of the Republic of Türkiye ("Constitutional Court") annulled the regulation stating that inflation adjustment will not be made for 2021 as stipulated under Provisional Article 33 of Turkish Tax Procedural Code (“TPC”).This Newsletter aims to summarize the above-mentioned Decision.
The Aim of Inflation Adjustment
As per provisional Article 298 of the TPC, inflation adjustment may be defined as the calculation of the purchasing power of non-monetary assets at the date of the financial statement by multiplying them with the adjustment factor.
The legal purpose of inflation adjustment may be summarized as the aim to remove the effects of high inflation. In the application of inflation adjustment, in order to minimize the fluctuations between periods, it has been deemed appropriate to seek two criteria together as the starting and ending criteria for inflation adjustment. Accordingly, in order to start the inflation adjustment, the cumulative increase in the price index in the last three accounting periods must exceed 100% and the increase in the price index in the current accounting period must be more than 10%.
The last inflation adjustment application was implemented in 2004. However, the conditions for inflation adjustment were re-realized as of the end of 2021. However, the Provisional Article 33/1 of the TPC, which was effective as of 20 January 2022, stated that the financial statements will not be subject to inflation adjustment during FY 2021 and 2022, including the provisional tax periods, and the provisional tax periods of the 2023 accounting period, regardless of the fact whether the conditions for inflation adjustment are met or not.
Constitutional Court Decision
The Constitutional Court Decision dated E. 2023/105, K. 2023/208;published in the Official Gazette dated16 January 2025, was held as a result of the request made by a first instance tax court, in the context of the lawsuit filed with the request for the refund of the overpaid tax because the taxpayer had paid excess tax with a reservation because the inflation adjustment had not been made because of the Provisional Article 33/1 of the TPL, even though the inflation conditions for 2021 were met.
The key points of the Decision are summarized as follows:
- Within the scope of the Decision, the phrase “2021” indicated in the provisional Article 33/1 of the Tax Procedure Law No. 213, which regulates the deferral of the inflation for 2021 and 2022 accounting periods and entered into force on 20.01.2022, was annulled as found to be unconstitutional.
- The Decision stated that (i) as of 03.01.2022, the financial statements dated 31.12.2021 should be subject to inflation adjustment; however, (ii) with the regulation dated 20.01.2022, the amendment regarding the application of inflation adjustment, which affects the corporate tax base after the taxable event has occurred, is incompatible with the principle of legal certainty and results in the retroactivity of the rules of law.
- Within the Decision, the deferral regulation for 2021 was found to be contrary to the principle of “legality of taxation” in terms of the regime of limitation of the property right, and thus contrary to Article 13, Article 35, and Article 73 of the Constitution.
- As the annulment decisions are not retroactive under Article 153 of the Constitution, the Decision will only have consequences for the taxpayers who submitted their declarations with reservations for 2021.
Conclusion
As the annulment decisions are not retroactive under Article 153 of the Constitution, the Decision will only have consequences for the taxpayers who submitted their declarations with reservations for 2021. In other words, the referred Decision will not have any legal effects on the taxpayers who did not submit their declaration with reservation & did not initiate the tax litigation procedure.
On the other hand, it is important to note that the Constitutional Court’s conclusion that the income tax and the corporate income tax occur on 31 December may be interpreted as a change of jurisprudence.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
Law No. 7456 on Additional Motor Vehicle Tax for Compensation of Economic Losses Caused by the Earthquake on 6/2/2023 and on Amendments to Certain Laws and Decree-Law No. 375 (“Law No. 7456”) was published in the Official Gazette dated 15.07.2023 and No. 32249. Law No. 7456 introduced significant...
In order to determine the procedures and principles regarding the implementation of certain articles of the Misdemeanor Law No. 5326 (“Law”), which is the general procedural law for administrative fines, the Ministry of Treasury and Finance (“Revenue Administration”) has published the General...
Through Article 20 of Law No. 7440 on Restructuring of Certain Receivables and Amending Certain Laws (“Law No. 7440”), published in the Official Gazette dated 12 March 2023 and No. 32130, significant and new tax regulations regarding debt push down financing structure for merger transactions are introduced...
Provisional Article 32 was added to Banking Law numbered 5411 (“BL”) through Article 17 of the Law No. 7186 on Amendments to the Income Tax Law and Certain Laws ("Law No. 7186") in the Official Gazette on 19.07.2019. This law enables companies that are experiencing financial difficulties, but which are...
Law No. 7420 on the Amendment of Income Tax Law and Certain Laws and Decrees (“Law No. 7420“) which was published in the Official Gazette dated 09.11.2022 introduced important amendments and regulations in the tax legislation. The addition of Article 32/B, entitled "Taxation in Capital Decrease" to...
Free Zones are zones that are established to promote export-oriented investment and production, accelerate foreign direct investment and technology access, direct enterprises towards export, and develop international trade. There are many tax advantages provided to taxpayers operating in...
Through the promulgation of Law No. 7394 on the Amendments of Treasury-Owned Immovable Property Valuation and the Value Added Tax Law and on the Amendments of Certain Other Laws and Decrees, published in the Official Gazette dated 15 April 2022 and No. 31810, significant amendments...
In recent years, many new business models have emerged and traditional business models have changed greatly, within the increasing digitalization in the economy. Along with said change, challenges arose for taxing the international business income of...
Through the promulgation of the Law No. 7351, published in the Official Gazette dated 22.01.2022 and no. 31727, essential amendments are introduced to Turkish tax legislation. Apart from the tax amendments, a new provision has been added to...
Social media has emerged with the development of the digital world and internet technology and has greatly influenced the world today. One of the main categories of actors in social media is social media content producers. These people earn through social networks in...
Law No. 7326 on the Restructuring of Certain Receivables and Amendments to Certain Laws ("Law No. 7326") entered into force by being published in the Official Gazette dated 9 June 2021. In Law No. 7326, provisions regarding (i) the restructuring of finalized tax receivables, (ii) tax receivables that are not...
The 1990’s hold significant importance by means of the developments that took place in the global economy. During the transition to the second half of the 1900’s, the Federal Reserve increased interest rates, and the hot money flow changed its direction from East Asian countries to the West...