The Corporate Tax General Communiqué No. 18 is Published

You may kindly find below a brief summary in relation to the main topics regulated within the scope of the Communiqué (Serial No. 18) on the Amendment of the General Communiqué on Corporate Tax (Serial No.1) (“Communiqué”) published in the Official Gazette dated 25.05.2021 and no. 31491.

1. Financing Expense Deduction:

Through the Communiqué, detailed regulations regarding financing expense deduction have been made on the following issues:

• "Foreign liabilities" and "investment" concepts
• Application period of financing expense deduction
• Expense and cost elements that will and will not be considered within the scope of the calculation
• Offsetting of financing income and expenses
• Status of exchange difference expenses
• Status of financing expenses considered as non-tax-deductible expenses due to disguised capital, disguised profit distribution through transfer pricing and expense restrictions in passenger cars.

Essential topics regulated within the scope of the Communiqué may be summarized as follows: (i) An expense or cost element must be dependent on the use of foreign resources and the duration of use of this resource in order to be subject to financing expense deduction, (iii) In transfer of credits between group companies, the financing expenses related to these loans are subject to financing expense deduction within the company that took over and actually used the loan, (iii) Exchange difference expenses are within the scope of financing expense deduction.

1. Share Buybacks and Withholding Tax Application

As it is known, withholding tax at the rate of 15% is envisaged regarding share buyback transactions to be conducted by full liable equity companies (i) if the acquired shares were redeemed via capital decrease, (ii) if the acquires shares are disposed with a value lower than the purchase price or (iii) if the acquired shares are not disposed within two years starting from the date of purchase or not redeemed by decreasing the capital, based on the value determined by the Law.

Through the Communiqué, specific examples are provided for the application of the above summarized new withholding tax regime. Please kindly note that no specific exemption is currently regulated for publicly held companies.

1. Public Offering and Corporate Tax Rate Discount

Corporate tax rate applied to the corporate income of companies going public on the Borsa Istanbul Stock Market will be applied with a two point discount for five accounting periods, starting from the first accounting period in which the offering was made, provided that the shares representing no less than 20% of the total share capital of the issuer are being offered.

Through the Communiqué, specific examples are provided for the application of the above summarized corporate tax deduction.

You may find the full text of the Communiqué here.