Turkish Constitutional Court Decision on Inflation Adjustment

Through the decision of the Constitutional Court dated 30.11.2023 and No. 2023/105 E., 2023/208 K. (Decision) published in the Official Gazette dated 16 January 2024 and No. 32431, the regulation regarding the deferral of inflation adjustment was annulled for 2021.

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 reservation for 2021.