311 TAX LAW kinds of depreciation (with or without incentive certificate), including the amounts monitored in the “Investments in Progress” account for investment projects until the relevant fixed asset is ready to be used. Accordingly, the expenses and costs of foreign liabilities added to the cost, mandatorily, or at the discretion of the taxpayer, will not be subject to expense limitation. Financing expenses incurred until the end of the period when the investment is capitalized shall be included in the cost of the investment. Including financing expenses arising in the following periods to the cost is optional. Period to be Applied The limitation on financing expense deduction is applied as of the first temporary taxation period of 2021. The balance sheets dated December 31 of the taxpayers whose accounting period is the calendar year-end, and the balance sheet of the taxpayers using the special accounting period, which is issued on the last day of the accounting period, is taken as the basis. With the updated Communiqué Draft, it is clarified that this balance sheet will be prepared “before the limitation on financing expense deduction”. Whether or not to be subject to the limitation on financing expense deduction in both temporary taxation periods and annual periods is determined on the basis of the balance sheet to be issued as of the last day of the fiscal period in accordance with the Tax Procedural Law before the limitation on financing expense deduction. Foreign Liabilities Entering the Enterprise Before 01.01.2021 The implementation of the expense limitation as of 01.01.2021 with the Presidential Decree dated 04.02.2021 has partial retroactivity. In the Draft Communiqué, it is regulated that the expense and cost elements finalized as of 01.01.2021 in terms of nature and amount, regardless of the year in which the financing service was provided, and in which year the loan agreement was made, shall be subject to the expense limitation. When this regulation had reactions on the principle of legality of tax, in the Updated Communiqué Draft, borrowings made before 01.01.2013 are excluded from the scope of the limitation.
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