Page 6 - VeGu_Eylul2015

Vergide Gündem

English Translation

Time has come to increase capital…

Article 10 of Corporate Tax Law lists the items that can be deducted from corporate
profit during the assessment of corporate tax base. These include R&D, sponsorships
and donations. The specific aspect of these items is that they can be deducted from
profit only by companies that generate profit. In other words, companies at loss may
not deduct such items from profit.

Under a law enacted in April, a new deduction has been included in the abovementioned
ones, which is applicable to companies that increase their capital. The law was
promulgated on 7 April, but it became effective on 1 July 2015.

While there were many controversial issues related to the regulation, probably the
most urgent one was how the deductible amount would be calculated for advance tax
returns, which rate would be used and even whether the deduction was applicable.

In the 2015/32 issue of the Ekonomist magazine dated 9 August 2015, we had
discussed this regulation with the purpose of encouraging the funding of company
activities with equity by providing questions and answers. Since the Revenue
Administration had not provided any explanation on the issue as of that date, we also
offered our opinions on controversial issues in the article.

Finally, under the Draft Communiqué promulgated on the Revenue Administration’s
website on 2 September, the authority has made clarifications on the application of
deduction in capital increases in cash. Since the regulation is still a draft, it should
be noted that it could be amended. Furthermore, it is also observed that some of the
controversial issues below are not addressed in the Draft Communiqué. This article is
the version of the article published in Ekonomist magazine updated according to the
explanations in the Draft Communiqué.

Question 1: What is the general framework and purpose of the deduction
opportunity?

Answer: The regulation is briefly based on the deduction of an amount calculated on
the increased capital from the corporate tax base if companies make capital increase.
Its purpose is the encouragement of capital increases in cash.

Question 2: Who can benefit from this deduction?

Answer: It is only applicable to equity companies. That means that joint stock
companies and limited companies as well as partnerships limited by share can benefit
from deduction. Real persons earning business profit or collective companies may not
benefit from this opportunity.

Question 3: Is it applicable for all equity companies?

Answer: It is not applicable to state economic enterprises and companies operating
in the finance sector such as banks, financial leasing companies, factoring companies,
finance companies, asset leasing companies and insurance companies.

6 Eylül 2015