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Therefore, participation banks, investment and development immovables in assets for at least two full years, we are of banks may also carry out “sell and lease back” transactions. the opinion that this statement in the draft Corporate Tax Communiqué will be contrary to the provisions added to article However, the amendment of the parenthetical provision in 5/1-e of CTL by Law no. 6495. article 5/1-e of CTL by Law no. 6495 regulates the application of exemption in the sale of immovables to financial leasing 1.3. Sale of immovables to third parties by the lessee or companies for “sell and lease back” purposes and their sale to financial leasing company the company which the immovables are transferred from by the financial leasing company. Since only the “sell and lease back” In the sale of the immovable property subject to “sell and transactions performed by financial leasing companies are leaseback transaction” by the lessee to the financial leasing mentioned in the parenthetical provision, it is concluded that company, its sale at a value close to its actual value and the exemption is not applicable in the transactions conducted exemption of the sales return create an advantage for the with participation banks, investment and development banks lessee. according to the parenthetical provision. In order to prevent the corporate tax exemption introduced However, we are of the opinion that the purpose of the for the sale of the immovables subject to “sell and leaseback” regulations under Law no. 6495 is not to grant exemption transaction from creating a tax advantage in their subsequent only to financial leasing companies’ transactions and exclude sales to third parties, Law no. 6495 has made an amendment the transactions of participation banks, development and to article 5/1-e of CTL. investment banks from the scope of exemption. Therefore, we hold the view that the wording of the parenthetical provision Accordingly, if immovables are sold to third parties by the bears a codification failure. lessee or financial leasing company, the booked value of these immovables before their transfer to the financial leasing 1.2. For the application of exemption to sales of immovables company as well as the total depreciation amount set aside for “sell and lease back” purposes, will any condition be both by the lessee and lessor shall be taken into account, and required other than maintenance in assets for two full taxation shall be applied on the seller side (lessee or financial years? leasing company). Therefore, in case the immovable asset is sold to a third party, the tax advantage derived from the “sell For the application of exemption in article 5/1-e of CTL and lease back” transaction conducted previously is eliminated. regarding the sales of immovables and participation shares, apart from maintaining the immovables and participation On the other hand, if the immovables are sold by the financial shares in assets for at least two full years, fulfillment of the leasing company since the lessee has not fulfilled its contractual following two conditions is required as well: liabilities, the return shall be calculated by taking into account the financial leasing company’s purchase price and the a. The sales return must be kept in a special fund account in depreciation amount it has set aside, and this return shall be liabilities for five years. taxed. b. Exemption is not applicable to the returns which companies 2. VAT exemption engaged in trade and leasing of immovables derive from the sale of immovables they retain for this purpose. Under clause (y) added to article 17/4 of Value Added Tax Law (VATL) by Law no. 6495, VAT exemption has been granted to The parenthetical provision in article 5/1-e regulating the “sell and lease back” transactions. exemption on “sell and lease back” transactions states that the requirement of maintaining the immovables in assets for According to this clause, provided that the ownership is at least 2 years shall not be obligatory for the application of transferred at the maturity of agreement under Law no. 6361, exemption. Other than this, there is no specification regarding the following transactions of immovables subject to “sell and the other abovementioned conditions in article 5/1-e. lease back” shall be exempt from VAT: Therefore, for the application of exemption in the sales of immovables held under “sell and lease back”, it is concluded • Their sale to the financial leasing company, that the sales return must be kept in a special fund account • Their lease by the financial leasing company to the lessee in liabilities for five years and the immovable asset must not which they were transferred from, be one of those retained by companies engaged in trade and leasing of immovables for this purpose. • Their sale to the lessee by the financial leasing company. On the other hand, Corporate Tax General Communiqué no. The exemption is applicable as from 02.08.2013. 8, which is still a draft, states that for the immovables subject to “sell and lease back” transactions, the requirement of VAT exemption will be applied only for immovables; no VAT maintaining them in assets at least for two years and other exemption will be applied in “sell and lease back” transactions requirements in the article (CTL 5/1-e) shall not be obligatory. other than immovables. For the application of exemption, there is no requirement apart While the parenthetical provision in article 5/1-e of CTL does from the transfer of ownership to the lessee at the maturity of not specify any other requirement than the maintenance of agreement. 10 Nisan 2014