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Should spare parts be that assets yield the results expected from them only in case 6 they operate together. expensed or depreciated? III. Beginning of the depreciation application I. Introduction The article 320 of the Tax Procedures Law states that the The depreciation practice is a requirement of the principle of application period of depreciation starts from the year when periodicity, which is one of the basic concepts of accounting, the values are included in the assets, while there is no clear and hesitations are experienced in the application of the Law, definition of the concept of inclusion in the assets. With in cases where there is no clarity in the Tax Procedures Law respect to the issue, it is stated in the Decision taken by the 7 regarding the determination of the depreciable asset. Tax Inspectors Advisory Commission that inclusion of a depreciable economic value in the assets means that the value Particularly companies that operate on full capacity and is acquired and registered in the book entries, is included in the 8 that rely on continuity as a critical factor in their production inventory and available for use on the day of revaluation . It is processes keep spare parts in their inventories so as to avoid also stated in the Decision that the expression “being included interruptions in production. The question of whether the in the assets” does not refer to the commencement of physical purchases of such spare parts shall be booked as depreciable use of the value in the enterprise for purposes of depreciation. assets or treated directly as expense has been raised once more The same decision states that in order to depreciate spare due to a tax ruling issued recently. machinery and equipment which were acquired but which are not physically used, it would be sufficient for them to be In this article, we have discussed the issue of whether the available for use. spare parts purchased to be used in enterprises in forthcoming periods shall be treated as depreciable assets. We would like According to a Decision taken by the 4th Chamber of the State 9 to note that apart from the provisions of the Tax Procedures Council on the other hand, in cases where the economic assets Law, the explanations in the tax rulings issued by the Revenue for which depreciation will be set aside constitute an economic Administration and State Council decisions, the opinions we and technical integrity, the taxpayer should begin to set aside have explained as our view are not binding at all and it would depreciation after all parts are included in the assets and are be beneficial to obtain the opinion of the Tax Authority in this available for use. regard. IV. Determination of the value for which II. Concept of depreciable asset depreciation will be set aside Under the Tax Procedures Law, in order for an economic asset The article 269 of the Tax Procedures Law stipulates that real to be depreciated, it must be a real estate or an economic asset estate and economic assets valued as real estate shall be valued valued as real estate, it must be available for more than 1 year, at their cost price. Under the article 262 of the same Law, must be registered in the inventory of the enterprise and must cost price is described as “the sum total of payments made 1 be subject to wear and tear or devaluation. It is stipulated in for acquiring or increasing the value of an economic asset and 3 2 the same Law that integral parts and fixtures of real estate, miscellaneous expenses related with such payments”. machinery and equipment, ships and other vehicles as well as intangible rights shall be revalued as real estate. It is stipulated in the article 272 of the same Law that expenses incurred in order to “expand” or “continuously increase the In addition, it is stipulated in the same Law that tools and fixed economic value” of real estate or electricity and distribution assets whose value does not exceed a certain amount (TL 800 4 assets, excluding normal maintenance, repair and cleaning for 2014 ) may be booked directly as expense by taxpayers expenses, must be added to the cost of the real estate or in the year of acquisition. However, in order to book an asset electricity production and distribution assets and capitalized. whose value does not exceed a certain amount as expense, it should not be a part of an economic and technical whole The term “expansion” used in the provision not only refers 5 with a value exceeding a certain amount. Furthermore, it is to physical expansion, but also means functional expansion. stipulated under the repeated article 320 of the Tax Procedures Expenses incurred in order to contribute features not present Law that only one of the two depreciation methods; normal or during the asset’s initial acquisition or to enhance the features declining balances, may be applied for assets that constitute a present during the initial acquisition are considered as value whole from the economic and technical aspect. Economic and (function) increasing expenses and the depreciation periods technical integrity shall be deemed to exist, on the condition are determined according to the remaining life of the economic 1 For detailed information please see. Guide to Issuing Tax Returns, Association of Tax Inspectors 2 Integral part: A part that serves as the basic constituent of the actual item according to local customs and that cannot be separated from the item unless the item is destroyed, lost or decomposed, Turkish Civil Law 3 Fixtures: Goods that are affxed continuously to the actual item in order for its operation, preservation or utilization and whose usage depends on the actual item by means of combining, attaching, etc., in accordance with the reasonable desire of the owner or local customs, Turkish Civil Law 4 Tax Procedures Law General Communiqué series no. 432 was published in the Offcial Gazette dated 30.12.2013 no. 28867 (Repeated.). 5 Özbalcı Yılmaz, “Vergi Usul Kanunu Yorum ve Açıklamaları”, Oluş Yayıncılık A.Ş., December 2010, pg.796 6 Income Tax Circular no. GVK-22-/2004-14 dated 24.03.2004 7 Advisory Commission Decision dated 18.04.1988, publication no. 267 and General Series No. 276/2, taken by the Republic of Turkey Ministry of Finance Board of Tax Inspectors 8 Availability for use: The term refers to the delivery of the asset or its clearance through the customs and inclusion in the enterprise upon fulflment of the contractual terms; completion of the assembly of assets for using the asset in case of economic assets to be used without modifcation, or completion of the construction and manufacturing process and transfer from the construction or manufacturing account to the fxed asset account in case of constructed or manufactured assets. 9 4th Chamber of the State Council, Decision dated 11.06.2008, File No: 2006/5474, Decision No: 2008/2262 12 Ekim 2014