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Vergide Gündem
English Translation

Super tax incentive for company mergers

“Bill of Law on Restructuring of Certain Receivables and Making Amendments on
Certain Laws” has been presented to Grand National Assembly of Turkiye on January
27, 2023. The above bill of law is substantially a “tax amnesty” and parallel to other
tax amnesties introduced in previous years.

There are interesting tax regulations in the bill of law. One of these is that the
portion of the financing expenses related to participation shares and share
purchases in transfer transactions can be subject to deduction in the transferee
company in the Corporate Tax Law (“CTL”).

For this purpose, paragraph 3 of Article 5 of the CTL is amended as follows: “It is not
accepted to deduct the expenses of corporations regarding their income exempted
from corporate tax or the losses arising from their activities within the scope of
the exemption from the non-exempt corporate income. In so far, the financing
expenses related to the purchase of participation shares, including those incurred
after the transfer transactions made within the scope of Article 19 of the Law, can
be deducted from the corporate income.” Thus, “in cases where a company that
participates in a company participates or merges (transfer) with the participating
company (transfer), the financial expenses incurred due to the purchase of
participation shares and corresponding to the transfer, can be deducted at the
transferee company.

In essence, “debt push down to the participated company” is, in essence, the
deduction of the credit used in the acquisition of the subsidiary by a merger
(transfer) by participating in a company purchased with credit instead of equity.
The parent company can be established for reasons such as the obligation of
a jurisdiction to form a company to participate in the tender, and the credit is
first provided to this company (special purpose company, “SPV”). However, the
repayment of this loan is dependent on the operating company's transfer of
dividends to the parent company, and the lower the corporate tax in the subsidiary,
the higher the return on investment / payback period. That's why the SPV is
transferred to the participating company and the loan interest is charged to that
company.

With the bill of law, the "debt push down" process with the bill of law will enter into
force on the date of publication in the Official Gazette, to be applied to the income
and earnings obtained after January 1, 2023, with the approval of the law by the
Parliament.

This is the summary of the article published in the Ekonomist magazine’s issue
2023/03, dated 05.02.2023.

Mart 2023 March 2023 9