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Due to the recent earthquake in the South-East Türkiye a one-time additional tax, dubbed as the “Earthquake Tax,” is being levied from 2022 Corporate Tax returns. The tax doesn’t affect real persons, nor will it be levied indirectly like VAT. Not all entities are subject to the tax – about 22 thousand corporations which utilize certain exemptions and discounts will be taxed at a rate of either 5% or 10% depending on the nature of the taxable element.
The Communique regarding this policy by Tax Administration has sparked a lot of controversy. According to the Communique, all exemptions and discounts utilized by the entity must be declared in the tax return, which will not only rule out the tax benefits but also create a new tax liability. This amount is going to be used to calculate the additional tax, and any uncalculated taxes due to undeclared exemptions and discounts will be levied in addition to penalties and accrued interest.
This situation is especially controversial for companies which have realized losses or have no taxable base due to retained losses. For such entities we recommend filing a tax return with reservation and objecting to the additional taxes through a taxpayer’s suit. The case should be opened due to the fact that the procedure of obligating the declaration of exemptions and discounts in the tax return is unlawful by its nature and unpredictable.
For companies who do benefit from exemptions and discounts by paying a lower corporate tax can open a similar case on the basis of “integrity of law.”
It should also be noted that the additional tax extends not only to revenues but also to capital, as the premiums on issued shares are also subjected to the tax. In this case it is even more unfair for the taxpayer as this is a taxation on equity rather than on gains.
Integrity of law is a prerequisite for any lawful government. The protection of individual’s rights by the government relies on the integrity of law, which ensures that the norms of law are foreseeable by limiting arbitrary and detrimental actions taken by the government and its administrations.
There are no negative consequences for filing a tax return with reservation and a taxpayer’s suit. First of all, you can file a tax return with reservation and then opt not to open a case – it will allow you to annotate your 2022 corporate tax return. Regardless, if you do choose to open a case, due to the separation of powers the revenue administration may not retaliate, and if your case is deemed to be valid you will receive a refund on the tax levied over the filed tax return with reservation.
For more information you can contact our experts proficient in this topic.
Şaban Küçük, Partner, saban.kucuk@taxia.com.tr
Soner Ülgen, Tax Advisor, soner.ulgen@taxia.com.tr
Sincerely,
Taxia
