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Legal Alerts

19/11/2020

Restructuring Tax Debts

Legal Alerts
Tax
General

New Developments

The Law on the Restructuring of Certain Receivables and Amendments to Certain Laws No. 7256 (“Law No. 7256“) introduces provisions on restructuring the payment of certain public receivables.. The Law No. 7256 came into force with its publication in the Official Gazette dated November 17, 2020 and No. 31307.

The Law No. 7256 introduces a restructuring opportunity for the payments of taxes and tax penalties, customs duty and penalties, receivables and debts of the municipalities, premium receivables and fines of the Social Security Board and certain other public receivables. This alert covers merely the restructuring opportunity regarding taxes and tax penalties.

The Law No. 7256 narrows the scope of previous restructuring regulations by introducing provisions merely on the restructuring of finalized debts. In other words, restructuring is not allowed for unfinalized debts and debts subject to an ongoing lawsuit; transactions within the audit or assessment procedures; and tax base and tax amount increases and adjustments of corporate records.

What Does the Law No. 7256 Mean?

The Law No. 7256 introduces a restructuring opportunity for the payment of taxes pertaining to August 31, 2020 or earlier, and tax penalties, whether penalties for tax principals, late payment interests, and delay interests.

Accordingly,

  • taxes, tax penalties derived from a tax principal along with the late payment interests and delay interests pertaining to tax returns that should have been submitted on August 31, 2020 or earlier;
  • taxes and tax penalties derived from a tax principal along with the late payment interests and delay interests pertaining to 2020 that were accrued on August 31, 2020 or earlier; and
  • tax penalties not derived from a tax principal pertaining to the determinations made (i.e. determinations made as a result of a tax audit) on August 31, 2020 or earlier

may benefit from the restructuring opportunity provided in the Law No. 7256.

In this regard, the restructuring opportunity applies only to finalized tax receivables, and no restructuring opportunity is provided for unfinalized receivables as of November 17, 2020 (and including that date).

How will the Restructuring be Implemented?

Taxpayers must pay the full tax amounts that were not paid in due time or whose deadline has not lapsed in addition to the amount calculated, instead of the dependent accessory receivables, such as late payment interests and delay interests, based on the monthly Producer Price Index (“PPI“) rates until November 17, 2020. If the unpaid amount is only the accessory receivable, the amount calculated instead of the accessory receivables based on the monthly PPI rates will be paid instead of the accessory receivable.

In these cases, the full amount of the accessory receivables depending on the tax principal, such as late payment interests and delay interests and the tax penalties applied depending on the tax principal, including those paid before November 17, 2020, along with the delay interest for the penalties will be written off.

For tax penalties applied without deriving from any tax principal, and that are not paid, whether the due date lapsed or not, taxpayers must pay 50% of the penalties and the amount calculated based on the monthly PPI rates instead of the delay interest. In case the unpaid amount is only the delay interest, the amount calculated based on the monthly PPI rates will be paid instead of the accessory receivables. In these cases, the remaining 50% of the tax penalties and full amount of the delay interests applied over these penalties will be written off.

How will the Restructured Amount be Paid?

Taxpayers must make an application to the relevant tax office until December 31, 2020 in order to benefit from the restructuring opportunity. The restructured amounts may be paid in cash upfront or in instalments. In case the restructured amount is paid with instalments, the instalment amounts will be calculated by applying the coefficients indicated in the provision. Taxpayers can pay the restructured amounts in 18 instalments, paid every two months.

In addition,

  • If the full amount of the restructured amount is paid within the payment period of the first instalment, no coefficient will be applied, and
    • 90% of the amount calculated instead of the accessory receivables will be written off; and
    • if the restructured amount is merely the accessory receivable, a 50% discount will be applied on the amount calculated instead of the accessory receivable.
  • If the full amount of the restructured amount is paid within the first two instalments, no coefficient will be applied, and
    • a 50% of discount will be applied on the amount calculated instead of the accessory amount; and
    • if the restructured amount is merely the accessory amount, a 25% discount will be applied on the amount calculated instead of the accessory receivable.

Taxpayers benefitting from the restructuring opportunity cannot file any lawsuits; must waive their rights to ongoing lawsuits; and must not appeal decisions for related taxes and penalties.

Conclusion

The Law No. 7256 introduces a restructuring opportunity for tax receivables finalized as of November 17, 2020, that aims to provide relief for taxpayers facing financial struggles due to the Covid-19 pandemic. Despite the scope of the restructuring opportunity being limited solely to finalized receivables, contrary to expectations, we believe this opportunity may partly relieve taxpayers undergoing financial difficulties and who are unable to pay finalized tax debts.