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Tax Law amendments made by Law No. 735

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Tax
General

Law No. 7351 made various amendments concerning certain tax practices and disputes. These amendments include the deposit obligation for stay of execution decisions to be rendered in tax disputes related to tax refunds; corporate tax exemption for profit shares from the investment fund participation shares of full taxpayers, other than venture capital investment funds; and reduced corporate tax rate on the income of certain entities from export and production activities.

New developments

Law No. 7351 on Individual Pension Savings and Investment System and Certain Amendments on Certain Laws and Statutory Decree No. 375 (“Law No. 7351“), published on the Official Gazette dated 19 January 2022, makes various amendments related to certain tax practices and disputes. These amendments are summarized below:

What do the amendments under Law No. 7351 entail?

  • Deposit obligation for stay of execution decisions in disputes related to tax refunds

Administrative Judicial Procedure Law No. 2577, amended by Law No. 7351, provides that 50% of the disputed amount must be deposited in order for a stay of execution decision to be issued in a tax refund lawsuit. Stay of execution decisions will not be rendered if the indicated amount is not deposited.

  • Corporate tax exemption for the profit shares from investment fund participation shares of full taxpayers other than venture capital investment funds

According to Article 5/1-(a) of the Corporate Income Tax Law No. 5520, profit shares obtained from the equity shares and participation shares of venture capital investment funds of full taxpayers are exempt from corporate tax.

The Corporate Income Tax Law provision amended by Law No. 7351 provides that the profit shares obtained from other investment fund participation shares of full taxpayers will also be exempt from the corporate tax. However, this exemption will not apply to the income generated from investment funds with portfolios consisting of assets in foreign currencies, gold and other precious metals or capital market instruments based on them.

  • Reduced corporate tax rate for income generated by certain entities from export and production activities

Through another amendment that Law No. 7351 made to the Corporate Income Tax Law, the corporate tax rate will be reduced by 1% for the income generated:

  • By exporting entities exclusively from export activities
  • By entities holding Industrial Registry Certificate and physically dealing exclusively with production activities

On that basis, the corporate tax will apply at 22% to income generated by these entities for the noted activities in 2022.

The reduced corporate tax rate will apply to the corporate tax base determined after the application of the reductions provided under Article 32 of the Corporate Income Tax Law.

Conclusion

With the deposit obligation for the stay of execution decisions to be given in tax refund lawsuits, Law No. 7351 aims to prevent unjust refunds. It also provides corporate tax exemption for profit shares obtained from all investment funds, except portfolios consisting of assets in foreign currencies, gold and other precious metals or capital market instruments based on them. Finally, Law No. 7351 aims to ease the tax burden on entities dealing with export and production activities.