Tax exemption on currency-protected deposits

The communiqué published by the Ministry interprets the corporate tax exemption for currency protected deposits with the Law No. 7352 in a very narrow perspective and the exemption granted by the law has more or less been abolished.

Distinguished Fortune readers, in this issue, I would like to share with you my evaluations regarding the corporate tax exemption to be applied to the earnings obtained from the conversion of foreign currency and gold accounts into Turkish lira deposit and participation accounts.

In the last quarter of last year, with the Central Bank lowering the policy rate, the fluctuation in exchange rates that started to increase more and more. In order to stop this decrease in the value of the Turkish lira and the tendency towards foreign currencies, exchange-protected deposit arrangements were made. This regulation, which was originally made for real persons, was later expanded to include foreign accounts of legal persons and real and legal persons living abroad.  

Accordingly, in the case that institutions convert their foreign currencies in their balance sheets dated 31.12.2021 into Turkish Lira until the filing date of the fourth temporary tax period and put the Turkish Lira assets obtained in this way in Turkish Lira deposit and participation accounts with a maturity of at least three months opened for this purpose; the 1.10-2021-31.12.2021 portion of the exchange gains arising from the period-end valuation of said foreign currencies, exchange gains to be incurred on accounts that will be converted into Turkish lira until the filing of the tax return for the fourth provisional tax period of 2021 and interests, dividends and other earnings to be obtained at maturity, including those arising from the period-end valuation are exempt from corporate tax.

However, the Ministry of Treasury and Finance has published a communiqué on exemption despite the fact that this is not included in the text of the law, and the communiqué interprets the exemption in a narrowing manner, unlike the legal regulation. With this communiqué, the Ministry has adopted the first-in, first-out method in the calculating foreign exchange gains subject to exemption. Accordingly, if a company sells the USD 1,000 stated on its balance sheet from 1 October to 30 December on 30 December and buys it again on 31 December, the foreign exchange gain corresponding to the exemption will be calculated for only one day. More importantly, even if the company has never sold the USD 1,000, if it has bought and sold foreign currency in a different account, these sales will not be deducted from the foreign currency it has bought, but from the USD 1,000 in the main account, and no foreign exchange difference will be exempted. This method has significantly reduced the amount of exemption from which to be benefited and has disappointed many companies that wish to benefit from the law. Another narrowing comment in the communiqué is that exchange rate difference gains are calculated not on the basis of banks or bank accounts but by considering all foreign currency accounts.

It is fair to say that the explanation and communiqué published by the Ministry on the calculation of exchange rate difference exemption have reduced the interest of companies in currency protected deposits. In addition, we see that taxpayers who have converted to Turkish Lira have approved their declarations regarding the calculation of the exemption amount with caution and have taken legal action. Here, I would like to emphasize the importance of filing both temporary and corporate tax returns with caution and filing a lawsuit in due time.

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