The "Draft Law on Amendments to Tax Laws and Some Other Laws" was submitted to the Presidency of the Turkish Grand National Assembly on July 16, 2024.

This draft law includes significant changes in the following laws:

• Income Tax Law

Article 2 of the Draft Law provides a tax exemption at different rates for shares considered as wages given to employees of startup enterprises engaged in R&D and design activities (determined according to the criteria of the Ministry of Industry and Technology) based on the holding period of these shares. The value of the share to be accepted under the exemption cannot exceed the annual gross wage earned in the year the share is given to the employees. (Effective upon publication)

Article 3 of the Draft Law includes a regulation allowing for the tax assessment upon the determination of revenue for income taxpayers such as doctors and dentists who earn professional income and businesses like restaurants and cafes who earn commercial income. If there is a discrepancy exceeding 20% between the declared revenues and determined revenues (determined during certain times of the year) and if their explanation is not found sufficient, taxes will be assessed based on the determined revenues. (Effective upon publication)

Articles 4, 33, and 34 of the Draft Law provide for withholding tax for certain payments made to personal income tax payers and corporate tax payers in order to support the fight against informal economy. (Effective from the beginning of the second month following the publication of the law)

• Corporate Tax Law

With Article 32 of the Draft Law, a regulation has been made in the Corporate Tax Law, and the exemption provided to funds and partnerships investing in real estate for the profits earned through the real estates they own (including those that are commercial goods) will be applicable upon the condition of 50% of these earnings to be distributed to their partners within the period depicted in the article. (Effective upon publication, for earnings obtained from January 1, 2025 onwards)

Article 35 of the Draft Law ensures that 30% corporate tax is levied on the profits obtained from the Build-Operate-Transfer Model and Public-Private Partnership Projects. (Effective: Applicable to profits earned in the 2025 tax year and subsequent tax periods, and for institutions subject to special accounting periods, to profits earned in the special accounting period starting in the 2025 calendar year and subsequent tax periods from the date of publication)

Article 36 of the Draft Law introduces a domestic minimum corporate tax implementation. A regulation is made that the corporate tax payable by corporate taxpayers cannot be less than 10% of the corporate income before deductions and exemptions. (Effective: Applicable to profits earned in the 2025 tax year and subsequent tax periods, and for institutions subject to special accounting periods, to profits earned in the special accounting period starting in the 2025 calendar year and subsequent tax periods from the date of publication)

In Articles 37 to 50 of the Draft Law, explanations are made regarding the introduction of a global minimum corporate tax. According to the consensus text approved by approximately 140 countries, including Turkey, under the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project, it has been decided that multinational enterprise groups exceeding the annual consolidated revenue threshold of 750 million Euros should be subject to a minimum supplementary tax in low-tax jurisdictions. Countries have started to make the necessary legal arrangements. In summary, the global minimum corporate tax is applied when the effective tax rate determined on a country-by-country basis is below 15%, a supplementary tax is applied to profits arising in that country. The model allows the home country of the group to take this tax if the supplementary tax is not collected. If the home country of the group also does not take the supplementary tax, the countries where the group's companies are located can collect the supplementary tax. If the minimum tax is not collected from multinational companies operating in our country in this way, the uncollected tax will be collected by other countries. The Draft Law proposes to add a section titled "Local and Global Minimum Corporate Tax" consisting of 13 articles to the Corporate Tax Law and to introduce a new institution with an additional temporary article for transition arrangements.

It is seen that countries, along with the application of the global minimum corporate tax, also include local minimum corporate tax regulations in their legislation as a safeguard institution. As you know, the general corporate tax rate in our country is 25%. Due to the application of deductions and exemptions on declared income, the calculated and paid corporate tax can remain well below this rate. In this context, it is proposed to introduce a minimum tax that should be paid by establishing a link between the declared income and the tax base. It is envisaged that the global minimum corporate tax application, consisting of 13 articles in the draft, will be applied to income earned in the 2024 tax year and subsequent tax periods. The minimum global corporate tax rate is 15%, and it is stated that no global minimum supplementary corporate tax will be calculated if the country-based tax burden exceeds the minimum corporate tax rate. (Effective: For articles 37 to 49, applicable to income earned in the 2024 tax year and subsequent tax periods, and for institutions subject to special accounting periods, to income earned in the special accounting period starting in the 2024 calendar year and subsequent tax periods from the date of publication of the Law, and for article 50, from the date of publication of the Law)

• Tax Procedure Law

Article 5 of the Draft Law introduces a regulation regarding those who are identified by a tax audit report to have established a tax registration exclusively for the purpose of issuing false documents and whose tax registration is subsequently annulled and those who are associated with them. If they are legal representatives or hold more than 10% share in another companies, it is required to terminate their legal status or provide collateral. If these individuals' relationship with the company is not ended and no collateral is provided, a special irregularity fine equivalent to the collateral amount will be imposed. (Effective upon publication)

Article 6 of the Draft Law introduces a regulation for obtaining information and types of the data provided regularly by the performers of commercial activities such as buying, selling, renting, advertising, and listing conducted in any digital environment. (Effective upon publication)

Articles 7 and 8 of the Draft Law provide for the valuation of precious metals and precious metal-based deposit accounts in companies' and banks' assets at stock exchange prices, (similar to the valuation of foreign currency and foreign currency accounts) and the taxation of valuation differences as of the accounting periods including the quarterly provisional tax returns. (Effective upon publication)

Article 9 of the Draft Law increases the tax loss penalty for those operating in the informal sector. (i.e. those working without the knowledge of the tax administration). For penalties imposed at 1 times the tax, the penalty will be increased to 1.5 times, and for penalties imposed at 3 times the tax, the penalty will be increased to 4.5 times. (Effective upon publication)

Article 10 of the Draft Law increases irregularity fines imposed under Article 352 of the Tax Procedure Law for combatting against informal economy. (Effective upon publication)

Article 11 of the Draft Law increases special irregularity fines imposed under Article 353 of the Tax Procedure Law for fighting against informal economy. Additionally, the fines for some repeated acts are increased. For example, the fine for not issuing or receiving invoices, not issuing electronic device receipts, will be increased to 10,000 TL at the first detection, and the fine amount will be increased for subsequent detections. Additionally, the fines for issuing documents not listed in the Law instead of documents that should be issued under the Tax Procedure Law will be increased incrementally. It also introduces a regulation imposing fines on those who are required to receive these documents but fail to do so, but no fine will be imposed on buyers who report to the administration within 5 working days that the document was not issued. (Effective upon publication)

Article 12 of the Draft Law increases the minimum special irregularity fine to be imposed on notaries processing the documents whose stamp duty isn’t paid. (Effective upon publication)

Article 13 of the Draft Law increases special irregularity fines imposed under Article 355 of the Tax Procedure Law for fighting against informal economy. In this context:

Special irregularity fines imposed for non-compliance with obligations introduced by the Ministry are increased, and new acts related to non-compliance with the obligation to provide information on electronic commerce platforms are defined, and their fines are regulated.

The fine for non-compliance with the obligation to make payments from banks or payment institutions is increased. If the taxpayer who makes the payment notifies the administration within five working days following the payment, no fine will be imposed on the payer.

The fine for failure to fulfill the obligation to provide collateral and complete insufficient collateral specified in Article 153/A is determined.

Incremental special irregularity fines are imposed on those who use or allow the use of another person's POS device, transfer money related to goods delivery or service performance to another person's bank account, and those who allow the use of their accounts.

Regulations for banks, payment institutions, security service providers, software developers for order-sales, etc., service providers related to e-document and e-ledger applications, special integrators, and software companies to comply with the Ministry's regulations on electronic cash registers and POS devices, and special irregularity fines are imposed on those who violate these regulations. (Effective upon publication)

Article 14 of the Draft Law removes the core tax amount from the scope of reconciliation to increase voluntary tax compliance and introduces regulations to the relevant articles of the Tax Procedure Law. (Effective upon publication)

Article 16 of the Draft Law introduces a regulation for resolving reconciliation applications made before the publication of the law according to the provisions before the amendment. (Effective upon publication)

• Value Added Tax Law

Articles 17 and 21 of the Draft Law remove the VAT exemption for rental, maintenance, etc., services provided at marinas for sea transport vehicles used for non-commercial activities such as travel, entertainment, and sports. The Draft Law also cancels the offset mechanism of the input VAT incurred on services performed at ports and airports for sea and air transport vehicles and considering it as an expense. (Effective for Article 17 upon publication, for Article 21 from the beginning of the month following publication)

Articles 18 and 26 of the Draft Law eliminate the difference between the exemption for deliveries and services to national security institutions for national defense and internal security needs under the VAT and Special Consumption Tax Laws and the exemption provision on the same subject in the Customs Law by eliminating the preferential application for imports in favor of imports. (Effective upon publication)

Article 19 of the Draft Law allows the transfer of the right to deduct and refund VAT through tax inspection without being subject to the 5-calendar-year criterion or statute of limitations in merger, transfer, and division transactions (Effective upon publication)

Articles 20 and 23 of the Draft Law allow taxpayers to consider the amount of non-deductible VAT in their records at the end of the 5-calendar-year period as an expense in determining their income or corporate tax through a tax inspection. (Effective from January 1, 2030)

Article 22 of the Draft Law establishes tax inspection as the main procedure for VAT refunds to ensure the correct execution and preventing unjust VAT refunds. (Effective from the beginning of the month following publication)

Article 24 of the Draft Law provides VAT exemption for the aids provided by foreign state institutions and organizations due to earthquakes. (Effective upon publication)

• Special Consumption Tax Law,

Article 27 of the Draft Law removes the limitation of up to 20% on the specific tax amount levied on some tobacco products. (Effective upon publication)

·        Law No. 6183 on the Procedure for the Collection of Public Receivables

Article 1 of the Draft Law includes an amendment to Article 22/A of Law No. 6183 on the Procedure for the Collection of Public Receivables. This article regulates the requirement to obtain a certificate from the collection offices of the Ministry of Treasury and Finance indicating there is no debt overdue during certain payments and transactions. With the Draft, this certificate will also be required for the payments to be made upon court decisions and execution orders. (Effective upon publication)

• Free Zones Law

Article 25 of the Draft Law introduces a regulation to limit the income exemption to the amount of the export revenues for the enterprises operating in free zones. (Effective for earnings obtained from January 1, 2025 onwards, upon publication)

• Law No. 5597 on the Departure Fee for Foreign Travel

Article 51 of the Draft Law sets the exit tax to 500 TL and ensures that this amount is increased by the revaluation rate each year. (Effective: On the tenth day following the date of publication of the Law)

• Social Security Law

Article 28 of the Draft Law re-determines the short-term insurance premium rate and grants the President the authority to reduce the determined 2.25% premium rate to 1.5% and increase it to 2.5%. (Effective from the beginning of the month following publication)

Article 30 of the Draft Law terminates the practice of the Treasury paying the 5-point social security support premium provided to employers for those who continue to work under the social security support premium in the same (for those who were considered insured before 8/9/1999 and who are granted old-age or pension benefits for the first time) (Effective from the beginning of the month following publication)

With Article 31 of the Draft Law, the minimum amount of the pensions and pensions paid from the disability and old-age insurance, as well as the total payments made each month, will be increased on a file basis, including the additional payment to be made in accordance with Article 1 of the Law No. 5454 dated 8/2/2006. The President is authorized to add an appropriation to the relevant section of the budget of the Ministry of Treasury and Finance for the part of the payments to be covered by the Treasury. (Effective upon publication)

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Regards.