TAX NEWS
NO: 2021/3
Subject: The Presidential Decree related to the financing expense restriction promulgated.
The Presidential Decree No. 3490 on financial expense restriction has been promulgated in the Official Gazette dated February 4, 2021, and numbered 31385.
As may be recalled, with Law No. 6322 published in the Official Gazette dated 15.6.2012, in order to encourage companies to meet their financing needs with their own resources instead of borrowing, amendments have been made to Article 41 of the Income Tax Law (Law No.193) and Article 11 of the Corporate Income Tax Law (Law No.5520). These amendments included re-introduction of the practice previously known as "financing expense restriction" however to this day, no Decree on the implementation of this provision has been published.
With the aforementioned Decree, this application has been implemented.
According to the 3490 numbered resolution, the financing expense restriction to be applied in the taxation periods starting from 01.01.2021 was determined as 10%.
- Pursuant to 9th subparagraph of 1st paragraph of Article 41 of the Income Tax Law (Law No.193), for companies with foreign liabilities exceeding their shareholders’ equity, 10% of interest, commission, delay charge, dividend payment, exchange difference, late payment interest, and similar types of payments in relation to the amount of foreign liabilities exceeding the shareholders’ equity cannot be deducted from Corporate Tax Base. Financing expenses that are capitalized to the cost of the investment are not treated within the scope of the restriction.
- Pursuant to 1st clause of Article 11 of the Corporate Income Tax Law (Law No.5520) for companies with foreign liabilities (excluding liabilities from financial institutions, financial leasing, financing companies) exceeding their shareholders’ equity, 10% of interest, commission, delay charge, dividend payment, exchange difference, late payment interest and similar types of payments in relation to the amount of foreign liabilities exceeding the shareholders’ equity cannot be deducted from Corporate Tax Base. Financing expenses that are capitalized to the cost of the investment are not treated within the scope of the restriction.
On the other hand, there are some uncertainties regarding implementation. The Ministry of Treasury and Finance is expected to make a statement on the subject with a Communiqué.
Yours sincerely,
Deloitte Turkey
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