English translation
Bringing gain of export services to Turkey
Under the clause (a) of the first paragraph of the article 11 of Value Added Tax Code, it has been stipulated that the services performed for customers abroad are exempted from taxation.
Definition of customers abroad and services performed for them that are mentioned in the article above are explained in the following article of the Code. Customer abroad is defined as the buyers whose residence, work place, legal headquarters and business centre are abroad and the branch of a company in the country which operates abroad. So that a service can be deemed as service that is performed for customers abroad, the following conditions have been set forth;
a. The service should be performed for a customer abroad,
b. The service should be benefited abroad.
As implied, while there are two main conditions in the Code for the application of the related exemption, the Ministry of Finance obliges the execution of certain conditions for the application of the exemption with the communiqués published, although these are not included in the Code.
In this article, it is intended how the extension of the receivable collection periods that emerged as a natural result of effects created on the real sector by the global economic crisis shall affect benefiting from the value added tax exemption in service export, is explained.
Legislation on the Issue
As provided above, even though the conditions for applying the service export exemption are determined under the Code, the Ministry of Finance obliges the execution of certain additional conditions under the general communiqués published.
Explanations on the conditions that should be executed in the application of service export exemption have been provided under the General Communiqué Series No. 26. The conditions that should be performed to benefit from the service export exemption in accordance with the provisions of the General Communiqué have been determined as:
a. Performing the service in Turkey for a customer abroad,
b. Preparing the invoice or a document with similar nature on behalf of the customer abroad,
c. Bringing the service income to Turkey in foreign exchange,
d. Benefiting from the service abroad.
With this regulation, in addition to the exemption conditions included in the provision, the conditions of bringing the service cost to Turkey in foreign exchange and preparing the invoice or a document with similar nature on behalf of the customer abroad have been stipulated.
On the other hand, in the Value Added Tax General Communiqué Series No. 84, how the value added tax to be refunded due to the exempted transactions shall be refunded has been explained. In this Communiqué, it has been stated that the original copy of foreign exchange purchase document or its sample certified by the branch of related bank or private finance institution, or document obtained from the bank that substantiates the foreign exchange is from abroad should be submitted.
Approach of the Authority
As can be inferred from the provisions of the legislation provided above, there are various discussions on how the condition of bringing the service income in foreign exchange to Turkey which is one of the conditions required for the application of value added tax exemption in service export in accordance with the provisions of the VAT General Communiqué Series No. 26, shall be applied.
Even though the Authority has not made a determination with a communiqué or circular, they suggest their view on how the application should be performed with the tax rulings submitted to different taxpayers with respect to the issue.
The Authority grants period for the collection of the service cost at most until the date when the tax return of the related month shall be submitted and does not allow that the exports, income of which is not collected within this period, benefit from the exemption. Yet, it is stated that all of the service income can be exempted in the period when it is brought to the country.
Conclusion
We are of the opinion that there is no legal basis for the Authority’s view of setting the collection of the service cost until the period for submitting the value added tax return for the month when the invoice is prepared, as condition for benefiting from the service export exemption, without calculating value added tax in the invoice to be prepared for the service provided.
We think that the best solution shall be the unification of applications for the issue as soon as possible, through code amendment or publishing communiqué; and that setting the foreign exchange purchase document as condition for the service export income is determined as a condition required only in performing refund requests.
Bad depts and waived debts according to Tax Procedures Law
I. Introduction
It is one of the most frequent cases experienced by companies in their business lives that they record as revenue commodity or service cost they sold on credit, and then they could not collect the revenue amount on time or could not collect it at all, so it becomes impossible to collect their debts.
In such cases, companies book as revenue commodity or service cost they sold on credit and add it to their tax bases, and therefore, they have to pay tax for the sales of a commodity or service due to which they have lost money.
Considering all of these, lawmaker accepted that taxpayers could deduct their debts which they cannot collect as a result of mentioned activities from the tax base by considering them as loss, under certain conditions.
II. Bad debts
Regulations related to bad debts are included in the Article 322 of Tax Procedures Law. Accordingly;
“Debts that cannot be collected according to a court judgement or a convincing instrument indicating that the collection of the debt has been given up are bad debts.
Bad debts lose their saving value at the date on which they acquire this character, and are cancelled by being booked as loss with their registered values.
Bad debts of taxpayers keeping books according to the operation account method covered by this article are cancelled by being booked as expenses.”
A. Conditions allowing a debt to be booked as loss on the grounds that it is a bad debt
As stipulated in the article of the Law, debts that
- Cannot be collected according to a court judgement,
- Or a convincing instrument indicating that the collection of the debt has been given up,
are considered as bad debts.
In order that a debt is considered as a bad debt, it should bear the conditions explained below.
1. The debt should be relative to gaining or maintaining commercial and agricultural profit and related to the business and enterprise.
A debt should be related to the business and gaining and maintaining commercial and agricultural profit in order that it is deemed within the scope of bad debt and booked as loss. Apart from that, the debt should be based on an actual activity.
Therefore, it is not possible to book as expenses debts which are not based on an actual activity of the enterprise, are not related to the business or enterprise and do not affect the profit of the enterprise and individual debts of the enterprise owner, when they gain the character of bad debt.
2. The debt should be registered in the operating accounts and considered as revenue.
Since the accrual principle is applied for commercial and agricultural profits, in case that the collection of the debts whose cost is not collected and booked as revenue becomes impossible later on, the debt could be booked as expense and loss under the presence of certain conditions.
Uncollected debt should have been previously considered as revenue. It is not possible to book as expense or loss debts which have not been previously considered as revenue.
3. The collection of the debt should be deemed impossible according to a court judgement or a convincing instrument.
A court judgement is a decision of a court stipulating that it is completely impossible to collect the debt.
A debt should be definitely linked to a deed, so that it could be deemed within the scope of bad debt. It is important to prove the presence of the debt and that it is grounded on a convincing instrument that it gains the character of bad debt.
B. The period in which the bad debt will be booked as loss
As it is stipulated in Article 322 of Tax Procedures Law no 213, bad debts lose their saving value at the date on which they acquire this character, and are cancelled by being booked as loss with their registered values. Unlikely the doubted receivable, taxpayers keeping books according to the operation account method can record their bad debts as loss by booking them as expenses.
III. Waived debts
Regulations on waived debts are included in article 324 of Tax Procedures Law. Accordingly;
“Debts that have been waived by composition or compromise shall be entered into a special reserve account in the books of debtor. If this account is not written off as a loss in the course of three years as of the end of the year during which the debt has been waived, it will be carried to the profit account.”
Principles related to the bad debts also apply to the waived debts. Waived debt is a bad debt in terms of the creditor, whereas it is an advantage in terms of the debtor, since liabilities and debts of the debtor have decreased by this way.
Conditions allowing a debt to be considered as a waived debt
As stipulated in the article of the Tax Procedures Law, a debt has to be waived by composition or compromise in order that it is deemed within the scope of waived debt.
This is the most crucial point which differs waived debts from bad debts. Whereas a court judgement or a convincing instrument is need in order to approve that a debt has acquired the characters of a bad debt, a composition or compromise explaining that the creditor has waived his debt of his own accord is deemed required by the Law for the waived debts.
IV. Conclusion
In this article, firstly we have defined the bad debts regulated in article 322 of Tax Procedures Law and waived debts regulated in article 324 of the same Law, then we have explained the conditions required for a debt to be booked as loss on the grounds that it is a bad debt. Afterwards, we have evaluated the status of evidences of insolvency and mentioned the period in which the bad debt is booked as loss. We have also mentioned the principles related to waived debts, and explained the accounting records of bad and waived debts in general terms.
Taxpayers have to comply with the aforementioned principles related to bad and waived debts and arrange their books in accordance with these principles.