English Translation
CERTAIN PROBLEMS RELATING TO RESEARCH AND DEVELOPMENT INVESTMENTS REALIZED IN TECHNOPARKS
As it is known, one of the most significant factors that affect human life in our day is technology. Technology progresses at an unbelievable speed and affects our lives in every aspect. Parallel to this progress, an increase in research and development (R&D) investments is experienced. Owing to increase in technical opportunities and in the incentives granted to research and development investments, there is an increasing tendency among investors towards this field. However, due to problems generated from the related legislation, these incentives may have a negative impact on investors. Our article shall focus on tax-related problems experienced in techno-cities incorporated under the Technology development law concerning R&D investments.
Since the Technology Development Zones Law No. 4691 and the related legislation is new, the following technical problems may be experienced.
1) Losses incurred in Techno-Cities arising from R&D operations in Techno-cities:
Pursuant to article 3.1.3 of Circular No. 1 concerning Technology Development Zones dated 28.10.2003, if the R&D and software projects within the scope of Law No. 4691 realized in techno-cities result in loss as a whole, this loss cannot be deducted from earnings acquired from other operations.
As it is known, in industrial fields that require advanced technologies the sector firms engage in R&D activities in Techno-cities. The R&D operations in question sometimes are not directly related with certain projects that are carried out by the concerned firm and therefore considered in the general sense R&D activities for advanced technology. Essentially no income is acquired from these R&D activities and no future income is expected. However, if the results reached from R&D activities yield success, it may be possible to generate income from sale of the goods or services produced consequent to use of such results. Consequently, R&D activities that cannot be correlated directly with a project are inevitably considered as activities that constantly yield loss since they do not generate income and these losses cannot be deducted from the corporate income. Therefore, under current circumstances the fact that the losses generated within the scope of R&D activities that do not generate an income element cannot be deducted during calculation of the corporation tax base contradicts with the objective of Law No. 4691.
On the other hand, the results yielded from R&D activities are evaluated in premises of corporations outside the Techno-cities and the sums on invoices issued in relation with goods and services produced on the basis of these results are entered in legal books as income. Under these circumstances, we reach at an interesting consequence such as banning of deducting the R&D costs from income outside the Techno-cities, taxation of the income but not being able to expense-record the costs that lead to generation of this income.
Therefore, the corporations that realize R&D investments in techno-cities to generate advanced technologies are faced with an unjust loss with regard to taxation. Because, they incur the loss to carry out R&D activities and meanwhile cannot deduct this loss as expense in calculation of the corporate income. Therefore, in our opinion the losses generated from R&D investments in techno-cities must be allowed to be deducted in calculation of corporate income.
2) Relinquishment of Exemptions:
There are no provisions in the legislation concerning whether or not tax liables have the option to relinquish tax exemptions from income tax and corporation tax that have been introduced through Technology Development Zones Law No. 4691. Therefore, this issue should be evaluated within the scope of the general provisions on the issue and the objective of the law.
There are hesitations as to how the relinquishment shall be carried out as per temporary tax periods and the fiscal year, in other words, if it is possible to benefit from the same exemption that has been relinquished before in the applicable year, furthermore, whether or not exemption that has been relinquished can be exploited in the years following the year of relinquishment.
As it is known, in Law No. 4691, the two separate incentive elements are handled separately. One of these incentives is the income tax exemption on wages of personnel employed in the region; and the other is exemption on commercial earnings acquired from software and R&D activities. Therefore, it is possible to apply the two tax incentives in question (corporation tax exemption and wage income exemption) separately and if the tax liable opts to relinquish one of the exemptions, it is also possible to assume that the right of benefiting from the other exemption will remain applicable.
Consequent to evaluations on the law and the related elucidations extended in Ministry of Finance circulars it is deduced that it is not obligatory for tax liables that operate in the technology development regions to benefit from tax incentive measures. It is therefore possible to assume that ax liables always have the right to choose not to benefit from these incentives, i.e. to relinquish exemptions within the framework of general principles. Within the framework of this assumption, it is possible to deduce that the relinquishment of exemptions in question can be used partially, i.e. it is possible to relinquish some of the exemption for R&D projects (corporation tax and income tax), and continue to benefit from certain exemptions granted to R&D projects. Based on this assumption it can be deduced that it is possible to the relinquishment can be opted on the basis of temporary tax period or fiscal period and in the fiscal periods following the period for which a relinquishment is opted, the exemptions can be benefited again.
3) Long-Term R&D Projects:
Pursuant to the principle of periodicity under the Accounting and Tax legislation, the costs relating to R&D projects that are carried out in techno-cities and last longer than one year should remain in the assets until the date the sales invoices for R&D projects are issued. On the other hand, in current applications on invoices issued for goods and services produced with the contribution of R&D, no reference is made to the R&D that has contributed to production of the good or service. Under such circumstances, the manner of determining the R&D share in the sales price of the final product carries importance. For determination of the R&D share in question, allocating a certain share of the final product proceeds to the R&D projects, based on the R&D cost share in the final product cost may be considered as a solution.
4) General Evaluation:
R&D investments are necessary to contribute to advancement of technology. For efficient realization of investments, R&D projects should be encouraged through incentives. Since under current legislation there are no sufficient information and elucidations, it is very possible to encounter the problems that have been outlined above in relation with R&D investments carried out in techno-cities under Technology Development Zones Law No. 4691. Consequently, solving the problems in question as soon as possible will contribute to the progress of R&D investments.
ADJUSTMENTS INTRODUCED RELATING TO EXPENSE-RECORDING OF SPONSORSHIP PAYMENTS FOR SPORTS ACTIVITIES
Through the adjustments introduced in Income Tax Code and Corporation Tax Code through Law No. 5105, sponsorship payments about sports activities which are made by real person and corporations, may be deducted from tax base according to Tax codes in some circumstances.
New arrangements that give the opportunity to write sponsorship payments as expense according to Tax Codes are studied and detailed explanations are summarized as below.
- Sports activities can be sponsored according to Law No. 5105
With the adjustments made by Law no 5105, sports activities could be sponsored by real people and corporations according to Youth and Sports General Director and Turkish Football Federation are counted in related Laws. The important point in these classifications, players’ transfer payments do not include this classification. Furthermore, in related adjustments payments are limited and payments like travel expenses, accommodation expenses, buying or renting expenses relating to sports equipment are accepted as sponsorship expenses
.
- Adjustments on expense deduction of sponsorship payments
According to Income Tax Code and Corporation Tax Code, 50 percent of sponsorship payments adequate to Laws for professional sports branches, all of the sponsorship payments adequate to Laws for amateur sports branches could be deducted as expense.
To benefit from this adjustment, first of all, a sponsorship agreement is to be made between sponsor and club or player. In this agreement, the subject of sponsorship and the kind of sponsorship payment (cash or by delivering equipment) have to be obviously written.
Another important point in preparing a sponsorship agreement is that the club or player that could be sponsored, have to participate in the official league or official competitions. So a document, which is named sponsorship information form, have to be taken from the related federation substantiating that the player or club attends official competitions.
Another important point is that, the sponsorship agreement could not be valid without the Youth and Sports General Director’s affirmation. So, a draft of agreement and sponsorship information form are to be sent to Youth and Sports General Director for approval.
In the end of the sports activities which is sponsored, the documents about sponsorship expenses are to be sent to Youth and Sports General Director for affirmation, because the expenses could not be deducted as expense according to Tax Code until they are approved by Youth and Sports General Director. Youth and Sports General Director sends copies of documents about expenses to sponsor’s taxing authority.
To Sum up; Sponsorship expenses that are covered in new sponsorship adjustments can be deducted from tax base. To benefit from the advantages of new sponsorship, adjustments in Income Tax Code and Corporations Tax Code the stages, which are mentioned above, should be completed and the documents about sponsorship expenses are affirmed in due time.
REGULATIONS CONCERNING TO MAINTAIN BOOK RECORDS IN FOREIGN LANGUAGE OTHER THAN TURKISH LANGUAGE AND DRAWING UP A DOCUMENT BY FOREING CURRENCY UNIT OTHER THAN TURKISH LIRA FOLLOWING LAW NO 5228
I- INTRODUCTION
Maintain book records in foreign language other than Turkish language and drawing up documents basis for these records by foreign currency unit are permitted with certain requirements through Law no. 5228, which was promulgated in the Official Gazette at the end of July 2004.
In this article, firstly the prior provisions of the law concerning document and record regulations, then the details of the amendments through the stated Law will be explained in detail.
II- PRIOR PROVISIONS OF THE LAW BEFORE THE AMENDMENTS INTRODUCED BY LAW NO. 5228
As it is known, for the liabilities of the corporation taxes and excise taxes, events giving rise to the tax and every transaction related to legal positions should be bind upon documents. “Records” depending upon the documents ensure accurate following of events giving rise to tax.
In the article 171 of the Tax Procedures Code numbered 213, the aim of bookkeeping in accordance with this Law is stated. Books and records basis for books that are maintained by taxpayers should be kept so as to make it possible from the standpoint of the implementation and audit of taxation easily.
On the other hand, as it was stated in Article 66 of the Turkish Commercial Code No. 6762, every merchant shall keep the books required by the character and the importance of his undertaking, with a view to establish the economic and financial situation of his commercial undertaking, the relations of debts due by or owing to him and the results obtained in the course of each year, and particularly the following books, in the Turkish language, subject to the provisions of other Laws.
After the Law Maker determined the aim of bookkeeping by above articles, provisions regarding the record system are enumerated in prior articles of 215-219 of Tax Procedures Code before amendments introduced by Law no. 5228. One of these prior provisions was the obligation to maintain records in Turkish that was stated in Article 215.
However, in Turkish tax laws, although it was stated that all books and records maintained in accordance with this Act must be kept in Turkish, there was not any determination concerning the act of writing of the documents basis these records by foreign currency units.
III- REGULATIONS INTRODUCED BY LAW NO. 5228
Article 215 of Tax Procedures Code and its headline was amended by article 7 of Law no. 5228. Headline of the article was amended as “Obligation to maintain records in Turkish and to use Turkish money”, and the first section of the provision was regulated as follows:
“All books and records maintained in accordance with this Act must be kept in Turkish. However, records are allowed to be entering in a foreign language only if their Turkish records are available. These records can be entered on the certificated other books in the manner that does not affect the tax base.”
According to the new application, books and records maintained in accordance with Tax Procedures Code can be kept in foreign language if their Turkish records are also available. In addition, records in question might be found on the certified other books like journal, general ledger, inventory registers, as they do not change the tax assessment. Through the new regulation, in Turkish taxation system, taxpayers were permitted to draw up documents and maintain records in foreign currency for the first time. Furthermore, accounting data is allowed to be entering in a foreign language provided that the Turkish entries are also available.
After the amendment introduced, in the second section of Article 215 of Tax Procedures Code it was stipulated that;
“a) Turkish currency unit must be used in all documents drawn up and records entered. The documents shall be allowed to be drawn up in foreign currency provided that the equivalents in Turkish lira are available. Condition to provide the Turkish lira equivalent in drawn up documents shall not be demanded if those documents are drawn up in the name of the customers abroad.
b) As of related period of book certification date, the enterprises of whose paid-in capital (paid-in capital reserved for Turkey of the firms founded abroad) is minimum 100 million USD or foreign currency equivalent in Turkish Lira and of whose minimum 40% share of foreign capital is owned by enterprises that belong to persons who do not have residence, legal and business center in Turkey, are stipulated to be granted permission by the Council of Ministers to maintain their records in foreign currency. The Council of Ministers shall be authorized to reduce these amount and rate separately in terms of sectors to half amount and rate, or to increase twofold. Beginning from the following period of the accounting period that these conditions are violated, the obligation to maintain records in Turkish currency unit shall begin.
ba) Transactions made in Turkish currency unit are converted to related currency unit using TCMB foreign exchange buying rate at the day the transaction takes place. The values of commercial assets and tax assessment are determined in respect of currency unit recorded, and declared by converting to Turkish currency with the exchange rate of the first day of month in which the tax return should be filed. For the processes of tax payments, deductions and refunding, Turkish Lira amounts has to be used.
bb) These taxpayers cannot make inflation restatement in accordance with the section (A) of repeated Article 298, during the period that these taxpayers maintain records in other currency units. If these taxpayers started to record in Turkish currency unit, they cannot make use of the stated provision for three years.
Through the section 2/a of Article 215 of the same Law, provided that the equivalents in Turkish Lira are available, the documents shall be allowed to be drawn up in foreign currency. On the other hand, with the exception provision presented in the same section, for the export documents that are arranged in the name of the customers abroad and related to the goods and services exported, they can be drawn up using other foreign currency unit without the necessity of the Turkish lira equivalents.
According to the regulations of section 2/b of mentioned Article, keeping of books and records in a foreign currency unit other than Turkish currency unit is allowable by the Council of Ministers Decree. So as to make use of mentioned application, taxpayers must fulfill a certain number of conditions. As it was stated in the legal ground of the Law no. 5228, with this regulation, one of the problems that prevents the investing to Turkey is aimed to be solved.
In order to benefit from the exception stated above, as of related period of book certification date, taxpayers should fulfill a certain number of conditions.
-As of related period of book certification date, the enterprises of whose paid-in capital (paid-in capital reserved for Turkey of the firms founded abroad) is minimum 100 million USD or foreign currency equivalent in Turkish Lira,
-The enterprises of whose minimum 40% share of foreign capital is owned by enterprises that belong to persons who do not have residence, legal and business center in Turkey,