All that remains after the VAT reform…


The draft law containing radical changes in the Value Added Tax (VAT) Law, also called the “VAT reform”, was submitted to the Turkish Grand National Assembly at the end of February. The Law no.7104 was published, with adjustment­s, in the Official Gazette on April 6, 2018 following parliament­ary approval.

Deferred VAT w ll not be refunded

The VAT Law contains a provision indicating that deferred VAT would not be refunded except under specific circumstan­ces, particular­ly for exports. The total amount of deferred VAT, deemed to be a sort of receivable for the government, is estimated to be about TRY 160 billion.

The draft law which was submitted to the Grand National Assembly contained regulation­s allowing for the refund of deferred VAT amounts to taxpayers. Despite public expectatio­ns, a complete, one-time refund was never a possibilit­y. It was always the case that a certain portion of that amount would be refunded, considerin­g budgetary opportunit­ies and through handling inspection­s.

However, regulation­s concerning the refund of deferred VAT were removed from the Law’s text during negotiatio­ns at the General Assembly.

Group VAT l ab l ty cancelled

A regulation authorizin­g the Ministry of Finance to permit group companies for assigning a single VAT liability under certain terms was also included in the draft. That provision has been removed

from the Law’s text as well.

No nterest payment on late refunds

One of the most essential regulation­s was the provision requiring an interest payment, even at a rate of deferment interest to the taxpayer, in case the VAT was refunded late. That was removed from the Law during the negotiatio­ns at the General Assembly, too.

Per od for VAT deduct on extended

In the Law's current form, taxpayers are able to deduct VAT on documents issued for themselves within the period that they were entered into the books provided that the calendar year in which the taxable event occurred has not passed. Under the new Law, a facility has been introduced to use that deduction until the end of the calendar year following the calendar year in which the taxable event occurred. However, this will not be enacted immediatel­y. It will be effective from January 1, 2019.

T me l m t on cla ms for VAT refunds

VAT incurred for refundable transactio­ns such as exports that could not be repaid through deduction can be claimed until the end of the second calendar year following the period in which the transactio­n was conducted. Through this arrangemen­t, effective from the beginning of 2019, the period for claiming a VAT refund is apparently indicated in the Law.

T me l m t for nspect ons on VAT refunds

While there was an arrangemen­t within the Tax Procedures Law indicating that it’s essential to finalize the inspection within one year for a full inspection and 6 months for a limited inspection, such a time limit on VAT refunds did not exist. Through the new Law, a certain inspection period is identified for the VAT refund inspection­s, too. Accordingl­y, the aforementi­oned inspection­s should be finalized within 3 months.

In the case that the inspection is not finalized, it is be possible to claim for additional time. This claim for period extension will be assessed by the relevant department­s comprising those authorized for tax inspection and an additional period may be assigned as long as it does not exceed 2 months. This latest implementa­tion will be applicable on inspection­s during the taxation periods following January 1, 2019.

Revenue based taxat on

The practice of “revenue based taxation” has been launched for tradesmen making entries based on operation accounts and the self-employed. Taxpayer groups operating within the sectors and occupation­s specified by the Council of Ministers will be able to declare and pay a certain ratio of their revenue without considerin­g the deductible VAT amount if they prefer. The VAT rate to be applied will be set by the Council of Ministers provided that it does not exceed the highest rate.

For taxpayers who prefer this procedure, VAT paid during goods and service purchases will be treated as cost or expense according to the nature of the transactio­n while the VAT that they calculate for deliveries and services performed will be considered as income. Taxpayers who choose this procedure of revenue based taxation, effective from the beginning of 2019, will be locked in for a minimum of two years.

Independen­t Accountant­s and F nanc al Adv sors author zed to ssue VAT reports

The new Law authorizes the Ministry of Finance to allow Independen­t Accountant­s and Financial Advisors (SMMM) to issue VAT refund reports, provided that they are limited to the periods designated by the tax returns that they have signed.

The Ministry also has the authority to set the refund types and maximum refund amounts that are appropriat­e for issuing reports as well as the qualificat­ions and requiremen­ts for the SMMMs which will issue the reports. Also, the Ministry will be able to require SMMMs to participat­e in and complete training sessions.

According to the regulation enacted as of April 6, the SMMMs will be jointly and severally liable for tax loss and possible penalties together with the taxpayer in the event that the report is inaccurate.

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