The government has passed a new tax amnesty law. What does it mean for you?

Dünya Executive - - BUSINESS BY LAW - EBRU TURKCELIK DIRECTOR, PWC TAX SERVICES [email protected]

Law no.7143, which brings into effect a tax amnesty, has entered into force. Under the programme taxpayers can: Restructur­e their unpaid tax

► debts and other payables to the State

Settle their pending tax litigation

Protect their past accounts

► against potential tax audits by making voluntary tax base increases

Correct their business records

► to reflect the reality of their situations

Declare previously undeclared

► foreign and domestic assets without being subjected to taxation

Tax amnesty is actually not new to Turkey. The country previously launched similar tax amnesty programs in 2011 and 2016. There was also an amnesty program in 2017, albeit of a more limited scope.

The new amnesty programme, which began on May 18, will run through July 31 for most provisions and August 31 for others. The provisions related to wealth amnesty will remain open until November 30.

In terms of scope, the amnesty covers quite a broad range of public receivable­s, including taxes, social security premiums, administra­tive fees imposed by municipali­ties as well as other public receivable­s collected as per the Law on Collection Procedure of Public Receivable­s and specific regulation­s.

What are the opportunit­ies offered on the tax side?

Restructur ng of tax debts

Firstly, the amnesty programme brings easy terms of payment for taxes which are past due. Restructur­ing is available for all types of taxes and penalties that were accrued prior to March 31, 2018.

Participan­ts in the amnesty programme are entitled to a bi-monthly payment schedule in 6 to 18 instalment­s and hence the payment periods of debts may go up to three years. The interests of the structured debts are re-arranged based on the domestic Producer Price Index (PPI), making them more advantageo­us for taxpayers. Moreover, those who pay the entire amount at once are exempted from 90 percent of the interest.

Settlement of pend ng tax l t gat ons

Taxes under appeal are also eligible for amnesty. That is, a taxpayer with an active administra­tive or judicial appeal has the opportunit­y to settle the tax liability under the amnesty programme. Depending on the stage of the lawsuit and the outcome of any intermedia­te decisions that have already been made on the date of publicatio­n of the amnesty law, taxpayers may have the opportunit­y to benefit from a discount up to 80 percent of the taxes owed and full discharge of penalties.

Taxpayers who decide to settle under the amnesty programme terms must apply by July 31 at the latest. Also, they must withdraw their appeal by this date and must renounce all their future rights to appeal.

Voluntary declarat on of unknown tax l ab l t es

In addition to “known” liabilitie­s, amnesty also applies to those that are “unknown” to the tax office. Under the amnesty programme, taxpayers may come forward and voluntaril­y report their “unknown tax liabilitie­s”, meaning that the taxpayer has not reported the tax liability before and has not been contacted by the tax office for the taxes.

If participat­ing in the amnesty programme, the taxpayer will pay the concerned taxes, along with interest rates lower than the normal rate.

Clos ng past accounts to potent al tax aud ts

A taxpayer who voluntaril­y increases his or her previously declared tax base at the rates determined in the amnesty package and who pays tax on this additional base will not be subjected to any further tax inspection­s related to the years and types of taxes for which he or she has increased the tax base. In other words, it will be possible for such taxpayers to close their past accounts to potential tax audits and to avoid previous period tax risks by voluntaril­y increasing their tax base.

Years included are 2013 to 2017 (inclusive). Taxpayers wishing to benefit from the voluntary tax base increase provisions are required to apply to the tax office by August 31 at the latest.

Correct on of account ng records

The amnesty enables taxpayers to correct their business records as of December 31, 2017, to comply with the reality of their situations. For example, cash balances and receivable­s from shareholde­rs that appear in the books falsely can be removed from the books by paying three percent tax on the corrected amount.

How about the wealth amnesty?

The programme allows taxpayers to declare their previously undeclared offshore assets by paying a two percent tax. Turkey’s normal individual tax rates range from 15 percent to 35 percent.

In addition to the low tax rate under the amnesty programme, the tax authoritie­s will not question taxpayers about the origin of the assets, and no tax investigat­ions or reassessme­nts will be launched.

In return, taxpayers must declare the offshore assets by November 31, 2018 and move the assets to Turkey within three months after declaratio­n. The two percent tax is normally payable by December 31, 2018. If the assets are transferre­d to Turkey by July 31, the two percent tax will not be collected.

A similar opportunit­y is also available with respect to undeclared assets in Turkey. Provided that the taxpayers make a declaratio­n to the tax office by November 30, 2018 at the latest, no tax shall be due on the declared asset.

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