In article 3 of the Corporate Tax Law numbered 5520, it is clearly stated that “If institutions whose registered office or headquarter is abroad or in Turkey gain income either in Turkey or abroad, that income will be subject to tax in line with article 1 of the Law.”
Furthermore, in sub clause (h) of the first clause of article 5 titled “Exemptions” of the Corporate Tax Law, it was given a verdict that the incomes reverted to general operating accounts by gaining from overseas construction, maintenance, and fitter’s works are exempted from corporate tax.
On the other hand, in article 9 of the aforementioned law, “(1) in the determination of Corporate tax base, on condition that each amount related to each year in Corporate Tax Return should be presented separately, the losses stated below are subject to discount:
…
b) In Turkey, except the ones related to incomes exempted from Corporate Tax, on condition that they should remain in the same account more than 5 years, the losses resulted from overseas activities will be subject to discount;
1) if they are reported by the institutions given the authority to audit every year according to that country’s regulations, including the losses of tax bases declared according to the laws of country where the institution is active,
2) If that report is submitted to a tax office in Turkey with its translated copy.
It is a statutory obligation to confirm the tax returns attached to report prepared by audit firms, balance sheet and income statement by fiscal authorities. If there is no audit firm where the institution is active, tax returns belonging to each year and its translated copy should be submitted to Turkish Embassy and Turkish Consulate in that country. If there is no Turkish Embassy and Turkish Consulate in that country, those documents should be submitted to Turkish representations (ejustem generis) protecting Turkish benefits.
If overseas losses being subject to discount in Turkey are set off in related country or recorded as expense, the overseas income, which will be included in the declaration in Turkey, should be the amount before it is recorded as setoff or expense.”
Moreover, necessary explanations can be found in clause titled “9.3 setoff of overseas losses” of General Communique on Corporate Tax (serial number 1).
CONCLUSION:
According to provisions and explanations, the losses made from the activities of overseas branches can be subject to discount;
1- if they are not generated from overseas construction works,
2- if it is related to commercial earning and maintained and within the scope of sub clause (b) of the first clause of article 9 of the Corporate Tax Law. (Article 9/1b is indicated above)
Source: Revenue Administration
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