Turkey: Tax System In Turkey - Revaluation

Last Updated: 20 March 1997
Revaluation is a specific method defined in the Tax Procedures Code for the purpose of ensuring a proper appraisal of the value of fixed assets that have been adversely effected by inflation. At their own option, taxpayers are allowed to revalue the cost of depreciable fixed assets and the related accumulated depreciation by multiplying these values by a rate that is announced each year by the Ministry of Finance.

Revaluation is not applied to a fixed asset during its year of acquisition. Intangible rights are not subject to revaluation.

The annual revaluation rate is determined by the Ministry of Finance by taking the month of October as the base month and the average rate of inflation for the preceding year. The rate is announced each year in December. As a result of the revaluation process, the value of a fixed asset and its accumulated depreciation are increased, commensurate with the rate of revaluation. At the end of this process, the net revaluation increase of the fixed assets is recorded in the shareholders' equity section of the balance sheet in the "Revaluation surplus fund" subaccount.

Except for buildings, which continue to be depreciated based on cost, depreciation on other fixed assets may be based on revalued amounts. The revaluation surplus fund itself may be retained in the balance sheet as a fund or it may be utilized in the funding of additional capital. In cases where the fund is transferred to another account rather than being added to capital or it is withdrawn as a dividend distribution by the shareholders, the amount in question then becomes subject to taxation, independent of the profit and loss of the period. At each year end, the taxpayer is allowed to decide whether or not a revaluation should be made and whether some or all of the fixed assets shall be revalued.

A provision stipulating that a portion of the financial costs of must be treated as non-deductible expenses will become effective on 1 January 1996.

Tax offenses and applicable penalties

The major tax offenses defined in the Tax Procedures Code, and the applicable penalties are as follows.

a) Penalties for general irregularities : This type of penalty is applicable when taxpayers fail to fulfill their prescribed duties in full and within the specified period. For example, acts such as the failure to submit tax declarations in due time and the failure to comply with the provisions regulating the order of documentation are defined as acts punishable the penalty of irregularity. The ceiling determined for penalties of irregularity is TL 1,800,000, and the minimum limit for this kind of penalty is TL 75,000. Unless an arrangement to the contrary is made by the Council of Ministers, the amount determined for such penalties is increased commensurate with the revaluation rate.

b) Penalties for special irregularities : In cases where documents specified in the Tax Procedures Code are drawn up defectively or are not drawn up at all, the applicable penalties will depend on the type of document involved. For example, in cases where the documents to be drawn up are invoices, expense vouchers, or independent professional vouchers, the applicable penalty amount corresponds to 25% of the amount that should have been in billed. The penalty cannot be less than TL 1 million. In cases where the documents to be drawn up involve papers such as retail sales vouchers or waybills, again a penalty of special irregularity, amounting to TL 1 million, will be imposed. Repetitions of irregularities may result in the closure of the work place and further penalties. Taxpayers who fail to maintain their legal books in compliance with the uniform chart of accounts become subject to a penalty of TL 37.5 million.

c) Penalty for gross negligence: The penalty for gross negligence becomes applicable when a taxpayer fails to submit a tax declaration or submits incomplete information in tax declarations for taxes with a tax base of over TL 100 million, when the tax loss caused is over the 10% of the tax base. The penalty for gross negligence is twice the amount determined as a tax loss.

d) Penalty for tax evasion: Tax evasion is the deliberate causing of a tax loss by a person with a tax liability or tax responsibility. The amount applied as a tax evasion penalty corresponds to three times the evaded tax. Furthermore, penalties of imprisonment and penalty of professional disqualification may also be imposed.

e) Penalty of negligence: A penalty for negligence is applied when the undeclared tax base is less than TL 100 million, or when the amount is less than 10% of the tax base, or when the amount of tax loss is less than TL 40 million. The penalty for negligence corresponds to 50% of the tax loss caused.

Please do not hesitate to contact us if you need any additional information regarding the matters discussed here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Mustafa Camlica, Tax Manager on tel: +90 212 232 1210, fax: +90 212 230 8231, or e-mail mustafa.camlica@arthurandersen.com or enter a text search 'Arthur Andersen' and 'Business Monitor'.

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