The acquisition and pledge ban stipulated by the Old Turkish Commercial Code No. 6792 has been turned into a limited freedom under the New Turkish Commercial Code ("TCC") No. 6102. In accordance with the Article 379 of the TCC, the company has been granted permission for acquiring an amount not exceeding one-tenth of the capital or the issued capital of the joint stock company. In this study, the tax consequences that may arise as a result of the acquiring of own shares by the joint stock companies will be examined.
Keywords: Joint Stock Companies, Joint Stock Companies' Acquisition of Its Own Shares, Taxation Results of the Joint Stock Companies' Acquisition of Its Own Shares
Joint stock companies' acquisition of its own shares is regulated between the articles 379-389 of TCC. Pursuant to these articles; if the share's capital debt is paid, it is possible for a joint stock company to acquire or pledge it. General Assembly authorization on the subject -not exceeding 5 years- and company's net asset being sufficient is needed to proceed to acquire or pledge the share up to one tenth of the total registered or issued capital..
Taxation consequences resulting from the acquisition of own shares by joint stock companies are not included in the tax legislation. For this reason, the original purpose of this acquisition must be examined for taxation. In this review, joint stock companies' acquisition of its own shares need to be considered in three different aspects in terms of taxation:
- This transaction is equivalent to capital decrease in terms of tax practices.
- This process results in tax consequences arising from profit distribution.
- This transaction should be considered as a security transaction and the taxation process should be done in accordance with it.
I. CAPITAL DECREASE
According to TCC, capital decrease is decreasing the nominal value of the shares or reducing the number of shares by buying them for a price and redemption of the shares taken. In Article 379 (3) of the TCC it is stated that "After deducting the amounts of the shares will be acquired, the remaining company net assets must be at least as much as the total amount of the reserved capital which is not allowed to be distributed according to the law or articles of association and the capital or issued capital." On the other hand, although capital decrease give rise to redemption of the share, in the case of joint stock company's acquisition of its own shares, it is not a necessity. As a result; two conditions (realization of acquisition from non-connected assets and redemption of the shares which are acquired) must be performed to regard the acquisition as capital decrease.
II. DIVIDEND DISTRIBUTION
Dividend distribution can be made from the assets of the company which are legally independent just as in the acquisition of its own shares. Therefore, it is considered that the acquisition of the company's own share must be equivalent to the dividend distribution. However, TCC prohibits this kind of actions to protect the other shareholder's rights. However, the taxation of joint-stock companies' acquisition of their own shares may provide an application area for a company that clearly expresses the purpose of distributing dividends.
III. REGARDING THE ESTABLISHMENT OF SECURITIES
Joint-stock companies sell their shares to third parties if the share's value increased after they acquire their own shares. Since the company's shareholding rights will not be feasible in such a case, they cannot receive any dividend so it is common for companies to make a profit by selling these shares when their value increased. For this reason; this profit is subjected to taxation based on legal entity or natural person.
The acquisition of its own shares by joint stock companies has not been included in the tax legislation yet which could lead to serious problems in the future of tax enforcement. In our review; this subject should also be included in the tax legislation in the near future.
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.