At the point reached in the case filed with the request of the annulment of regulation of Communiqué of General Implementation on Value Added Tax ("Communique") on the application value added tax to exchange differences, the 4th Chamber of the Council of State is expected to annul the related regulation in accordance with the decision of the Plenary Session of the Tax Law Chambers. Unless a new regulation is made at the level of the law, the annulment of VAT on the exchange differences arising between the date of the invoice and the date of the collection shall be expired.
APPROACH OF THE TAX ADMINISTRATION
The approach of the Tax Administration regarding the exchange differences in terms of VAT can be summarized as follows:
- Exchange differences, such as delay interests, should be also included in the VAT base as they are part of the cost of goods and services.
- During the collection of the cost of goods / services, exchange differences must be invoiced by the seller or the buyer according to the direction of the changes in foreign exchange rates
- If the parties do not agree that the VAT shall be collected in advance, the VAT rate shall be calculated by applying the domestic rate to the foreign exchange difference arising on the invoice issued on the date of collection.
- The rate of VAT to be applied on the invoice shall be the rate that applied while the delivery of the product or the performance of the service that give rise to credit in foreign currency
- For receivables and payables arising from the performance and delivery of goods in foreign currencies, no VAT shall be calculated for foreign exchange gains and losses, which are calculated in accordance with the Tax Procedural Law at the end of the period.
APPROACH OF THE TAX COURT
It can be said that the recent decisions of the Council of State have stabilized that the exchange differences are not subject of the tax. With the decision of the Plenary Session of the Tax Law Chamber mentioned below, the opinion of the tax jurisdiction was clarified.
The III/A-5.3 and III/B-1.2 sections of Communiqué which regulate the exchange differences as among the element of tax basis were subject of annulment suit. The annulment request was rejected by the decision of Fourth Chamber of the Council of State (Decision No: 2014/4834, 2017/4605 dated 18.05.2017). The decision of Fourth Chamber of the Council of State was annulled on the appeal by the decision of the Plenary Session of the Tax Law Chamber dated 13.12.2017 and Registry No. 2017/548, Decision No. 2017/606.
With the decision of reversal of Plenary Session of the Tax Law Chamber, the lawsuit is entrusted to Fourth Chamber of the Council of State for reconsideration. According to article 49 and 50 of Turkish Procedure of Administrative Justice Code, Chambers of the Council of State cannot insist on the decision against decision of the Plenary Session of the Tax Law Chamber in the lawsuits that heard by Council of State as first instance court. In this case, Fourth Chamber of the Council of State will comply with the decision of Plenary Session of the Tax Law Chamber.
The VAT shall not be calculated over the exchange differences arising during the collection of the price of goods and services determined in foreign currency upon the annulment of the relevant regulation of the Communiqué by the Fourth Chamber of the Council of State in accordance with the decision of the Plenary Session of the Tax Law Chamber.
However, since the calculation of VAT on the foreign exchange differences that occur until the registration date of the bill of entry is in accordance with the provisions of the Law, the application of these exchange differences to be included in the VAT base will be continued.
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.