Restructuring of Certain Receivables and Amendments to Certain Laws

. INTRODUCTION

Law No. 7440 on the Restructuring of Certain Receivables and Amendments to Certain Laws (“Law“), published in the Official Gazette dated March 12, 2023 and numbered 32130, introduced some innovations such as the restructuring of taxpayers obligations to the public, especially taxes and insurance premiums, and tax and tax base increase.

In this newsletter article, we present the innovations brought by Law No. 7440, which is the most comprehensive debt restructuring regulation ever made, under the headings of tax restructuring and tax / tax base increase.

2. RESTRUCTURING OF TAX DEBTS

As a result of the economic difficulties experienced in our country, regulations regarding the restructuring of accrued taxes and related tax debts are emerging. The most important issue that distinguishes this arrangement, which we would like to explain in this newsletter article, from other tax restructurings is that it is the most comprehensive debt restructuring ever.

With this regulation, a total of approximately 1 trillion 300 billion Turkish Lira receivables of 13 institutions have been restructured. In addition to this, some penalties/sanctions that have not been regulated in the restructuring laws enacted until today have also been included in the scope of this regulation.

Except for some articles, administrative fines imposed by regulatory and supervisory authorities were always excluded from the scope of the restructuring in the restructuring laws enacted until the Law that entered into force on the date of publication. With this Law, for the first time, fines that were not regulated in the previous restructuring laws and judicial fines followed and collected by tax offices are included within the scope of the said restructuring regulation. The period foreseen in case the amounts calculated as a result of the restructuring are to be paid in installments is generally limited to a maximum of 36 months in the previous regulations, while for the first time with this regulation, the maximum period foreseen for taxpayers who want to benefit from the provisions of the Law has been increased to 48 months and the possibility of payment in 48 equal installments has been provided.

The Ministry of Treasury and Finance (“Ministry“) and the Social Security Institution (“SGK“) have the largest share in this restructuring. A total debt of 837 billion will be restructured in tax offices.

Of this amount, a 521 billion Turkish Liras is related to the original receivable and 316 billion Turkish Liras is composed of penalties, late fees and interest. For the SGK, there is a debt restructuring of 361 billion Turkish Liras.

More than 14 million taxpayers are in debt to tax authorities. On the other hand, more than 3 million workplaces and more than 14 million individuals owe money to the Social Security Institution. For this reason, the restructuring arrangement in question is quite comprehensive.

As envisaged in this restructuring, debts below 2 thousand Turkish Liras will be written off. The number of those who owe less than this amount is more than 7 million. We would like to point out that there is no need to submit an application for the write-off of debts and that the debts will be automatically written off by the Ministry.

The Law was published and entered into force on March 12, 2023. The relevant institutions are required to determine and publish their own application procedures. Some institutions have started to publish their application procedures and have even started to receive applications.

The Ministry has also started to receive applications for (i) restructuring of finalized debts, (ii) restructuring of receivables that have not been finalized and are in the litigation phase, and (iii) restructuring of receivables under assessment and examination.

The Law sets May 31, 2023 as the last day of the application period and stipulates that the first installment of the restructuring must be paid by June 30, 2023. The Presidential decree stipulates that these deadlines may be extended up to 1 month.

The primary and most important debts include, first and foremost, tax debts, as detailed below, and secondly, administrative fines.

• Traffic fines, military service administrative fines, election administrative fines, population administrative fines, bridge-highway illegal toll fines, administrative fines imposed by supreme boards, administrative fines arising from the Law No. 4207 on the Prevention and Control of the Harms of Tobacco Products, student and contribution loan debts, state rights from mines, ecrimisils, unfair support payments, resource utilization support fund,

etc. and judicial fines are among the receivables covered by this restructuring.

In terms of debts to the SGK (in terms of public receivables), all premium debts fall within the scope of restructuring.

As of December 31, 2022, debts arising/due as of December 31, 2022 are subject to restructuring within the scope of Article 2 of the Law.

Provisional taxes for 2022 are not included in the scope of the law.

In terms of restructuring, it should be noted that there is no reduction in principal amounts. In other words, the reductions consist of (i) the late payment interest applied to the principal, (ii) the late payment interest and

(iii) to remove any tax penalties accrued before finalization.

The aforementioned interest/amounts will be deleted and a new interest will be calculated at the D-PPI interest rate instead.

2.1. RESTRUCTURING OF FINALIZED DEBTS

Pursuant to Article 2 of the Law, the restructuring of finalized debts covers the periods prior to 31.12.2022 (including this date); in the case of taxes based on declaration, taxes and tax penalties related to the declarations that should have been submitted until this date, and accessory receivables such as delay interest and delay increases.

The Law provides for the restructuring of (i) taxes and tax penalties, (ii) administrative fines, (iii) receivables pursued pursuant to Law No. 6183, (iv) customs duties and administrative fines and all kinds of interest, increase, delay increase, delay interest, delay penalty and accessory receivables related to these receivables that have not been paid or whose payment period has not yet expired as of the date of publication.

The Law stipulates that the receivables accrued upon the declarations submitted with reservation will also be restructured as finalized receivables.

In order to make a restructuring application for the debts that fall within the scope of the restructuring as of the period, these debts must have been finalized as of the publication date of the Law (including the publication date) and must not have been paid or the payment period has not yet expired.

The restructuring arrangement regarding finalized debts will be applied as follows:

• The full amount of the original debt (principal) will be collected. There is a discount on the principal

It is not.

• Additional public receivables such as default interest and late payment interest will be deleted and instead of the Law

The amount to be calculated based on the monthly change rates of domestic PPI until the date of publication shall be paid.

• All tax penalties (tax loss penalty) and the delay increases related to these penalties will be deleted and the amount calculated with the D-PPI will be paid instead of the deleted delay increases.
  • Tax penalties that do not depend on the tax penalties and 50% of the tax penalties imposed due to participation will be deleted.

The D-PPI amount is 9% per annum and 0.75% per month and if this amount is paid in advance, 90% of the D-PPI amount will be deleted.

It is important to note that; for the receivables related to the periods covered by this Law, which have been finalized by a judicial decision as of the publication date of this Law, but for which the taxpayer has not been notified for payment, provided that the taxpayers apply within the time and in the manner stipulated in this Law, these receivables can also be structured within the above conditions regarding finalized receivables.

However, debtors who wish to benefit from the provisions of Articles 2, 3 and 7 of the Law are required not to file a lawsuit, to give up the lawsuits already filed and not to resort to legal remedies, in addition to and in addition to meeting the conditions specified in the aforementioned articles.

2.2. RESTRUCTURING OF DEBTS THAT HAVE NOT BEEN FINALIZED OR ARE UNDER LITIGATION

In case of benefiting from the restructuring in the accruals related to tax assessments and customs duties made by the tax assessments made by the tax assessments, ex officio or by the administration, which have been sued before the first instance judicial authorities or the period for filing a lawsuit has not yet expired;

• Fifty percent of the taxes/customs duties and all of the interest, default interest and late payment interest related to this amount will be deleted and the amount to be calculated in accordance with the above-mentioned D-PPI calculation will be paid.
  • All tax penalties/administrative fines related to the principal receivables and the delay increases related to these penalties will be deleted.
  • Of the penalties that are not related to the main receivables, 25% will be paid and 75% will be deleted.

For the transactions for which the time for appeal or appeal has not expired as of the date of publication of the Law, or for which the time for appeal or appeal has been filed, or for which the time for request for correction of decision has not expired or for which the correction of decision has been filed, the last decision rendered before the date of publication of the Law;

• In case of an abandonment decision, with 10% of the taxes/customs duties based on the first assessment/accrual,
  • In case of a decision of ratification or amended ratification, all of the ratified taxes/customs duties shall be paid and 10% of the canceled taxes/customs duties shall be paid.
  • Penalties, interest, default interest and default interest related to the principal receivables will be completely deleted and the amount to be calculated with the domestic PPI will have to be paid instead of the deleted interest, default interest and default interest.
  • For the penalties that are not related to the main receivables, if there is a cancellation decision, 10% will be paid; if there is a confirmation decision, 50% will be paid and the rest will be deleted.

In the event that the latest decision given by the Council of State or the regional administrative court is a reversal decision, 50% of the taxes / customs duties and the amount to be calculated in accordance with the D-PPI rates instead of interest, late interest and late interest;

• 50% of the principal amount of taxes/customs duties,
  • All of the tax penalties/administrative fines and delay increases depending on the tax principal,
  • Tax penalties (irregularity, special irregularity) imposed regardless of the original receivables will be deleted 75%. In order to benefit from these provisions, we would like to emphasize that no lawsuit should be filed against the receivables covered by this scope, the lawsuits filed should be waived and legal remedies should not be applied.

2.3. RESTRUCTURING OF DEBTS RELATED TO TRANSACTIONS UNDER REVIEW, ASSESSMENT AND RECONCILIATION

Pursuant to Article 4 of the Law, if the period for filing a lawsuit has not yet expired for the receivables at the examination and assessment stage (for those at the assessment stage), if it is preferred to benefit from the Law instead of filing a lawsuit (i) the tax

(ii) the entire tax loss penalty, and (iii) 75 percent of the penalties that do not depend on the original tax amount.

The applied delay increase and additional receivables are removed and the D-PPI interest is calculated. In case of advance payment, 90 percent of the D-PPI interest is deleted. For those under examination; if a report has not yet been issued, either the tax base and tax increase for that year can be made and the examination can be completed or the result of the examination can be expected.

As of March 12, 2323, it is possible to restructure the receivables for which a settlement request has been made in accordance with the pre-assessment settlement provisions of the Tax Procedure Law, but the day of settlement has not yet arrived or a settlement has not been reached; and the tax and penalty notifications have not been notified to the taxpayer within the scope of the above conditions.

We would like to draw your attention to the fact that in order to benefit from the above-mentioned restructurings regarding the transactions at the stage of investigation and assessment, no lawsuit should be filed regarding the receivable for which payment application is made within the scope of the article, and also that these taxpayers cannot benefit from the reconciliation, pre-assessment reconciliation and reduction in tax penalties provisions of the Tax Procedure Law.

3. TAX BASE AND TAX INCREASE

The years 2018 – 2019 – 2020 – 2021 and 2022 are within the scope of tax base and tax increase.

Taxpayers who increase their tax base/taxes within the conditions specified in Article 5 of the Law will not be subject to tax inspection and assessment in the relevant periods in terms of the taxes they have increased. However, this will be valid in cases where there is no tax offense.

Taxpayers who do not pay the tax accrued as a result of the tax base increase are included in the list to be examined in the first tax inspection. We would like to emphasize that this issue does not have a legal basis, but this is the practice in practice.

Taxpayers who want to benefit from the tax base increase in terms of Income or Corporate Tax, until 31.05.2023, increase their tax base for the relevant year at the rates in the table below and over the increased amounts

They will have to pay a tax calculated at the rate of 20%.

Tax compliant taxpayers will pay 15% of the increase amount, while non-tax compliant taxpayers will pay 20% of the increase amount. In determining the tax compliant taxpayers; income and corporate taxpayers will be required to have submitted their annual declarations for the year in which they want to make an increase, to have paid their accrued taxes for these tax types within the legal period, and not to have benefited from the restructuring within the scope of this Law for these tax types. For taxpayers who meet these conditions, the tax will be calculated at 15%.

It is envisaged that those who pay all of the taxes accrued as a result of the tax base or tax increase in advance within the first installment payment period will receive an additional 10% discount.

4. CONCLUSION

We would like to bring to your attention the issues we find important in our bulletin article in which we addressed the changes introduced with the entry into force of the Law, which is the most comprehensive debt restructuring ever organized, which involves the restructuring of approximately 1 trillion 300 billion Turkish Lira receivables of 13 institutions in total, in the Official Gazette dated 12 March 2023 and numbered 32130.

In this respect, we believe that the important innovations introduced in issues such as the restructuring of tax debts and tax / tax base increase will relieve the economic congestion in our country, albeit to some extent.