| Mine BEYAZHANÇER, Lawyer | Yağmur TAŞ, Senior Accounting Specialist |
ABSTRACT
The domestic minimum corporate tax introduced by Law No. 7524 on Amending Tax Laws and Certain Other Laws entered into force with the aim of ensuring tax justice, combating unrecorded economy, and strengthening compliance with international tax rules. This regulation, which was previously implemented in different periods, has become subject to controversy particularly due to the stipulation in Corporate Tax General Communique Serial No. 1 that losses from previous years cannot be deducted from the tax base, and a stay of execution decision was rendered in this regard. This article examines the calculation, legal grounds, and scope of implementation of the domestic minimum corporate tax; and evaluates the potential consequences of current regulations for taxpayers and the matters to be considered in calculation.
Keywords: Corporate Tax, Domestic Minimum Corporate Tax, Offset of Losses from Previous Years.
INTRODUCTION
Ensuring security in taxation and combating unrecorded economy, strengthening tax justice and increasing the share of direct taxes, enhancing tax compliance, as well as ensuring compatibility with international model rules, the domestic minimum corporate tax that entered into force with Law No. 7524 on Amending Tax Laws and Certain Other Laws¹ (“Law No. 7524”) constitutes the subject of this article. Previously, domestic minimum corporate tax was implemented through Law No. 3824 dated 25.06.1992² and Law No. 3946 dated 30.12.1993.³ The explanation in Corporate Tax General Communique Serial No. 1 that losses from previous years would not be deducted from the tax base in the implementation of domestic minimum corporate tax caused controversies in practice⁴ and a stay of execution decision was rendered on the matter. Within the scope of this article, evaluations will be made regarding the matters that need to be considered currently in the implementation and calculation of domestic minimum corporate tax.
I. DOMESTIC MINIMUM CORPORATE TAX IMPLEMENTATION
Domestic minimum corporate tax is implemented through a two-stage calculation method. The stages are as follows:
Stage 1:
First, corporate tax is calculated within the framework of current legal regulations, taking into account the provisions of paragraphs 1 to 9 of Article 32 and Article 32/A of the Corporate Tax Law No. 5520.⁵ At this stage, the tax amount is determined by using the applicable rates on corporate earnings found after applying deductions and exemptions. This calculation is made without considering the domestic minimum corporate tax regulation.
Stage 2:
In the second stage, the domestic minimum corporate tax base is determined. This base corresponds to the gross amount of corporate earnings before exemptions and deductions are applied. By applying a 10% rate on this determined base, the domestic minimum corporate tax amount is calculated separately. This rate has been determined pursuant to Article 32/C added to the Corporate Tax Law No. 5520 by Law No. 7524.⁶
Minimum corporate tax base = Commercial balance sheet profit + legally non-accepted expenses + exemptions and deductions – loss offsets
Stage 3 – Comparison:
The tax amounts found as a result of the two calculations above are compared. Whichever of the obtained amounts is higher, that amount is taken as basis and declared in the corporate tax return as “calculated corporate tax”.
• Minimum Corporate Tax Implementation in Provisional Tax Periods
The domestic minimum corporate tax implementation is not limited only to the annual corporate tax return, but is also implemented in provisional tax periods. Within the scope of regulations that entered into force as of 2024, minimum tax control is also made in provisional tax calculations, and this amount is declared separately in the provisional tax return. In this context, a minimum tax is calculated at a rate of 10% on the gross earnings before deductions and exemptions are applied to the corporate earnings related to the relevant provisional tax period, and compared with the provisional tax calculated through the classical method. The higher of the two amounts obtained is declared and paid as provisional tax.⁷ Thus, by ensuring that the minimum tax to be implemented in the annual declaration is spread throughout the year, both continuity in public revenues and protection of the tax base are aimed.
• Taxes That Can Be Offset Against Minimum Corporate Tax
In the implementation of domestic minimum corporate tax, offsetting of certain taxes against the calculated minimum tax amount is permitted. Within this scope, corporate taxes paid through withholding for the relevant accounting period and provisional taxes paid in the same period can be offset against the minimum corporate tax amount. Thus, by taking into account the taxes previously paid by the corporation, double taxation is aimed to be prevented. Pursuant to paragraph 2 of Article 32/C of the Corporate Tax Law No. 5520; offsetting of taxes pertaining to the relevant period is permitted from the tax amount calculated on the base determined without considering deductions, exemptions, and loss offsets. Furthermore, general principles regarding offsetting procedures are carried out pursuant to Article 34 of the CTL. However, these offsets are limited only to taxes pertaining to the same period, and certain exemption and deduction items (such as investment deduction, R&D deduction, etc.) are not additionally considered within the scope of minimum tax implementation. The communique regulation regarding losses from previous years has been subject to Council of State review, and this decision will be examined under a separate heading. As a result of the offsetting procedure, if the tax amount to be paid falls below the minimum tax threshold, the difference is accrued separately and reflected in the return. In this way, it is aimed both for corporations to fulfill their obligations and for the principles of equality and continuity in the tax system to be protected.
II. COUNCIL OF STATE’S STAY OF EXECUTION DECISION
The Third Chamber of the Council of State, which evaluated the request for annulment and stay of execution of the parts concerning losses from previous years of the seventh paragraphs of subsections “32.5.4.” and “32.5.6.” and the third and fifth examples in subsection “32.5.6.” of the section “32.5. Domestic minimum corporate tax” added to the Corporate Tax General Communique (Serial No. 1) with the Corporate Tax General Communique No. 23, rendered a decision dated 10.02.2025 and numbered E.2024/5700, deciding to stay the execution of the relevant parts of the Communique.
In this decision, referring to the principle of legality secured under Article 73 of the Constitution titled “Taxation Obligation”; although it is possible for the Ministry of Treasury and Finance to make regulatory arrangements of explanatory and supplementary nature regarding details and technical matters, provided that it does not concern the fundamental elements of taxation, in case of interference with the right to property through taxation, in order to prevent discretion and arbitrariness, the interference must be based on a legal provision in which the main fundamental elements of tax such as:
• the event giving rise to tax, • the taxpayer, • the responsible party, • the tax base, • the upper and lower limits of amount and rates, • the procedure for assessment, accrual, and collection, • sanctions and statute of limitations
are regulated in an accessible, certain, and foreseeable manner; the essential elements of taxation must be regulated in a certain and foreseeable manner in the law; if a fiscal obligation is not sufficiently framed by law in these respects, it is possible that it may lead to administrative or judicial discretionary practices that would affect individuals’ right to property⁸ and it was emphasized that the Ministry of Finance creating a standard by interpreting ambiguous provisions in tax laws, in other words, determining the scope of an exemption whose lower and upper limits are not specified, is contrary to the principle of legality in taxation.⁹
In Article 32/C titled “Domestic minimum corporate tax” added to Law No. 5520 by Article 36 of Law No. 7524, it is stated that the corporate tax calculated by taking into account the provisions of Articles 32 and 32/A of the Law cannot be less than 10% of corporate earnings before deductions and exemptions are deducted, and that the exemptions and deductions listed in paragraph 2 will be deducted from the corporate earnings specified in paragraph 1 while calculating the domestic minimum corporate tax; apart from these, no other determination has been made regarding the calculation of the minimum tax base, and no authority has been granted to the defendant administration regarding the determination of the base, and since there is also no legal regulation stating that other elements other than deductions and exemptions will not be allowed to be deducted from the minimum tax base, the Third Chamber of the Council of State concluded that there is no conformity with law in the regulation stating that losses from previous years will not be deducted from the minimum corporate tax base and will be taken into account in the calculation of minimum corporate tax, and that its implementation may lead to damages that are difficult or impossible to compensate, and thus accepted the request for stay of execution.
By stating that losses from previous years may arise not only as commercial balance sheet losses but also as fiscal losses as a result of benefiting from various exemptions, in evaluating the purpose of the regulation; although it is seen as preventing low taxation due to various deductions and exemptions, the fact that losses from previous years arising from expense excess that is not of this nature are not allowed to be deducted from the minimum tax base will lead to taxation at a rate of 10% on commercial balance sheet loss, and considering that the subject of corporate tax is the earnings of corporations listed in Article 1 of the Law, it was pointed out that it is also clear that a taxpayer who has no earnings subject to tax due to losses from previous years will be obliged to pay tax due to the regulation in question.
With this decision, although there is an opinion that the Council of State did not find it lawful to collect minimum tax on losses arising due to expense excess; however, it did not object to collecting tax on losses arising due to various deductions and exemptions,¹⁰ we believe that the distinction here relates to the principle of legality rather than a substantive evaluation.
CONCLUSION
In the implementation of domestic minimum corporate tax, particularly the failure to permit the deduction of losses from previous years from the tax base through the Communique has caused controversies. Within the framework of the principle of legality that the fundamental elements of taxation can only be determined by law, by addressing the problems arising in terms of the limits of the authority granted to the administration and taxpayer rights, the decision rendered has once again revealed that the essential elements of tax must be regulated in a clear and foreseeable manner in the law, and within this scope, the execution of the provisions regarding losses from previous years in the Communique has been stayed.
This decision is important in terms of ensuring tax security. Consequently, for the effective and lawful implementation of domestic minimum corporate tax, the regulations of both the legislature and the administration must be clear, certain, and compatible with constitutional principles. Otherwise, damages that are difficult to compensate may arise for taxpayers.
¹ Grounds of Law No. 7524 on Amending Tax Laws and Certain Other Laws
² Law No. 3824 on Making Amendments to Certain Tax Laws dated 25.06.1992 (Official Gazette 11.07.1992/21281)
³ (Publication with Official Gazette: 30.12.1993 No: 21804 Duplicate) Law No. 3946 on Making Amendments to Tax Procedure Law No. 213, Law No. 6183 on the Procedure for Collection of Public Receivables, Income Tax Law No. 193, Corporate Tax Law No. 5422, Financing Law No. 1318, Motor Vehicles Tax Law No. 197, Law No. 3505 and Law No. 2978 on Tax Refund and Law No. 3065 on Value Added Tax
⁴ Yazıcıoğlu, E. A. (2025), Offset of Losses from Previous Years Within the Scope of Domestic Minimum Corporate Tax, Tax Problems Journal. January 2025 Issue 436, p. 106-123.
⁵ Corporate Tax Law No. 5520, art. 32 and 32/A.
⁶ Grounds of Law No. 7524 on Amending Tax Laws and Certain Other Laws
⁷ Corporate Tax Law No. 5520, Article 32/C.
⁸ (İskenderun Iron and Steel Inc. Application, B:2015/941, 25/10/2018)
⁹ (Bilnam Management and Trade Inc. (Former Title-Bilnam Management and Trade Ltd. Co.)) Application, B:2016/3675, 03/11/2020)
¹⁰ Güleç E. (2025). Council of State’s Decision to Stay the Execution of the Communique Regulation on Calculating Domestic Minimum Corporate Tax on Fiscal Losses from Previous Years and Its Consequences, Tax World Journal, April 2025.