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• Carry forward and carry back of disallowed interest and are subject to financing expense restriction application
unused interest capacity: BEPS Action Plan 4 contains except for taxpayers mentioned in the text of Law.
suggestions on the usage of unused interest capacity
or nondeductible interest expenses through carryback The following entities are not subject to financing expense
or carryforward by multinational companies. Within the restriction.
context of BEPS Action
Plan 4, advisory provided below are presented to the • Credit institutions,
countries;
• Financial institutions,
• to carry forward disallowed interest expense only • Financial leasing companies,
• to carry forward disallowed interest expense and unused • Factoring companies,
interest capacity
• Financing companies.
• to carry forward and carry back disallowed interest
expense. Foreign resources to be taken into account in scope of the
application
As per the fixed ratio rule, operational deductible financing
expenses are calculated by multiplying the EBITDA and the Foreign resources are explained as “total short-term foreign
fixed ratio. It’s suggested that interest expenses exceeding resources and long-term foreign resources of the balance
the deductible amount of interest expense should not be sheet” in the Draft Communique published by Turkish
included in the tax base. Revenue Administration.

Besides BEPS, the EU ATAD requires Member States to In this context, total of “3. Short-term Foreign Resources”
implement a fixed ratio rule, designed to limit the ability of and “4. Long Term Foreign Resources” shall be taken into
entities to deduct for tax purposes net borrowing costs in a account as foreign resources in practice according to Uniform
given year to a maximum of 30% of Earnings Before Interest, Chart of Accounts of taxpayers.
Tax, Depreciation and Amortisation (EBITDA)
Expense and cost items to be taken into account in scope
of application
Application of financing expense In accordance with the Law, expenses and costs incurred

restriction in terms of corporate under the names of interest, commission, maturity
taxpayers difference, dividend, exchange difference and similar names
regarding the foreign resources used in the entity will be
taken into account in the application of the financing expense
In accordance with the financing expense restriction, it restriction. As a general principle, in order for an expense or
will not be accepted to deduct the portion of the expense cost element to be taken into account in the application of
determined by the President as an expense, provided that financing expense restriction, this expense or cost element
it does not exceed 10% of the sum of expenses and cost must have arisen due to the use of foreign resources and the
elements made under the names of interest, commission, duration of use of this resource.
maturity difference, dividend, exchange difference and
similar items related to foreign resources within the scope of However, those that are added to the cost of the investment
the specified criteria. The President determined the said rate (including the amounts monitored in the "Construction
as 10% to be applied to the taxation period earnings starting in progress" account) of the cost of the economic assets
from 1.1.2021 with the President's Decree dated 3 February subject to depreciation (with or without incentive certificate)
2021 and numbered 3490, published in the Official Gazette will not be taken into account in the application of financial
dated February 4, 2021. expense restriction.
Specific cases regarding financing expense restriction shall
be included in this letter. In the light of above explanations, it will be possible to
summarize the expenses and cost elements subject to
Communique of Turkish Revenue Administration with financial expense restriction as follows;
respect to financing expense restriction
• All kinds of interests and commissions
Initial Draft Communique published by Turkish Revenue
Administration on 24.03.2021 was updated based on • Maturity differences
incoming opinions and implementation procedures have • Dividends
been established through publishing serial no. 18 Draft
Communique. At this point, we would like to state that the • Exchange differences
Communique in question is still a draft as of date of our • Interest paid to financial leasing companies and not added
letter.
to the cost of fixed assets on a voluntary basis
Covered and uncovered taxpayers • Financial expenses, which are not added to the investment
cost, but are directly recognized as an expense, in
All corporate taxpayers of which foreign resources exceeding economic assets that are subject to depreciation with or
their equities and which are subject to balance sheet basis without incentive.

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