308 NEWSLETTER 2021 Limitation on Financing Expense Deduction through the Updated Draft Communiqué* Tutku Şen Introduction With the Article added to Corporate Tax Law No. 5520 (“CTL”) through Law No. 6322 promulgated in the Official Gazette dated 15.06.2012, the limitation on financing expense deduction was reintroduced into our legislation. According to the regulation whose first effective date was 01.01.2013, for the taxpayers whose foreign liabilities exceed their equity capital, except for credit institutions, financial institutions, financial leasing, factoring and financing companies, a portion of the financial expenses (exclusively for the exceeding part and excluding those added to the cost of the investment) to be determined by the President (the Council of Ministers on that date), not more than 10% has been considered as the payment not deducted as expense in the determination of the tax base. The President has been authorized to differentiate the rate by sector; whereas, the Ministry of Treasury and Finance has been authorized to designate the procedures and principles of the limitation. The limitation on financing expense deduction has not come into effect for eight years since the Council of Ministers and the President did set the limitation rate. However, through Presidential Decree No. 3490 published in the Official Gazette dated 04.02.2021, the limitation rate was determined as 10% from the highest rate without any differentiation by the sector. Thus, the practice of the limitation on financing expense deduction has been permanently implemented since the taxation periods starting from 01.01.2021. In the previous practice, the limitation on financing expense deduction was introduced in 1996 for taxpayers who made use of the * Article of April, 2021
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