FINANCING EXPENSE LIMITATION CALCULATION

The tax ruling request examined concerns whether, when calculating the financing expense limitation, the foreign-source/equity ratio should be taken before or after calculating taxes and other legal obligations.

Article 11(1)(i) of the Corporate Tax Law stipulates that, for businesses other than credit institutions, financial institutions, financial leasing, factoring and financing companies where foreign resources exceed equity, up to 10% of the total of expenses and cost elements such as interest, commission, maturity differences, profit shares, exchange differences and similar amounts relating to foreign resources used in the business (excluding those added to the cost of investment) – up to the extent of the excess – shall be disallowed as a deduction, at a rate to be determined by the President.

In line with the explanations in Section "11.13.2. Period of Application of the Financing Expense Limitation" of the General Communiqué No. 1 on Corporate Tax, taxpayers must compare equity and foreign resources using the balance sheet prepared under the Tax Procedure Law as of the last day of each provisional tax period, before the financing expense limitation, to determine whether they are subject to the limitation.

Accordingly, the foreign-source/equity ratio determined before calculating taxes and other legal obligations, based on the balance sheet prepared under the Tax Procedure Law before applying the financing expense limitation, must be used in the financing expense limitation calculation.

Respectfully.

https://www.gib.gov.tr/mevzuat/kanun/435/ozelge/38756