The Official Gazette of April 30, 2024, has published the General Communiqué No. 560 under the Tax Procedure Law (“Communiqué“), announcing a pivotal regulation for the upcoming fiscal period.
According to the Communiqué, tax inflation adjustments as stipulated by Article 298/A of the Tax Procedure Law (“TPL“) will not be applied, a decision made public one day before the deadline for submitting provisional tax returns for the first quarter of 2024.
Utilizing the powers granted by TPL Article 298/A-8-b, the Revenue Administration has opted not to apply inflation adjustments for this period. This provision allows the Administration to decide whether financial statements from certain taxpayers or professional groups, or based on total assets or turnover, should be adjusted for inflation in provisional tax periods.
However, taxpayers involved in the continuous trading and manufacturing of processed gold and silver are required to apply inflation adjustments at the end of each provisional tax period. Therefore, they will continue to make these adjustments during the first provisional tax period of 2024, despite the general suspension.
It is important to mention that publicly listed companies, banks, insurance and reinsurance companies, factoring and financing companies, financial leasing companies, asset management companies, and companies subject to independent audits, among others, face uncertainty regarding the application of Turkish Accounting Standard 29 (“TAS 29“) for interim periods. Although the Banking Regulation and Supervision Agency (“BRSA”) clarified on December 12, 2023, through Decision No. 10744, that financial statements of banks and various financial institutions as of December 31, 2023, are not subject to inflation adjustments under TAS 29, a similar clarification is needed for subsequent interim periods.
Publicly listed companies and other entities regulated by the Capital Markets Board (“CMB”) also await specific guidance from the CMB, as the Board’s decision dated December 28, 2023, lacks provisions for interim periods. It is important to recall that during the inflation accounting practices of 2004, interim periods were also adjusted for inflation as per the CMB’s communiqués and regulations.
Similarly, although the Public Oversight Accounting and Auditing Standards Authority (“POA“) announced that entities applying Turkish Financial Reporting Standards and the Financial Reporting Standard for Large and Medium-Sized Enterprises (“FRS for LMEs“) would perform inflation adjustments as of December 31, 2023, no decision has been communicated for the following interim periods.
In conclusion, it is necessary for the POA, the CMB, and the BRSA to publicly announce whether inflation adjustments will be made during interim periods under TAS 29 or FRS for LMEs Section 25. Ensuring transparency and enabling audit firms to avoid issuing conditional opinions, it is reasonable to expect authorities to mandate inflation adjustments for interim periods.
We will continue to monitor these developments closely and provide updates on the evolving legal landscape regarding profit distribution and reserve allocation following inflation adjustments.
Should you require further information or assistance with compliance strategies, please do not hesitate to contact us.
You can access the full text of the Communiqué via the following link:
https://www.resmigazete.gov.tr/eskiler/2024/04/20240430-14.htm
