Türkiye unveils tax reform package, raising rates on multinational corporations

Details of the reform package prepared by the Ministry of Treasury and Finance have been revealed. The package includes significant measures and increases to taxes on multinational corporations, aimed at strengthening tax fairness and implementing tax regulations for capital gains.

The package has been crafted in line with Treasury and Finance Minister Mehmet Simsek’s oft-repeated goal:

We aim to ensure justice and efficiency in taxation by leaving no area untaxed.

The package, which is set to be presented to the Turkish Grand National Assembly (TBMM), proposes regulations to enhance tax fairness, introduce tax practices for capital gains, and increase the share of direct taxes.

Key elements of the package include:

1. Global minimum corporate tax:
   • A new section will be added to the Corporate Tax Law to impose a minimum corporate tax (global minimum corporate tax) on multinational companies.
   • In over 30 countries, including E.U. members, multinational companies with annual consolidated revenues exceeding 750 million euros will be subject to a minimum corporate tax rate of 15% on their branches, subsidiaries, and operations in low-tax countries.
   • If the corporate tax burden in the country where these companies operate is below 15%, countries that have enacted the minimum tax can collect the difference. Countries not adopting the minimum corporate tax will forfeit their taxation rights to other countries.
   • In Türkiye, there are 1,024 groups with ultimate parent companies abroad, which operate 2,134 businesses in the country.
2. Domestic minimum corporate tax:
   • It was found that about half of the corporate taxpayers reported losses or no taxable income despite high revenues. The Ministry examined E.U. and OECD practices and developed a hybrid model comparing taxpayer declarations with their revenue and payment capacities.
   • The corporate tax payable will be the higher of a specific percentage of declared income before deductions and exemptions, or a percentage of the profit shown in the income statement.
   • The paid minimum corporate tax can be offset against higher tax liabilities in the following five fiscal periods.
   • Certain exemptions (like dividends and emission premium earnings) will be deducted in the minimum tax calculation.
   • Rights for investment expenditures under investment incentive certificates will be preserved. New taxpayers will be exempt from the minimum tax for three years.
3. Introduction of a minimum income tax:
   • A minimum income tax will be introduced for commercial, agricultural, and professional earnings taxed on a real basis. A significant number of income taxpayers either reported losses or showed discrepancies between their declarations and revenues. A new model will be established for this purpose.
   • Taxable income declared by taxpayers will not be less than a specified percentage of their income and earnings.
   • For self-employed individuals, declared earnings cannot be less than the annual gross minimum wage.
   • The difference in minimum tax paid based on revenue can be offset in the following 5 fiscal periods. New businesses will be exempt from the minimum tax for 3 years.
4. Higher corporate tax for large projects:
   • Higher corporate tax rates will be applied to earnings from major investments in Turkiye.
   • The corporate tax rate is currently 25% for the real sector, 30% for banks and financial institutions, 20% for exporting companies, 23% for publicly traded companies, and 24% for manufacturers.
   • For companies operating under the build-operate-transfer (BOT) model or public-private partnership (PPP) projects, the corporate tax rate on their earnings from these projects will be increased from 25% to 30%. This regulation aims to strengthen tax fairness and increase the share of direct taxes.