Advance tax offset, if not properly reported in the corporate or income tax return in Turkey, may lead to significant loss of taxpayer rights. In particular, when advance taxes paid are not reflected or are underreported in the relevant return, the question arises whether there is a time limitation for requesting their refund or offset. This article examines the legal implications of such cases under Communiqué No. 252 and the ruling of the Turkish Council of State.
1. Legal Basis of Advance Tax in Turkey
1.1. Statutory Foundation
Advance tax practices in Turkey are regulated under Article 120 (repeated) of the Income Tax Law No. 193 and Article 32 of the Corporate Tax Law No. 5520. According to these provisions:
- Advance tax is declared and paid quarterly.
- At year-end, these payments are offset against the final corporate or income tax due.
- Any remaining balance after offset is credited to other outstanding tax liabilities.
- If there is still an excess, it can be refunded upon written request by the end of the fiscal year.
1.2. Offset and Refund Procedure
- No written request is required for offset.
- The tax office performs the offset automatically (resen).
- For refunds, a written application is mandatory.
- According to Communiqué No. 252, if advance tax is not reported in the relevant section of the tax return, offset or refund rights may not arise.
2. Advance Tax Offset and Time Limit Issues in Turkey
2.1. What Does the Communiqué Say?
Section 3 of the Communiqué No. 252 on Income Tax explicitly states:
“If the advance tax is not shown in the relevant table/line of the annual return, a written application must be made by the end of that year in order for it to be offset or refunded.”
This provision introduces a time limit even for offset claims, not just for refunds.
2.2. Council of State’s Ruling on Advance Tax Offset Case: The Case of X Corporation
In decision No. 2009/208 E., 2012/1313 K., the 4th Chamber of the Council of State ruled on the legality of denying an offset claim based on Communiqué No. 252:
- X Corporation failed to show the advance tax paid in 2004 in its corporate tax return.
- In 2006, it submitted an amended return and requested offset.
- The tax authority rejected the request, citing Communiqué No. 252.
- The Council of State overturned the decision, stating that the time limit could apply only to refunds, not to offsets.
The court emphasized that the Income Tax Law does not set a deadline for offset claims and that Communiqué provisions cannot override statutory rights.
3. Is the Time Limit Introduced by Communiqué a Usurpation of Legislative Function?
3.1. What Is “Usurpation of Function” in Law?
Usurpation of function refers to administrative authorities making regulations in areas that constitutionally belong to the legislative body. In Turkey’s legal hierarchy:
- Laws must comply with the Constitution.
- Regulations and communiqués must comply with laws.
3.2. Can a Communiqué Override a Law?
According to the Council of State, the Income Tax Law does not impose a time limit for advance tax offset. Therefore, Communiqué No. 252 cannot introduce such a limit.
Doing so would mean the executive branch oversteps its authority, leading to a violation of the separation of powers and the principle of legality in taxation.
4. Evaluation
- Communiqués must be confined to the authority granted by law.
- Advance tax offset, as a right granted by statute, cannot be restricted unless the law explicitly provides so.
- Introducing a time limit for offset via Communiqué No. 252 constitutes a functional overreach.
5. Conclusion and Recommendations on Advance Tax Offset in Turkey
- The right to offset advance tax not shown in the return is not unlimited, but it cannot be limited solely by a communiqué.
- To avoid adverse consequences for taxpayers, regulatory adjustments or legal amendments should clarify this matter.
- The Turkish Revenue Administration should consider the Council of State’s jurisprudence to prevent further disputes.
- A clear provision in the Income Tax Law or a revised communiqué is recommended.
For compliance guidance or assistance with advance tax offset and refund procedures in Turkey, feel free to contact us.
If you are also dealing with tax implications related to foreign receivables, you may find our article on how to treat doubtful foreign receivables in Turkey helpful.