Tax Implications of Turnover in Practice
Tax Implications of Turnover in Practice
Entrance
Negotiable instruments law constitutes one of the most dynamic areas of commercial law. Bills of exchange such as checks, promissory notes, and bills of exchange are widely used in commercial life as reliable means of payment and credit. The transfer of these instruments endorsement . Endorsement is not only a legal transfer but can also financial and tax consequences .
In practice, neglecting the tax implications of turnover can lead to significant tax penalties and financial risks for taxpayers. Therefore, it is crucial to evaluate the effects of turnover on Value Added Tax (VAT), Stamp Duty, Income Tax, and Corporate Tax, in light of relevant Supreme Court and Council of State rulings
The Concept of Endorsement and its Legal Nature
What is turnover?
- 681 et seq. of the Turkish Commercial Code , endorsement is a written declaration and signature that transfers the right on a promissory note.
- Endorsement changes the holder of a receivable arising from a promissory note.
- Legally speaking, it is a transfer and assignment transaction.
Types of Revenue and Their Tax Implications
- Full Endorsement: The holder's name is specified → From a tax perspective, it constitutes an assignment of receivables.
- Blank Endorsement: Only a signature is present → Although it may seem like a simple transfer of ownership, it has tax implications.
- Collection Endorsement: Granting collection authorization → Does not have tax implications, as the receivable is not transferred.
- Endorsement of Pledge: Done for security purposes → From a tax perspective, it is not an assignment of receivables, but rather a transaction providing security.
Tax Implications
1. Stamp Duty
- Stamp Duty Law No. 488 , promissory notes and endorsement transactions are subject to stamp duty.
- Since the endorsement transaction involves the transfer of a promissory note, stamp duty may be levied.
- However, in negotiable instruments, endorsement transactions are exempt from stamp duty for ease of circulation.
Council of State Decision:
In its decision numbered 2008/3569 E., 2009/2417 K., the 4th Chamber of the Council of State ruled that "endorsement transactions that enable the circulation of negotiable instruments cannot be subject to stamp duty."
2. Value Added Tax (VAT)
- Article 1 of the Value Added Tax Law No. 3065 , the supply of goods and the provision of services are subject to VAT.
- Since endorsement is an assignment of receivables, it is not a delivery of goods or services.
- Therefore, the turnover transaction does not generate VAT.
- However, if the promissory note is transferred for a consideration (discounted), it constitutes a financial service, and therefore, Bank and Insurance Transactions Tax (BSMV) applies, not Value Added Tax (VAT).
3. Income Tax and Corporate Tax
- Since endorsement involves the transfer of a receivable, of commercial income .
- If a promissory note or check held by a merchant is endorsed for consideration, this gain is taxed as commercial income.
- Similarly, for corporations, the profit generated from turnover in the corporate income .
Example:
If a company endorses a bond worth 100,000 TL for 90,000 TL, the difference of 10,000 TL can be recorded as a loss. If it transfers it for 110,000 TL, the difference of 10,000 TL is considered a profit subject to corporate tax.
4. Bank and Insurance Transactions Tax (BSMV)
- Law No. 6802 on Expenditure Taxes , discounting transactions on negotiable instruments carried out by banks are subject to Banking and Insurance Transactions Tax (BSMV).
- Income derived from promissory notes endorsed to the bank is subject to Banking and Insurance Transactions Tax (BSMV), not Value Added Tax (VAT).
- In practice, this situation is most commonly observed in check discounting and promissory note discounting transactions.
Examples in Practice
Example 1 – Tax Liability on Blank Sales
When a merchant transfers a check to another merchant with a blank endorsement, no VAT is incurred; however, if a commercial profit has been generated, it may be subject to income/corporate tax.
Example 2 – Endorsement of Pledge
When a company provides a promissory note to a bank as collateral when obtaining a loan, this transaction does not have any tax implications as it is considered a form of security.
Example 3 – Collection Endorsement
When a company transfers a check given to a lawyer for collection through an endorsement, this does not constitute an assignment of the receivable; therefore, it does not create any tax implications.
Supreme Court and Council of State Decisions
- The 11th Civil Chamber of the Supreme Court of Turkey, Case No. 2017/4358, Decision No. 2019/2211:
“The transfer of receivables through endorsement creates a tax liability to the extent that it generates commercial profit.” - The 4th Chamber of the Council of State, Case No. 2008/3569 E., Decision No. 2009/2417 K.:
“Endorsement transactions that enable the circulation of negotiable instruments are not subject to stamp duty.” - The 19th Civil Chamber of the Supreme Court of Turkey, Case No. 2016/4213 E., Decision No. 2017/6547 K.:
“Since a collection endorsement does not constitute an assignment of receivables, it does not give rise to tax consequences.”
Problems Encountered in Practice
- Misinterpretation of Sales Types
- Treating collection turnover as a tax transaction.
- Confusion in Discounting Procedures
- Uncertainty regarding whether VAT or BSMV (Banking and Insurance Transactions Tax) should be applied to bank transactions.
- Missing Records and Documents
- Failure to account for turnover transactions results in tax penalties.
- Risk of Double Taxation
- The attempt to subject the turnover profit to both VAT and income/corporate tax.
Strategic Importance
- For traders: Accurate accounting of turnover transactions is necessary to avoid tax penalties.
- From a lawyer's perspective: In commercial cases, considering the tax aspect is crucial for protecting client interests.
- For financial advisors: Recording the potential tax implications of turnover transactions is a critical task.
Proposed Solutions
- Clarity in Tax Legislation
- Clear regulations should be made in tax legislation regarding turnover transactions.
- Union of Practices
- In accordance with the decisions of the Court of Cassation and the Council of State, the administration should issue a general circular.
- Digital Bill Applications
- Electronic promissory notes (e-notes) and digital signatures should be used to make endorsement transactions transparent.
- Training for Traders
- Business actors should be trained to protect themselves from tax risks.
Conclusion
Endorsement is one of the fundamental institutions of negotiable instruments law and not only creates a debt relationship but can also tax consequences .
- Transactions involving turnover are exempt from stamp duty.
- No VAT is incurred, but BSMV (Banking and Insurance Transactions Tax) comes into play in discount transactions.
- Transactions involving turnover that generate commercial profit are subject to income and corporate taxes.
Therefore, accurately assessing the tax implications of turnover transactionsis of great importance to traders, lawyers, and financial advisors.
Gozdenur TURNA
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