Contradiction of additional tax to the Constitution

Abdulkadir Kahraman

In accordance with the regulation entered into force with Law numbered 7440, corporate taxpayers having exemptions and deductions in corporate tax return of 2022 have declared and paid 10% and 5% additional tax depending upon the type of such deductions and exemptions. However, amounts which are benefited by taxpayers as “deductions and exemptions” in their respective corporate tax returns are the use of right which is granted to them under the laws.

Since taxes are applied and abolished according to laws, such “exemptions and deductions” are rights granted to taxpayers under the laws. Yet, we may easily state that certain following “exemptions and deductions” are made as required by the taxation technique.

- Participation income exemption: Participation income exemption is not an exemption in principle. It is applied for avoiding double taxation at the enterprise obtaining an income subject to corporate tax.

- Premium on issued shares exemption: In accordance with both Turkish Code of Commerce and also Accounting Standards of Türkiye, premium on issued shares is a capital reserve and arises from issuing of company shares over their nominal value. Therefore, premium on issued shares is not an income and an element of capital and should be exempted from corporate tax. Otherwise, capital is taxed.

- Exemption provided to entities under legal proceedings due to their bank debts and their guarantors and mortgagors: These are assets which are obliged to be transferred to financial institutions for the liquidation of company debts in return for the receivables of financial institutions and debited entities transferring such assets do not gain an income on such transfer. Debt is closed with the cash collected by the financial institution.

- Reduced Rate Corporate Tax: Collection of additional tax based on reduced corporate tax turns upside-down all the project plans of investors companies according to investment incentive practices. Because investor entity trusts the commitment of jurisdiction on investment incentive certificate and makes investment. Additional tax breaches such agreement.

Another contradiction to “equality and fairness principle” in terms of additional tax is exemption of corporate taxpayers at earthquake zones from additional tax due to earthquake occurred on February 6, 2023. However, corporate taxpayers, whose registered office is out of earthquake zone but are making investments and gaining income at this region, are obliged to pay an additional tax of 10% even though earthquake has caused significant damage in terms of their respective investments at earthquake zone.

Several taxpayers covered by additional tax have made their declarations of 2022 with reservation. Such taxpayers are stating that this additional tax entered into force according to Law numbered 7440 is in contradiction to “equality in taxation” or “generality in taxation” principles under articles 10 and 73 of the Constitution and other taxation principles such as principle of proportionality in terms of taxation based on financial power according to article 35 of the Constitution (in the framework of feasibility, needfulness and proportionality criteria) in addition to retrospectivity principle.


This is the summary of the article published in the Ekonomist magazine’s issue 2023/11, dated 28.05.2023.



Explanations in this article reflect the writer's personal view on the matter. EY and/or Kuzey YMM ve Bağımsız Denetim A.Ş. disclaim any responsibility in respect of the information and explanations in the article. Please be advised to first receive professional assistance from the related experts before initiating an application regarding a specific matter, since the legislation is changed frequently and is open to different interpretations.