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Deduction rate BEPS Pillar 2 substance-based
income exclusion rule and its
Deduction Rate is mentioned as 50% in the legislation.
Accordingly, 50% of the amount calculated after multiplying impacts on incentives
the capital amount increased in cash (portion paid in cash of
the paid-in capital in newly established entities) can be taken In Türkiye, incentives play an important role in attracting
into account as deduction in the return.
foreign direct investments. Investment incentives in Türkiye
could be regional or based on certain transactions performed
On the other hand, rates higher than 50% rate was by corporations.
determined for taxpayers using the increased capital in
their production and industrial facility investments with Tax incentives providing a relief in corporation tax in
investment incentive certificate.
Türkiye include reduced corporation tax rates applied on
the investments with incentive certificates, corporation tax
According to legal regulation made in 2021, the above rate exemptions provided for certain activities performed in free
has been increased to 75% for the portion of capital increase trade zones, technology development zones and Istanbul
in cash which is paid with the cash transferred from abroad.
Finance Center. Deduction of investment expenses made in
Research & Development (R&D) and design zones from the
Deduction period has been limited corporation income could be other examples of corporation
tax incentives applied in Türkiye. In addition, Turkish
Such deduction could be benefited during the existence Corporation Tax Code also provides multiple tax exemptions
of the company (provided a capital decrease is not made). for various transactions performed by corporations.
However, the duration of benefiting from the deduction
application is limited to 5 years according to the law. The design of The Global Anti-Base Erosion (GloBE) rules
developed by OECD’s Base Erosion and Profit Shifting (BEPS)
Accordingly, the said deduction may be benefited during Pillar 2 project is directly related with incentives and has
the accounting period in which the decision regarding the important impacts on countries incentive programs. GloBE
capital increase or the articles of association was registered rules provide Substance Based Income Exclusion Rule
at the initial establishment stage, and for the four accounting (SBIE) and thus GloBE rules may have less impact on certain
periods following this period. In accordance with this incentives depending on their design.
regulation, e.g. deduction amounts calculated separately in
related periods based on cash capital increase made in 2023 The SBIE allows profits associated with economic substance
can be deducted from profit of company regarding the years to be deducted from the GloBE base. It is a reduction to the
between 2023 and 2027. tax base of the jurisdiction and is calculated as a percentage
mark-up on tangible assets and payroll costs. The exclusion
On the other hand, it is possible for companies making is equal to 5% of the carrying value of tangible assets and
capital increase or establishing for the first time before July payroll costs in the jurisdiction .
1
5, 2022, on which the law has entered into force, to benefit
from such deduction practice for five accounting periods Accordingly, local subsidiaries of multinational enterprises
including 2022 accounting period (2026 income at the (MNE) with a larger substance in Türkiye and expenditure-
latest). based tax incentives, such as R&D investments which require
larger carrying value of tangible assets and personnel costs
No time limitation for transferred amount may be less affected than others, as they will be likely to
benefit from the substance-based income exclusion as a
Calculated deduction amount is transferred to the following result of the introduction of the GloBE Rules. As the effective
periods without being subject to any indexing in case there tax rate (ETR) for the purposes of GloBE rules is determined
is loss or there is not sufficient profit in the company. on a jurisdictional basis, a jurisdictional blending for an
There is no time limitation regarding the deduction of such MNE group in Türkiye may also be possible. This will enable
transferred amounts demonstrated in attachments of the a blending of income derived from certain non-exempted
declaration in following periods. Right for deduction can be activities in Türkiye with the exempted income of the same
benefited as of the first year in which profit arises until the group derived from activities in a preferential zone e.g. free
transferred deduction amount finishes. trade zones.

1 A transition rule provides a phased introduction of the SBIE over
This is the summary of the article published in the the first ten years. In 2023, the exclusion would be equal to 8% of
Ekonomist magazine’s issue 2023/12, dated 11.06.2023. the carrying value of tangible assets and 10% of the payroll costs,
which would be reduced gradually up to 5%.

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.

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