The Council of State put an end to the debate over the additional tax levied on the entrepreneurship ecosystem and technology companies. It was confirmed that these companies are required to pay additional tax based on the emission premium gain exception. The Ministry of Finance won the case it thought it would lose. Certified Public Accountant Abdullah Tolu detailed the additional tax issue. The impact of this decision is not limited to just startups, fintech, and technology companies! It also affects the entrepreneurship ecosystem, venture capital investment funds, and companies that increase their capital using emission premium.

WHY WAS THE ADDITIONAL TAX REGULATION MADE? The additional tax was enacted once for the 2022 accounting period with the aim of eliminating the adverse effects of the earthquake in Kahramanmaraş and the surrounding provinces, meeting the urgent needs of the earthquake victims, and providing resources for the reconstruction of the region (Law No. 7440, Art. 10/27). This regulation came into effect on March 12, 2023.

SIGNIFICANT PORTION OF LAWSUITS IS RELATED TO EMISSION PREMIUM! More lawsuits were filed against the additional tax than expected. Approximately 75,000 corporate taxpayers from 1,069,339 corporate taxpayers who declared exemptions, discounts, and reduced corporate income tax base on their 2022 financial statements calculated additional tax! About 45,000 of these taxpayers submitted their 2022 corporate tax returns with an objection entry due to the additional tax, and most of them also filed lawsuits! Many of these lawsuits are related to the emission premium gain exception.

CONSTITUTIONAL COURT DID NOT FIND THE ADDITIONAL TAX UNCONSTITUTIONAL! The Constitutional Court did not find the additional tax regulation introduced by Law No. 7440 solely for the 2022 accounting period, aimed at mitigating the adverse effects of the earthquake in Kahramanmaraş and surrounding provinces, unconstitutional! (Decision of the Constitutional Court dated 14.03.2024 and E: 2023/169, Decision: 2024/82, Official Gazette dated 19.04.2024 and No. 32522).

COURT DECISIONS WERE IN FAVOR OF THE TAXPAYERS, WHILE COUNCIL OF STATE DECISIONS WERE IN FAVOR OF THE MINISTRY OF FINANCE! Many lawsuits were filed in the Council of State to suspend the execution of examples 5 and 9 of the 7th clause and the “Emission Premium Gain Exception (Art. 5/1-c of Law No. 5520)” included in the (c) clause of the 3rd paragraph of Article 5 of the General Communiqué No. 7440. The 3rd Chamber of the Council of State rejected the taxpayers’ request for suspension of execution, whereas the High Tax Court Administrative Board rejected the objections made against these decisions. On the other hand, courts of first instance (tax courts and appellate courts) ruled that additional tax should not be calculated based on the emission premium gain exception.

The Council of State putting an end to the matter: Additional tax will be paid based on the emission premium gain exception! The 3rd Chamber of the Council of State, taking into account the decision mentioned above of the Constitutional Court, rejected the lawsuit filed claiming the unconstitutionality of the additional tax imposed on the emission premium gain exception in the 3rd paragraph of Article 5 of the General Communiqué No. 7440.

THIS DECISION DESTROYED ALL HOPES OF THOSE WHO SUED FOR THE EMISSION PREMIUM ADDITIONAL TAX! This decision made by the 3rd Chamber of the Council of State destroyed all hopes of companies that paid additional tax based on the emission premium gain exception reported in their 2022 corporate tax returns and filed lawsuits! Because this lawsuit was considered the “main lawsuit.”

FINANCE MINISTRY WON THE LAWSUIT IT EXPECTED TO LOSE! The Ministry of Finance thought it would lose the lawsuits regarding the additional tax on emission premium gains. The decisions made by the courts of first instance and the appellate courts in this regard greatly disheartened the Ministry of Finance. However, the situation completely turned around at the Council of State, and the Ministry of Finance won the lawsuit challenging the General Communiqué. This decision will set a precedent for other pending lawsuits on this matter. Additionally, companies covered by this decision will have their additional tax declarations scrutinized, and necessary legal actions will be taken against those who undercalculated or did not calculate the additional tax.