Can telephone, internet and similar expenses, which are common overhead expenses, be considered as R&D expenditures and subject to R&D deduction?

REVENUE ADMINISTRATION

Istanbul Tax Office Directorate

Income Laws Group Directorate for Income and Corporate Taxes

Ref: 62030549-125[6-2020/358]-1157286
Date: 10.10.2022
Subject: Evaluation of whether general expenses such as telephone and internet costs, shared between R&D and non-R&D activities, can be treated as R&D expenses and included in the R&D deduction

In the request for a private ruling, it is stated that your entity has been operating as an R&D center focused on software since 01/07/2019, and you are uncertain whether shared general expenses like internet and telephone costs used jointly for R&D and non-R&D activities can be allocated based on staff distribution (between R&D and non-R&D personnel) and included in the R&D deduction. Below is the opinion of our Directorate on this matter:

Article 3 of Law No. 5746 on Supporting Research, Development, and Design Activities stipulates:

“(1) R&D and design deduction: All R&D and innovation expenditures conducted in technology center enterprises, R&D centers, projects supported by public institutions and organizations, projects funded under international agreements, or projects supported by foundations using funds or loans for R&D purposes, as well as expenditures on pre-competitive collaboration and technopreneurship capital support, are deductible under Article 10 of Corporate Tax Law No. 5520 and Article 89 of Income Tax Law No. 193.”

Additionally, Article 4 of the General Communiqué on Law No. 5746 provides further details on expenses eligible for R&D and design deductions:

• General expenses, including rent, utilities, maintenance, communication, and transportation costs of R&D or design centers, as well as costs associated with machinery and equipment used in these centers, are deductible if they are directly related to the R&D or design activities.
• However, shared general administrative costs allocated based on various criteria, excluding calculated rents or amortizations, utilities, and energy costs for R&D or design centers, are not considered deductible.

Moreover, the Implementation and Supervision Regulation on Supporting R&D, Innovation, and Design Activities specifies in Article 7 that shared general administrative costs (excluding specific rent or amortization, utilities, and energy expenses for R&D centers) cannot be included in the calculation of amounts deductible under R&D and design incentives.

Based on these provisions:

Expenses related to the shared use of internet and telephone for R&D and non-R&D activities, as they do not fall under the categories of rent, amortization, utilities, or energy costs explicitly listed as deductible, cannot be included in the R&D deduction.