As inflation accounting practices come back into focus in 2023, one of the most challenging issues businesses face is determining the base date for adjustments. This is particularly complex for assets that have undergone multiple splits or transfers. 🏢
In this article, we explain how to determine the correct date for inflation adjustment, based on the real estate case addressed in the Istanbul Tax Office’s ruling dated May 13, 2024. 📝
Case Summary 📋
A company owned four plots of land that went through the following transactions:
• Acquired by a corporation (JSC) on 01.12.2018
• Transferred as capital to another JSC through partial division on 17.02.2021
• Transferred to a third company (current taxpayer) through second partial division on 08.08.2023
The question is: Which acquisition date should be considered for inflation adjustment? 🤔
Legal Framework: How to Determine the Base Date ⚖️
According to Article 298 of the Tax Procedure Law and General Communiqué No. 555, for non-monetary assets to be subject to inflation adjustment, the following must be documented:
• Ownership by the business
• Date of inventory entry
• Recorded value
Important note: The base date is not always the last division or transfer date!
According to the General Communiqué:
For assets acquired through partial division, full division, or type conversion, the base date is when the asset was first recorded in inventory – this means the transferor’s recording date, not the transferee’s. 📅
Practical Application 💡
Although these properties were transferred to the current taxpayer in 2023, the date to be used for inflation adjustment is 01.12.2018, when they were first recorded in inventory by the original JSC.
This approach is necessary for:
• Accurate calculation of inflation differences
• Fair relationship between historical purchasing power and current values
Conclusion ✍️
When making inflation adjustments for non-monetary assets like real estate, consider the first inventory entry date rather than the transfer date. In complex corporate structures and post-division transfers, careful analysis is crucial for determining the correct base date.
Professional Advice 👨💼
It’s highly recommended to consult with a financial advisor who is well-versed in accounting and tax legislation before proceeding with such transactions. Incorrect applications may result in unexpected tax burdens.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
