The Ankara Tax Office Directorate provided an opinion in response to your request regarding whether the partial period losses of a company that underwent a legal entity type change can be deducted in subsequent temporary tax returns and the relevant period’s corporate tax return.

Background: Your company underwent a legal entity type change on January 28, 2015, transitioning into a joint-stock company. The corporate tax return for the partial period from January 1, 2015, to January 27, 2015, resulted in a loss of 1,536,005.63 TL. However, this loss was not deducted in the temporary tax return for the period of January-March 2015, despite a profit being declared. You are seeking clarification on whether this loss can be deducted in subsequent temporary tax returns and the corporate tax return for the relevant period.

Loss Deduction Provisions:

  • According to Article 9 of the Corporate Tax Law, losses carried forward from previous years can be deducted, provided they are shown separately in the corporate tax return for each year, and the deduction is made within five years.
  • If a company undergoes a legal entity type change, the losses can be deducted as long as the company’s operations continue for at least five years after the change, and the losses do not exceed the company’s equity as of the transfer date.

General Explanation: According to the Corporate Tax General Communiqué, in cases of mergers or type changes, deductible losses can be carried forward and offset against profits for up to five years. However, any loss exceeding the company’s equity as of the transfer date will be canceled.

Conclusion: The partial period loss incurred by the company prior to its legal entity type change can be deducted from the corporate tax base, provided:

  1. The relevant corporate tax returns for the past five years were filed on time.
  2. The newly formed company continues the activities of the transferred company for at least five years.
  3. The losses do not exceed the transferred company’s equity as of the transfer date.

However, if the company’s activities are partially or completely halted within five years, the right to deduct the losses will be lost, and the necessary corrections will need to be made. If losses from prior years were not deducted in the declared profit period, they cannot be deducted in subsequent periods.

In conclusion, it is possible to deduct the partial period losses from the temporary tax returns and the 2015 corporate tax return.

Source: Revenue Administration of Republic of Türkiye
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.