REGARDING THE TAX TREATMENT OF AMOUNTS IN THE SPECIAL FUNDS ACCOUNT WHERE INFLATION ADJUSTMENT DIFFERENCES OF THE CONSTRUCTION IN PROGRESS ACCOUNT ARE TRACKED

TAX PROCEDURE LAW CIRCULAR / 196

1. Introduction

Pursuant to subparagraph (10), which was added to paragraph (A) of Repeated Article 298 of the Tax Procedure Law No. 213 by the Law on Amendments to the Law on Protection of Consumers and Certain Laws dated 24/10/2024 and numbered 7529, this Circular covers the exclusion of adjustment differences resulting from the inflation adjustment of the construction in progress account from the determination of period income, their transfer to a special fund account, the increase of the amounts in this fund account by the revaluation rate, and their inclusion in the determination of period income in the period in which the investment is capitalized.

2. Legislation

With Article 11 of the Law on Amendments to the Law on Protection of Consumers and Certain Laws dated 24/10/2024 and numbered 7529, published in the Official Gazette dated 30/10/2024 and numbered 32707, subparagraph (10) added to paragraph (A) of Repeated Article 298 of Law No. 213 provides as follows: “10.  Adjustment differences resulting from the inflation adjustment of amounts tracked in the construction in progress account in accordance with the accounting standards under this Law and monitored in a sub-account of this account shall be presented in a special fund account under the liabilities and equity section of the balance sheet and shall not be taken into consideration in the determination of period income.

These amounts in the special fund account shall be taken into consideration in equal installments in the determination of period income within the period in which the investment is completed and the related economic asset must be capitalized, and the four accounting periods following that period.

The amounts monitored in the special fund account pursuant to this subparagraph and excluded from the determination of period income shall be increased annually by the revaluation rate determined under this Law for the preceding year. No further inflation adjustment shall be applied to the amounts monitored in these accounts.

If the business is discontinued during the investment period or after the capitalization of the economic asset, or if part or all of the amounts monitored in the special fund account are transferred to another account or withdrawn from the enterprise, the amounts excluded from period income pursuant to this subparagraph shall be taken into consideration in determining the corporate income of the period in which the business is discontinued or the special fund account is partially or wholly used contrary to the provisions of this subparagraph.” This provision entered into force on the date of publication, effective from 1/1/2024 and, for taxpayers assigned a special accounting period, from the accounting period beginning in 2024.

In this context, explanations and illustrative calculations concerning the regulation introduced by the subparagraph added to the aforementioned article of the Law are provided in the following sections.

3. Increasing the Amounts Tracked in the Special Fund Account During the Investment Period by the Revaluation Rate

Subparagraph (10) of paragraph (A) of Repeated Article 298 of Law No. 213 stipulates that amounts held in the special fund account within the scope of the said subparagraph and excluded from the determination of period income shall be increased each year by the revaluation rate determined for the preceding year and shall not be subject to further inflation adjustment.

The amounts held in the special fund account within this scope shall be increased both during the investment period and in subsequent periods by taking into account the revaluation rate determined for the relevant year.

Example-1: (A) A.Ş. subjected its construction in progress account to inflation adjustment at the end of the 2024 accounting period and calculated an inflation adjustment difference of 4,000,000 TL.

The taxpayer shall record the said inflation adjustment difference in a special fund account without associating it with income accounts and shall not take this amount into consideration in determining period income.

It is also clear that the 4,000,000 TL transferred to the special fund account shall not be increased by the revaluation rate at the end of the 2024 accounting period.

Taxpayer (A) A.Ş. shall increase this amount held in the special fund account by the revaluation rate at the end of the 2025 accounting period, during which the investment continues. For the 2025 accounting period, the revaluation rate of 25.49%, determined by the Tax Procedure Law General Communiqué Serial No. 585 published in the Official Gazette dated 27/11/2025 and numbered 33090, must be used.

Revaluation Rate (A)= 25.49% (1.2549)

Inflation Adjustment Difference Recorded in the Special Fund Account (B) = 4,000,000 TL

Special Fund Account Amount Increased by the Revaluation Rate = (A)x(B) = 4,000,000 TL X 1.2549 = 5,019,600 TL

4. After Capitalization of the Investment, Increasing the Amounts Tracked in the Special Fund Account by the Revaluation Rate and Determining the Amount to Be Taken into Consideration in the Determination of Period Income

An example concerning the increase of the amounts recorded in the special fund account by the revaluation rate in the periods following the capitalization of the investment, and their inclusion in equal installments in the determination of period income within the period in which the investment is completed and the related economic asset must be capitalized, and the four accounting periods following that period, is provided below.

Example-2: (A) A.Ş., referred to in Example-1, completed its investment in 2026 and capitalized the economic asset in the assets of the enterprise. Assuming that the revaluation rate for 2026 is 20%, the amount in the special fund account shall be taken into account as (5,019,600 TL X 1.20 =) 6,023,520 TL, and one-fifth of this amount, namely (6,023,520 /5=) 1,204,704 TL, shall be taken into consideration in determining income for the 2026 accounting period in which the economic asset is capitalized.

The balance of the special fund account, amounting to (6,023,520 TL - 1,204,704 TL =) 4,818,816 TL, shall be increased by the revaluation rate in the following accounting period, and one-fourth of the amount increased by the revaluation rate shall then be taken into consideration. In subsequent years, one-third, one-half, and, in the final year, the entirety of the remaining amount, respectively, of the amount increased by the revaluation rate shall be taken into consideration in determining the income of the relevant accounting periods. The summary table for the calculation shall be as follows.

* The revaluation rates for the years 2026, 2027, 2028, 2029 and 2030 are hypothetical.

** Decimal places were not taken into account in the calculations.

Taxpayer (A) A.Ş. shall increase, after the capitalization of the investment, the amounts recorded in the special funds account within the scope of subparagraph (10) of paragraph (A) of Repeated Article 298 of Law No. 213, including the amounts increased by the revaluation rate during the investment period and recorded in the special funds account, by the revaluation rate as shown in the table above, and shall take the relevant installment amounts into consideration in determining period income for the 2026, 2027, 2028, 2029 and 2030 accounting periods.

5. Other Matters

5.1. Taking the Amounts in the Special Fund Account into Consideration in Determining Income in Advance Tax Periods

Subparagraph (10) of paragraph (A) of Repeated Article 298 of Law No. 213 stipulates that the amounts recorded in the special fund account shall be increased by the revaluation rate in the periods following the capitalization of the investment and shall be taken into consideration in equal installments in determining period income within the period in which the investment is completed and the related economic asset must be capitalized, and the four accounting periods following that period. Such income shall also be taken into consideration in determining income in advance tax periods.

Within this scope, the portion corresponding to the relevant advance tax period shall be taken into consideration in determining income for advance tax periods.

5.2. Whether Differences Arising from the Increase of Special Funds by the Revaluation Rate May Be Capitalized

It is not possible to capitalize, or add to the cost of the economic asset, the portions of the amounts recorded in the special fund account that are increased by the revaluation rate pursuant to the said subparagraph.

Announced accordingly.