Communiqué on the Destruction Rate

Tax Procedure Law General Communiqué (Series No: 496) under Law No. 213 was published in the Official Gazette dated 25 May 2018, No. 30431, and is commonly called the “Destruction Rate Communiqué”. It deals with two matters together: the general rules on valuing goods that must be destroyed under Article 278 of the Law, and the destruction rate procedure in Article 278/A, added by Article 10 of Law No. 7103 of 21 March 2018 (Article 1).

What are the Communiqué’s two separate applications?

The first part is the general rule. Goods whose value falls significantly because of fire, earthquake, flooding, or spoilage, rotting, breakage or rusting are valued at fair market value; the pricing commission determines this value, and the loss in value is taken into account as an expense in determining the period’s profit (Article 4). For goods to be destroyed because the expiry date has passed, because they do not meet quality standards, or because they harm the environment and human health, destruction may be carried out, without applying to the pricing commission, by record before a commission that includes officials of the relevant ministry or authority, a representative of the destruction facility and representatives of the taxpayer (Article 5).

The second part is the destruction rate system for goods that must be destroyed on a continuing basis because of spoilage, rotting or expiry (Article 9). Under it, goods destroyed within the destruction rate are valued at a fair market value of zero (Article 15).

Who may use the destruction rate system?

Only income and corporate taxpayers whose profits are determined on the balance-sheet basis may use it. In the balance sheet for the last accounting period before the application date, the arithmetic average of net sales and asset size must exceed TL 10,000,000, or equity must exceed TL 5,000,000 (Article 11). These amounts are in the 2018 text of the Communiqué. The goods in scope are meat and meat products, milk and dairy products, eggs, fresh fruit and vegetables, bakery products, and licensed medicines and similar goods (Article 10).

How do the application, rate setting and validity work?

The application is made to the Revenue Administration (Article 12). The file is assessed with the opinion and recommendation report of the Tax Inspection Board (Article 13); a three-member commission formed within the Revenue Administration sets the destruction rate for each product and offers it to the taxpayer (Article 14). The rate is valid until the end of the fifth accounting period following the one in which acceptance is declared, or until the end of the third accounting period for a new taxpayer applying in its first year. Different rates may be set for goods of a different nature.

Which records are kept and which notifications are made?

For destruction within the destruction rate, at least two copies of a destruction report are drawn up if destruction takes place at the taxpayer’s own waste treatment facility, and at least three copies if it is carried out at an authorised waste destruction facility. The report must show its date, the taxpayer’s title, tax office and number, the place of destruction and a statement that destruction took place under the supervision of the named officials; a summary of the return invoices is attached (Article 15). A waste treatment facility is one that holds a permit or environmental licence under the Waste Management Regulation (Article 3).

Every year, within the filing period for the income or corporate tax return, an annual destruction rate tracking report prepared product by product is submitted to the Administration with a petition (Article 16). If the report is not filed on time, the rate may be cancelled (Article 18(1)(c)).

What does it mean for destruction and recycling?

The Communiqué expects destruction to be documented and verifiable rather than informal. For goods destroyed abroad, a pricing commission decision based on the documents of the country concerned is required, and such destruction is not treated under Article 278/A (Article 6). The packaging material of destroyed goods is assessed in the same way; but if the packaging is not destroyed and can be reused as scrap, it is tracked in the records at fair market value (Article 7). The loss in value is booked as an expense in the period in which the commission decision or record is served (Article 8).

What should be checked in practice?

If the set rate is exceeded, the excess is valued under the first part of the Communiqué (Article 20). Failing to follow the documentation procedures, giving incomplete or wrong information, not filing the annual report on time, or not accepting a revision request may lead to unilateral cancellation of the rate; after cancellation, valuation under Article 278/A is no longer possible (Article 18). If the valuation provisions are not followed, the relevant penalty provisions of the Tax Procedure Law apply (Article 22). Taxpayers must keep all records, documents and papers relating to destruction and produce them on request (Article 19).