Tax Procedure Law Article 278/A — Direct Expensing of Goods to Be Destroyed

What is Article 278/A and when was it added?

Article 278/A of the Tax Procedure Law No. 213 is titled "Goods that must be destroyed". It was added to the Tax Procedure Law by Article 10 of Law No. 7103 of 21 March 2018, which was published in the Official Gazette of 27 March 2018 (issue 30373, 2nd repeated issue).

The provision opens a special valuation route for goods that must be destroyed because of spoilage, rotting or expiry of the shelf life. On the application of taxpayers whose destruction operations are continuous in nature, such goods may be valued within the procedure set by the administration and taking the approved destruction rate into account.

Which goods and which taxpayers does it cover?

The law does not draw the scope itself; it leaves that to the administration. The Ministry of Finance is authorised to determine the conditions required of applicants, the period during which an approved destruction rate applies and the goods covered, taking sectors, lines of business and company size into account.

Tax Procedure Law General Communiqué (Series No. 496), published in the Official Gazette of 25 May 2018 (issue 30431) on this authority, directs the scheme mainly at goods sold domestically and returned because of a very short shelf life, spoilage or expiry, that must be destroyed because they are harmful to people and the environment, and whose destruction is continuous. Article 9 of the Communiqué mentions medicines and similar products returned because they spoil or pass their expiry date, alongside foodstuffs. Only income and corporate taxpayers who determine their profit on a balance-sheet basis may benefit, and the Communiqué also sets certain size criteria.

How do the destruction rate and the application process work?

Under the Communiqué, the destruction rate is the ratio of the quantity of domestically sold goods returned for destruction due to spoilage, rotting or expiry to the total domestic sales quantity of the relevant year. The taxpayer applies to the administration in writing, stating the product groups, past domestic sales and return data, destruction quantities and supporting documents.

Under the law, the application is assessed by taking into account the taxpayer's past transactions, actual production, sales and destruction processes, the position of other taxpayers in the sector and the opinions of competent authorities, chambers and organisations. A destruction rate is then fixed by agreement with the Ministry. Under Article 14 of the Communiqué, the approved rate applies from the date of acceptance until the end of the fifth accounting period following acceptance.

What does it mean for destruction and tax?

The consequence is clear in the law: provided the approved destruction rate is not exceeded, the comparable value of the destroyed goods is deemed to be zero. A zero comparable value makes it possible to recognise the cost of the goods as an expense. The article applies without being bound by the third-step (appraisal commission) procedure of Article 267, so this route does not require going to the appraisal commission for every destruction.

The part above the destruction rate does not benefit from this facility. Taxpayers must keep all records, documents and papers relating to the destruction in accordance with the law and produce them when required.

What should be kept in mind in practice?

• The destruction record must be drawn up in at least two copies; the Communiqué requires elements such as the date, taxpayer details and the place of destruction.
• Destruction can take place at the taxpayer's own facility or at an authorised waste processing facility; whichever is chosen, the record and its supporting documents must be kept.
• Approval of the destruction rate is not the end of the process: the annual tracking report, prepared product by product, must be submitted to the administration within the filing period of the income or corporate tax return.
• The VAT side of destroyed goods is separate; Article 30/c of the VAT Law and the related communiqué explanations must be assessed on their own.
• Document that the destruction was carried out in line with waste legislation.