VAT Law Article 30/c — VAT on Lost (Zayi) Goods

What does Article 30/c of the VAT Law say?

Article 30 of the Value Added Tax Law No. 3065 of 25 October 1984 (Official Gazette of 2 November 1984, issue 18563) lists the taxes that cannot be deducted from calculated VAT. Paragraph (c) states that VAT on lost goods cannot be deducted, except for goods lost in an earthquake, a flood, or a fire in an area the Ministry of Finance has declared a force majeure zone because of fire. The paragraph was amended in its current form by Law No. 5228 of 16 July 2004 and was extended by Law No. 7104 with a provision in parentheses.

In short, the rule is that input VAT on a lost good stays with the taxpayer. Only earthquake, flood and fire in declared areas fall outside it.

Does destruction count as a loss?

Section III/C-2.4 of the VAT General Implementation Communiqué states that VAT on goods held in stock whose shelf life has expired or that have become unusable for another reason cannot be deducted under Article 30/c. According to the Communiqué, VAT cannot be deducted even if such goods are destroyed before official commissions set up under the relevant legislation or before the Appraisal Commission.

Where VAT on lost goods was deducted earlier, it is taken out of the deductions in the VAT return for the tax period that includes the date of destruction, by adding back the VAT deducted before. The text of the Communiqué refers to the "VAT to be added" line of the return for this; since the line name may change with the return version, the current return format should be checked.

How does the rule work for depreciable economic assets?

Article 9 of Law No. 7104 (Official Gazette of 6 April 2018, issue 30383) added the following provision in parentheses to paragraph 30/c: VAT on depreciable economic assets that are lost, or delivered under an exemption, after completing the useful lives determined under Article 315 of the Tax Procedure Law, together with the part, corresponding to the period used, of the VAT on depreciable economic assets lost or delivered under an exemption before completing their useful lives, may be deducted.

This means that no adjustment is needed for an asset lost after its useful life has ended. If it is lost before then, the VAT corresponding to the period used can be deducted and needs no adjustment; the VAT corresponding to the unused part of the useful life cannot be deducted and, if it was deducted earlier, is added back in the return of the period of loss. In measuring the period of use, every 12 months, and any period shorter than 12 months, counts as one year.

In the Communiqué's example, a minibus costing TL 150,000 with a five-year useful life and TL 27,000 of VAT burns down after 38 months of use. Since 38 months is counted as four years, no adjustment is needed for TL 21,600; the TL 5,400 relating to the remaining year is taken out of the deductions.

What should be kept in mind in practice?

• Correctly establishing the loss event and the date of destruction determines in which period the adjustment is made.
• The fire exception requires a force majeure declaration by the Ministry of Finance; not every fire qualifies.
• For a depreciable asset the useful life is the period set by the Ministry under Article 315 of the Tax Procedure Law, and the period of use is calculated against it.
• Destruction before a commission does not preserve the VAT deduction; this is the administration's explicit view in the Communiqué.
• The valuation rules in Articles 278 and 278/A of the Tax Procedure Law are separate from the VAT deduction and are assessed on their own.