INTRODUCTION
Stock
amnesty in companies is not strictly a legal or technical term, but rather a
tax measure that provides an opportunity to adjust and bring discrepancies
between actual (physical) inventories and those recorded in accounting books
into the records without exposure to any penalties or severe sanctions. It is
generally included within “restructuring/tax amnesty laws” enacted by the state.
In businesses, the following issues
may arise over time:
- Goods that appear in the records but
do not actually exist,
- Goods that exist in reality but are
not recorded in the books,
- Incorrectly valued inventories.
Stock
amnesty provides an opportunity to formally correct these inconsistencies by
bringing them into compliance with official records.
SCOPE OF
STOCK AMNESTY
The
stock amnesty scheme generally covers two main situations:
Inventories
Recorded in the Books but Not Physically Available
Goods
that appear in the accounting records of businesses but do not actually exist
fall within this scope. In such cases, taxpayers remove the relevant goods from
their records and pay tax at specified rates.
Inventories
Physically Existing but Not Recorded in the Books
Goods
that exist in the business but have not been recorded in the accounts are
included in the records at fair market value. In this process, a certain amount
of VAT is also payable.
Taxpayers
who wish to benefit from the stock amnesty must apply to the tax administration
within the periods, specified under the related applicable regulations. The
implementation process generally consists of the following steps:
-Comparison of physical inventory with
accounting records
- Identification of discrepancies
- Submission of a tax return
- Payment of the calculated tax
- Adjustment
of accounting records
As a
result of this process, the company’s inventory records are brought into
alignment with the actual physical situation.
Inventories
to be recorded in the company’s books must be shown in the inventory list at
their fair market value as of the date of notification. Fair market value is
the normal purchase and sale price of the asset as of the valuation date. This
value may also be determined by the company’s management. No separate valuation
report is required for this purpose.
ACCOUNTING
PROCESS
When
stock amnesty is declared, VAT is paid to the relevant tax office based on the
value of the declared goods. In accounting records, this transaction is
generally reflected as follows:
-On the
assets side: The declared inventory amount is recorded under the Inventories
account.
- On the liabilities side: A corresponding account is opened for these
inventories, such as 525 Goods Recorded Under Amnesty (or a similar special fund
account). [1]
This
account is a special fund account included within the company’s equity. Its
purpose is to reflect the position of these assets—initially unrecorded but
later formalized—within shareholders’ equity.
CAN IT
BE DISTRIBUTED TO SHAREHOLDERS?
This
issue represents one of the most critical legal distinctions in stock amnesty
practice. According to one view, the stock amnesty regime—also referred to as
the goods inventory declaration—provides a significant advantage to the
shareholders of companies that make such a declaration. Under this view, the
amounts recorded in the special fund account as a result of the declaration are
not considered dividend distributions when transferred to shareholders;
therefore, they are not subject to any taxation, including withholding tax. Accordingly,
individual shareholders are not required to file an annual income tax return
for the amounts transferred to them in this way, and if they are already filing
an annual return due to other sources of income, they do not include these
amounts in their declarations and they are not taxed. The same conclusion
applies where the shareholders are legal entities. In such cases, the amounts
transferred by companies that have made a goods inventory declaration to their
corporate shareholders are not included in the recipient company’s taxable
corporate income and are not subject to corporate tax. [2]
From the
perspective of the Tax Procedure Law, the situation is as follows: The Tax-Related
Regulations approach the issue purely from the standpoint of the “Tax Receivable.”
The state essentially states: “This asset already belonged to you; you have
now recorded it. If you transfer it to your shareholder, I do not treat it as
income or profit, and therefore I do not consider it as tax evasion, nor do I
require withholding tax.” However, the Tax Procedure Law is concerned only
with the tax liability owed to the state. It does not determine whether funds
may be distributed out of the company; that authority lies with the Turkish
Commercial Code (TCC). From the perspective of the TCC, however, the situation
is as follows;
Article
462 of the TCC (Capital Increase from Internal Resources): This
provision sets out that funds recorded in the balance sheet and permitted by the
related applicable regulations may be added to the company’s capital. Since the
stock amnesty fund is treated as an internal source within the company, it may
be incorporated into the share capital.
Articles
507 and 509 of the Turkish Commercial Code (Dividend Distribution): These
provisions set out that only net profit for the period and freely distributable
reserves may be distributed as dividends. The funds arising from stock amnesty
do not constitute “operating profit”; rather, they are an “adjustment entry.”
Therefore, they do not technically qualify as “distributable profit”.
DISTRIBUTION
RESTRICTION
The
amounts monitored in this account may not be withdrawn from the business or
distributed to shareholders. If an attempt is made to distribute these
amounts to shareholders as if they were dividends, the liabilities outlined
below may arise.
1. Corporate
Tax: The distributed amount is treated as income for the relevant period and
becomes subject to corporate tax.
2.
Withholding: A tax withholding obligation arises in connection
with dividend distribution (withholding tax).
Restriction
under the TCC: The Issue of “Distributable Profit”
Even if
the Tax Procedure Law sets out that “no tax will be levied,” the Turkish
Commercial Code (TCC) comes into play. For a payment to be distributed to
shareholders as a “dividend,” it must, under Articles 507 and 509 of the TCC,
originate from:
1. The profit for the period, or
2.
Freely distributable reserves.
This
raises the question of whether the stock amnesty fund constitutes profit. In
short, it can be stated that stock amnesty cannot be regarded as profit. This
fund is, in essence, a “correction or offsetting” account opened on the
liabilities side of the balance sheet, corresponding to the increase in assets
(inventory) on the assets side.
Possibility
of Being Considered a Capital Reduction
If this
fund is distributed to shareholders, both the Ministry of Finance and the TCC framework
may characterize it as a “Capital Reduction.”
-In
terms of Tax Procedure Law: Even if the provision states that it is “not subject
to taxation,” the withdrawal of this fund in cash from the company reduces the
company’s equity.
-Articles
473-475 of the TCC (Capital Reduction): If there is an
outflow from the company that is capital in nature, creditor notification
requirements must be observed, and capital reduction procedures must be
followed. If funds are withdrawn from the company under the name of “profit
distribution” without following these procedures, it would constitute an
irregular practice.
Addition
to Capital
A
possible course of action for this fund is its incorporation into share
capital. When this amount is added to capital, no income tax arises for
shareholders, as there is no outflow of assets from the company, and no
withholding tax obligation is triggered for the company. If a capital reduction
is carried out after such an increase, it may be presumed—primarily for tax
purposes—that the amounts originating from this fund are the first to be
distributed, which could lead to taxation assessments. It can be stated that
there is no strict statutory time limit prescribed for the capitalization of
this fund; however, the fund should not be withdrawn from the company or
transferred to another account in a manner inconsistent with its nature. Adding
the stock amnesty fund to share capital is generally considered the most
appropriate approach both for strengthening the equity structure and for
incorporating the amount into registered capital without triggering taxation at
the point of capitalization. However, once converted into share capital, any
subsequent cash distribution may become subject to taxation.
CONCLUSION
In
summary, setting aside the option of adding the fund to share capital, it can
be concluded that the resources arising from stock amnesty cannot be directly
distributed to shareholders. The main reasons for this can be briefly
summarized as follows:
- In
terms of the Tax Procedure Law: Withdrawal of this fund from the company is
considered as the transfer of a “tax-exempt gain to shareholders.” The
legislator grants the tax advantage only on the condition that this fund
remains within the company’s structure, particularly within its share capital.
- In
terms of the TCC: Every amount distributed must originate from commercial
profit. The stock amnesty fund, however, does not constitute commercial profit;
it is a “notional (fictitious) balancing item” used to equalize the assets and
liabilities sides of the balance sheet. Its distribution would, in technical
terms, amount to a return of capital, which is contrary to the principle of
creditor protection.
Ahmet
Berke Baştuğ, Legal Intern
References:
1. Ersan Karaca, Stok Affı ve Öz Sermaye Enflasyon Farklarının
Ortaklara Dağıtımı Sorunu (The Issue of Distributing Stock Amnesty and
Equity Inflation Adjustment Differences to Shareholders)
2. Abdullah Tolu, Ekonomim.com, 25.09.2023
