Council of State to decide on tax court’s decisions on capital replenishment funds
The Tax Authority recently audited the Turkish subsidiaries of several multinational pharmaceutical companies to review five years’ worth of their accounts. The inspectors claimed the subsidiaries were acting as marketing companies and were providing continuous sales and marketing services to their parent companies free of charge. Thus, they had incurred continuous losses and covered them through their capital replenishment funds.
According to the inspectors, the capital replenishment funds provided to these foreign companies by their shareholders should be deemed service fees. Had the companies recorded such moneys as service fees, they would not have incurred losses. Consequently, the Tax Authority levied corporate income tax, VAT, a tax-loss penalty and default interest on these companies for the capital replenishment fund amounts provided…
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