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The Council of State put an end to revenue sharing!

The Council of State has resolved yet another controversial issue, which is extremely important for the construction industry and which has been debated for years, and put the final point. In fact, he had made a decision on this issue before, but there were serious doubts in the tax public about whether the same view would be reflected in the next decisions. However, the expected did not happen. The newly dated decisions of the Council of State were a continuation of the first decision, and the hesitations about the subject were eliminated.

What exactly is it about?

Yes, the issue is about whether the corporate tax and VAT exemptions can be benefited from if the lands registered in the assets of the companies for at least two full years are given to the contractors by revenue sharing. This issue has caused and continues to cause serious discussions and disputes between the Finance and taxpayers for years. The Council of State has clarified and clarified this controversial issue after its first decision and its recent recent decisions.

We’ve raised this issue before!

Actually, this is the first time Approach Magazine’s April 2013 In my article published in the issue, I stated that if the company lands are given to the contractors by revenue sharing method, this transaction is a land sale in return for cash and the profits arising from the sale transaction are exempt from corporate tax and the sale transaction is exempt from VAT. Later on this topic World Newspaperin December 7, 2021 on “Tax Wolf” Posted in my column “Judicial approval for KV and VAT exemption in revenue sharing” I brought it up again in my article titled and got a lot of feedback.

What is the revenue sharing model?

Revenue sharing is a building construction model that has emerged as an alternative to the flat-for-floor construction model in recent years and has become increasingly widespread. Initially, only TOKİ and Real estate While it is being used by residences, it has recently started to be used frequently in private construction works. Revenue sharing basis, Persons or institutions transfer their lands to contractor companies in return for a certain percentage of the sales price of the independent sections to be built on the land. is defined as. With the revenue sharing agreement, the land owner mutually undertakes that he will sell his land to the contractor, and the contractor will pay a certain percentage of the sales price of the independent sections in the building he has built to the land owner as the land sales price. The revenue sharing model is actually no different from the sale of land for money. The contract is a kind of real estate sales promise contract. At the beginning of the work, the sale price of the land is not yet known and it becomes clear as the independent sections to be built are sold. The contractor is responsible for the construction of the construction, designing the construction, obtaining permits and licenses, promotion, marketing, finding customers, selling to customers, etc. undertakes all work and operations related to the project. In the sale of residences and workplaces built on the basis of revenue sharing, the invoice is drawn up by the contractor, the title deed transfers are made by the company that owns the land. In the revenue sharing model, the remaining portion of the proceeds from the sale of the houses and/or workplaces built to the land owner is considered as the land sales price.

How is the legislation on the subject?

There is no special regulation in the Corporate Tax and VAT Laws regarding the taxation of revenue sharing. In VAT Circular No. 60 published only by the Ministry of Finance, “revenue sharing”, “revenue sharing” etc. works with names, “construction work for land” will be evaluated within the scope of

However, there are two regulations, one in the Corporate Tax Law and the other in the VAT Law, regarding the tax exemptions to be applied in the sale of the lands registered to the company’s assets.

First: 50 percent of the income arising from the sale of immovable properties, which are in the assets of the companies for at least two full years, is exempt from corporate tax. However, the income obtained from the sale of real estates held by institutions dealing with immovable trade and leasing for this purpose is not included in the scope of the exception. (KVK. Art.5/1-e). In addition, for the exemption to be applied, the immovables must be sold and there must be an improvement in the financial structure of the selling company by making a profit from this transaction. For this reason, transactions such as the transfer, assignment and barter of immovables without money are not included in the scope of the exception. This exception is not applied in barter transactions, which express the replacement of a property or right with another property or right, as in the transfer of land in return for flat. (KVK General Communiqué No. 1).

Latter: Transfers and deliveries of real estates registered in the assets of companies for at least two full years are exempt from VAT. Again, as in corporate tax, VAT exemption is not applied in the sale of immovables acquired by companies engaged in immovable trade and leasing for this purpose. (VAT. Art. 17/4-r). However, unlike the corporate tax, since the delivery of the land to the contractor in return for flat is considered as an exchange within the scope of VAT, the deliveries of land in return for flat are exempt from VAT, provided that the activities of the companies do not fall within the scope of immovable trade. The VAT exemption is not applied in parallel or in conjunction with the corporate tax exemption.

Finance is of the opinion that KV and VAT exemptions cannot be applied in revenue sharing!

Finance, “The delivery of the lands registered to the company assets to the contractors by revenue sharing method should be considered as immovable trade, therefore it is not possible to exempt the income from the said sale from corporate tax and the sale transaction from VAT” in your opinion (Regulation of GİB. Large Taxpayers Taxpayers Tax Office, dated 18.04.2012 and numbered B.07.1.GİB.4.99.16.02-KVK-5/1-e-102).

This view has been the same for many years, it has not changed at all, it is still carried out in this direction in practice!

First decision of the Council of State: KV exception may be applied in revenue sharing!

The first decision of the Council of State on the subject is that the corporate tax exemption can be applied if the lands registered in the assets of the companies whose field of activity is not real estate trade are given to the contractors by revenue sharing for at least two full years. (Decision of the 4th Chamber of the Council of State, dated 29.12.2020 and numbered E.2016/18590, K.2020/6633).

Final decisions of the Council of State: KV exception can be used in revenue sharing!

The final decisions of the Council of State are in line with the first decision. In other words, if the lands registered in the assets of the companies whose field of activity is not real estate trade are given to the contractors by revenue sharing for at least two full years, this transaction cannot be considered as real estate trade and the corporation tax exemption can be benefited from. The summary of the recent decisions is as follows:

“Giving the immovable, which has been in the company’s assets for at least two full years, to the contractor by revenue sharing is a land sale in return for revenue share, and there is no barter in this sale, and it is not possible for the land owner to buy an independent section in exchange for the land. Here, the company that owns the land only collects the money of the land it has sold. For this reason, the sale of this land made by the revenue sharing model of the company, which does not have immovable trade among its fields of activity, should benefit from the exception in Article 5/1-e of the Corporate Tax Law.” (Decisions of the 4th Chamber of the Council of State, dated 24.02.2022 and numbered E.2019/7218, K.2022/1109, same date and numbered E.2018/3530, K.2022/1107).

The decisions of the Council of State are also valid for VAT exemption!

Although the above-mentioned Council of State decisions were made for the corporate tax exemption, they are equally valid for the same-qualified VAT exemption in Article 17/4-r of the VAT Law. Therefore, companies whose field of activity is not real estate trade can benefit from VAT exemption if they give their lands registered in their assets for at least two full years to contractors by revenue sharing.

Alright what now?

Unfortunately, the Ministry of Finance and the Council of State have a different opinion on this issue! Finance still insists on its current view and continues the practice in line with this view. The Council of State, on the other hand, is of the opinion that the companies whose main activity is not real estate trade, should benefit from corporate tax and VAT exemption, as the sale of the lands, which are in their assets for at least two full years, to the contractors by revenue sharing, and cannot be considered within the scope of real estate trade. The decisions of the Council of State on this matter are now becoming established.

In our opinion, it is our opinion that the Ministry of Finance should change its current opinion as soon as possible in line with the settled decisions of the Council of State and implement it. “Companies whose main activity is not immovable property trade is the sale of the land for at least two full years to the contractors by revenue sharing, and the income from the sale is exempt from corporate tax and the sale transaction is exempt from VAT” should be guided.

What should companies do in this situation? Should he ask for a custom from the Finance?

The best way in this regard is to apply to the Ministry of Finance and get a ruling. However, it seems that if such a feature were requested at this time, the answer would be one hundred percent negative!

However, this situation inevitably forces the companies that will give their lands to the contractors on the basis of revenue sharing in this way, to make a decision!

In our opinion, if companies that give their lands, which are in their assets for at least two full years, to contractors with revenue sharing model, if they want to benefit from corporate tax and VAT exemptions, they do not need to take any risks, it is enough to file their declarations with reservation and file a lawsuit! There are precedent decisions of the Council of State. However, the litigation process is a bit long, so they should take this into consideration.

The shortest way is for the Ministry of Finance to comply with the decisions of the Council of State and change its current opinion! This shouldn’t be too difficult.

Say what?

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