R&D DEDUCTION APPLICATION FOR INCOME AND CORPORATE TAXPAYERS
Onur Çağdaş ÖZGÜR
Turkey, especially in recent years, has implemented a number of regulations and incentives to increase its competitiveness and go into production creating added value. One of these incentives is R&D deduction application brought for income and corporate taxpayers and this provides an important tax advantage to the taxpayers.
R&D deduction for income and corporate taxpayers are provided within ‘Law on Supporting Research and Development Activities’ numbered 5746 and dated 12.03.2008 (“Law No. 5746”). Additionally, a number of amendments have been made by The Law regarding the amendments related to the Law on Supporting Research and Development Activities and the other law and executive orders (“Law No. 6676”), , which entered into force in 2016, and additional support elements were introduced. In this article, the principles of implementation of the aforementioneddeduction are explained within the current legislative framework and within the scope of article 3/A of the Law No. 5746.
I. What is R&G activity? What are the activities which are not within the scope of R&G activities?
Under Article 2(1)(a) of Law No. 5746, the term of R&G is broadly identified. And, under Article 5 of Application and Supervision Regulation on Supporting Research and Development Activities (“Regulation”)R&D and non-innovation activities are determined. Regarding the explanations in the Regulation, it is seen that marketing product development and advertising activities cannot be included in R & D activities, even for the project deliverable after that project is produced as a result of the R & D activity.
II. What are the implementation and principles of R&D deduction?
With the Law No. 5746, the articles regarding R&D deduction regulated under Income Tax Law and Corporate Tax Law has been abolished and they have been collected under one roof and have taken place as Article 3/A of the Law No. 5746.  This regulation is seen as a positive step in terms of providing simplification and decreasing question marks regarding R&D deduction under the legislation, an also as a significant step on behalf of enabling going into production process which creates added value in Turkey.
According to the Article 3/A of Law No. 5746, all of the R&D expenses, which is spent in the structure of management, exclusively for the search intended for new technology and information are subject to deduction; on condition that the projects in this scope are regarded as R&D and innovation project by the Ministry of Science, Industry, and Technology; and to be shown separately in the relevant line of annual income or corporation tax return and provisional tax returns.
When calculating the R&D deduction, expenses not directly related to R&D activities should not be included in the calculation.
R&D expense is extinguished through amortization by means of activating them in accordance with the Tax Procedure Law (“TPL”). If an economic asset does not occur as a result of the R&D project, all expenses incurred for the project will be regarded as an expense in determining the income. Taxpayers, who want to benefit from the R&D deduction incentive, should account such expenses separately from their expenses on other activities. Also, the amounts that can not be deducted during the related taxation period because of being lacking in earnings, can be transferred to the subsequent taxation periods. Transferred amounts may be taken into consideration in the following years by increasing the revaluation rate determined annually under TPL.
In case of an assignment of R&D projects, which have been maintained by taxpayers, to another taxpayer; the R&D expenses, which are capitalized by enterprises performing the assignment, can be considered as cost in determining the amount of earnings. Besides, expensess which will be realized within the scope of the project after the transfer of the R&D project can be subject to R&D deduction on behalf of assignee taxpayer.
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