YAZARLARIMIZ
Semih Korkmaz
Serbest Muhasebeci Mali Müşavir
semihkorkmaz@gmail.com



Reclamation Invoices In Terms Of Turkish Tax Laws

Reclamation billing is an implementation that occurs because a sold property is not in the desired or expected quality and is applied to compensate the buyer. Particularly in sales made abroad or textile sector in the domestic market, it is not economical for the goods sold to be returned and replaced. Therefore, parties prefer to correct the situation via reclamation invoices.

Taking The Amount As Expense According To Tax Laws

According to Article 40/3 of the Income Tax Law numbered 193, provided that it is business related; the loss, damages and indemnities paid in respect of the contract or court order or law order can be deductible as expenses.

According to Article 41/6 of the regarding law; all kind of penalties and tax penalties and compensation arising from the offenses (faults) of the enterprise owner cannot be deducted as an expense.

So that, the reduction of a reclamation invoice as expense in law generally depends on the following conditions:

- Must be related with business,

- Or must be in respect of the contract, court order or law order,

- And mustn't be as a result of the enterprise owner's (or the company's) fault.

- On the other hand, the reclamation invoice must be in accordance with the truthful, credible, economic, commercial and technical necessities. Otherwise, the transaction can be criticized in terms of corporation tax, VAT, as well as transfer pricing.

- The transaction must be certified with an invoice or a document that replaces the invoice according to the legislation of the country concerned. (Invoice, debit note, credit note etc.)

Value Added Tax (VAT) Aspect

Basic principle; If the actual transaction is subject to VAT, the reclamation transaction is subject to VAT too and the VAT rate is the same as the actual transaction.

If the actual transaction is not subject to VAT, or it is an exception; there must be no VAT on the reclamation transaction either. Since this is a transaction that changes the VAT base (the figure that VAT calculated based of it), the buyer and seller would correct their VATs (additional input or output VAT to correct the amount) according to Article 35 of the VAT Law numbered 3065.

There are usually three different scenarios for reclamation:

  1. Return,
  2. Discount,
  3. Compensation - Severe fault or crime. (This one is actually not a reclamation.)

These scenarios can be summarized as the table below from the side of vendors:

 

Scenario

Expense Aspect

VAT Aspect

Related Turkish Uniform Accounts

Return

In this case, some of the products sold has been returned to the vendor because of quality problems etc. The process is not different than a normal return procedure.

Same as return invoice. If the actual transaction is subject to VAT, reclamation invoice must be subject to VAT as well and VAT rate should be the same. For example, there is no VAT on the goods exported so there would be no VAT on the reclamation process either.

610 (Debit)

191 or reverse record on 391 (Debit)

120 (Credit)

Discount

In this case, some of the products sold has quality problems etc. and there is a discount for that. The process is not different than a normal discount procedure.

Same as discount invoice. If the actual transaction is subject to VAT, reclamation invoice must be subject to VAT as well and VAT rate should be the same. For example, there is no VAT on the goods exported so there would be no VAT on the reclamation process either.

611 (Debit)

191 or reverse record on 391 (Debit)

120 (Credit)

Compensation (severe fault or crime)

There is a serious damage to the customer due to the product. It cannot be regarded as a costly expense since it is resulted on heavy faults or crime. It's an Unacceptable Expense By Law (U.E.B.L.)

Because the transaction is not based on a delivery or service, it does not subject to VAT.


If VAT is added in invoice, it cannot be deducted as input VAT.

689 U.E.B.L. (Debit)

120 (Credit)

 

In some cases different situations may arise from the scenarios above.

For example, while a certain portion of the cost may be taken into consideration as an expense in accordance with the contract, the remaining portion may be considered as "Unacceptable Expense By Law" since it is compensation. In such cases, the VAT rate of the transaction will also change.

Again, some of the goods or services subject to reclamation may be refund, and some of them related for a discount or some of them may be in the form of compensation. Depending on the situation, there may be a necessity to appeal to the estimation commission or court. So each transaction should be evaluated within itself.

References

[1] Income Tax Law numbered 193.

[2] Corporate Tax Law numbered 5520.

[3] Tax Procedure Law numbered 213.

[4] VAT Law numbered 3065.

02.03.2018

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