The Taxation Perspective in Liquidation of Turkish Companies
As well as the company establishment, an investor may take decision for termination of his/her company or a company's termination conditions stated in the laws may occur such that start of a liquidation process becomes unavoidable for the company. Liquidation process is a period which may take long time and in which a company's transactions and taxation procedures are subject to different terms and conditions than a general operation of company's activities.
A capital company may be terminated due to different reasons stated by the laws such as
- expiration of the company's period,
- realization or impossibility of realization of company's subject,
- deficiency of company organs or impossibility of general meetings,
- bankruptcy of the company,
- decision of general meeting about termination of the company,
- existence of justified reasons,
- other reasons stated by the laws.
Despite the existence of termination reasons and conditions, the termination of a company is completed within the frame of completion of a liquidation process.
According to the Turkish Commercial Code ("TCC"), a company enters into a liquidation period in case of realization of above-mentioned termination reasons. In liquidation period, all transactions regarding the liquidation of the company may be implemented and the authority of company organs are limited to the liquidation purposes. The liquidation procedures are transacted by liquidator which are appointed by the company under conditions of the related provisions of the TCC. After their appointment, liquidators shall be notified to the commercial register. Liquidators have responsibilities and liabilities regarding the liquidation processes. Liquidators are entitled to sell the company assets in negotiation procedures and there are also obligations such as to take an inventory and financial statement of the company assets, to liquidate the company assets, to pay the claims of company creditors, to keep books, to submit the financial statements to the general meeting regularly and to declare and pay the taxes accruing to the company. Liquidators' liability is similar to the liability of company representatives and they are liable for all transactions regarding the liquidation of the company to third parties and to the company personally with their assets unless they are able to prove the absence of their fault.
As in other cases, the question comes to the fore, how the taxation during the liquidation process has been regulated and if there are any exemptions. As is known, the company's existence continues also in a liquidation process with a difference that the company is subject to the liquidation conditions. According to the related tax laws, start and completion of liquidation of a company shall be notified to the tax office within the time period stated in the tax laws. All accrued taxes such as VAT and corporate tax shall be paid and the liquidation period is regarded as accounting period. This liquidation period is independent on the other specific accounting periods which may generally be used by the company. Moreover, there are specific documents and information concerning the liquidation process which have to be added to the to the corporate tax declaration.
One of the principal rights of shareholders is to obtain a profit share from the company. In liquidation process, the shareholders are entitled to obtain share from the residual amount after payment of company's debts and share prices completely. This subject is relevant by the decision for cancellation of liquidation such that after starting of distribution of the residual amount from liquidation process a cancellation of liquidation is impossible.
Pursuant to the provisional article 7 of the TCC, inactive capital companies will be deregistered ex officio, in the event that the conditions which have been stated in the TCC are determined by commercial registers, other institutions or third parties until 01.07.2014. In this case, these companies will be deregistered without liquidation procedures which is called "simplified liquidation". This liquidation process takes a shorter time and it's procedures are more simplified than the general liquidation procedures. Through this simplified liquidation which has been provided by the New Turkish Commercial Code, it is expected that the number of companies on paper will decrease.