Interest-free administration‟s situation against Turkish tax legislation; Problems and suggestions

There is a contradiction between some tax law regulations and funding methods of islamic banks. use of funds of islamic banks are appropriate to these tax law regulations because of both avoiding negative tax laws and decreasing the transaction costs. This compliance brings a debate that activities of islamic banks resemble activities of conventional banks. This paper aims to implemantation of islamic banks instruments which are used in funding and statutory regulations which are about the taxation of profit share emerge from islamic banks accounts. Morevoer, this paper also studies on problems in these area and evaluation of required regulations and finally aims to bring some solution suggestions. This paper covers funding methods of islamic banks and taxation of them and taxation of profit share of islamic banks accounts. Tax regulations were investigated at all levels and those concerned with interest free finance were identifed. Funding methods of islamic banks and taxation of profit share emerge from islamic banks accounts were evaulated at the framework of tax regulations. Problematic areas were focused and then suggestion solutions were given relevant subjects. Tax regulations and financial administration evaluate "interest" the profit share of islamic banks accounts. Also they evaluate "debt agreement" "the murabaha" which is used mostly in islamic banks funding. So that taxation of them are being made according to these evaluations. Activities of islamic banks are different from activities of conventional banks which are working with the center of interest. This is the focus point of paper. With the movement from this point, it is suggested that some statutory regulations changes which are more appropriate both the shapes of islamic banks activities and principles of interest free finance. While giving these suggestions the competition equity of overall banking sector was overseen.