Evaluation and analysis of the deduction of losses according to efficiency in tax practices

ABSTRACTOne of the offset practices intended for natural and legal entities tocontinue their business activities, generally to attain power for investment,production, employment and international competition, to be able to exportgoods, to decrease tax burden for the purpose of ensuring and sustainingeffectiveness, efficiency and continuity, to maximize profitability and capital isthe practice of loss offset.In Article 88 of Income Tax Law, it?s been stipulated that losses caused bysome of the revenues in collecting such revenues, can be offset from therevenues and incomes of the other assets. In Article 80 of the Income TaxLaw, offset of the losses arising out of the other revenues and incomesspecified from other income items is excluded.In accordance with the parallel arrangements in Income Tax Law as wellas terms and conditions as set forth in Article 9 of Corporate Tax Law, thelosses of the previous period is allowed to be offset from current corporaterevenues. The part of the loss which cannot be offset at the end of the offsetoperation, is offset from the revenues of the next 5 fiscal periods. The losseswhich cannot be offset within such period, cannot be transferred to followingfiscal periods. In accordance with Article 9 of the Corporate Tax Law, it?smandatory that losses of a company which was dissolved due to assignmentor full division, must be paid off within legal periods of the corporate taxreturns of last five years and business activities of the institution taken overmust be continued for at least 5 years as of the fiscal period when suchassignment or full division took place. In addition, in calculation of the incomeand corporate tax values, it?s possible to deduce foreign losses fromdomestic revenues and incomes obtained within Turkey under certainlimitations and conditions. It?s not possible to deduce the foreign losses whichare exempt from income and corporate tax in Turkey, from domesticrevenues and incomes obtained in Turkey.173It?s intended to make taxing system more effective by enforcing?damageoffset practice?into tax system which decreases tax burden, as a decisive andcomplementary element of encouraging investments, increasescompetitiveness, providing tax incentives and advantages, thereby increasingeffectiveness of the taxes.