Previously, the Revenue Administration's approach was to impose 5% Banking and Insurance Tax ("BITT") over the earnings that banks received for non-physical gold transactions based on the understanding that non-physical gold transactions are not in the nature of foreign exchange transaction.
However, through the Revenue Administration's letter dated 21st May 2020 sent to Turkish Bank Association, the above-mentioned approach is amended, and it is stated that non-physical gold sales should be accepted to be in the nature of foreign exchange transactions. This amendment of the Revenue Administration's opinion has also changed the BITT application over non-physical gold sales transactions.
Within the scope of this Article, the evaluation of non-physical gold sales as foreign exchange transactions, and our evaluations regarding the issue, is provided.
As per the first opinion, gold should be evaluated as an investment tool instead of a commodity. Accordingly, gold sales should be accepted to be in the nature of foreign exchange transactions.
As per the second opinion, gold is in the nature of precious metals, and gold sales cannot be evaluated as foreign exchange transactions. Therefore, the BITT should be calculated based on the earnings that banks receive for non-physical gold transactions.
Current Opinion of the Revenue Administration
Through the Revenue Administration's letter dated 21st May 2020 sent to Turkish Bank Association, the approach of the Revenue Administration in relation to non-physical gold sales is amended as follows:
"Under Article 2/h of Decree No. 32 on The Protection of The Value of Turkish Currency, entitled "Definitions," foreign currency is defined as foreign currency banknotes and all kinds of accounts, instruments, and means of enabling payments in foreign currency and Gold, silver, platinum and palladium of all kinds and in every form, qualify as precious metals.
Due to the fact that (i) precious metals and foreign currencies are regulated under the foreign exchange regulation, (ii) no specific definition is made in relation to the non-physical amounts treated in the deposit accounts; non-physical gold sales should be accepted to be in the nature of foreign exchange transactions."
In line with the current opinion of the Revenue Administration, due to the fact that non-physical gold transactions are evaluated as foreign exchange transactions, the BITT should be calculated over the sale amount of the referred transactions.
Increase in the BITT Rate and Current Situation
The BITT rate in respect of foreign exchange ("FX") transactions has increased from 0.2% to 1% through the presidential decree no. 2568 sayılı published in the Official Gazette dated 24th May 2020 and No. 31136. The BITT for FX transactions will be calculated over FX sales. The BITT will continue to be 0% for the following transactions:
- FX sales made between banks and authorized foreign exchange dealers (amongst themselves, or to each other)
- FX sales made to Ministry of Treasury and Finance
- FX sales made to the borrower of an FX loan by the lender or the intermediary bank that mediated the utilization of the FX loan, for the purposes of repaying the FX loan
- FX sales made to enterprises holding industrial registration certificates
- FX sales made to exporters that are members of exporters' associations
Within this scope, at the current stage, the BITT rate to be applied for non-physical gold sales transactions to be conducted after 24th May 2020 will be 1%.
No specific regulation stating that gold or other precious metals should be accepted to be in the nature of foreign exchange transactions is specified under Decree No. 32 on The Protection of The Value of Turkish Currency and the relevant Communiqué No. 2008-32/35.
Additionally, as per Article 73 of the Constitution, the scope of the tax should be regulated by the law in line with the legality of the tax principle.
Therefore, evaluation of non-physical gold sale transactions as foreign exchange is disputable in terms of the above-mentioned legality principle.
No specific regulation stating that non-physical gold sales should be accepted to be in the nature of foreign exchange transaction. This application came into "force" as a result of the Revenue Administration's letter sent to Turkish Bank Association. Therefore, we believe that this approach should be discussed in terms of the legality and predictability principles regulated under Article 73 of the Constitution.
Originally published 27 August, 2020
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