Identification and Scope of Unrecoverable VAT in Buy-Lease-Back Transactions

• According to Article 17/4-y of the Value Added Tax Law, certain transactions related to financial leasing companies, participation banks, and development and investment banks are exempt from VAT.
• The Value Added Tax Practice General Communique states that the VAT amount that cannot be offset by discount in transactions related to financial leasing companies, participation banks, and development and investment banks will be considered as an expense in determining the income or corporate tax base for the period in which the transfer is made.
• In cases where VAT cannot be offset by discount in a Sale-Lease-Back transaction, the remaining VAT amount can be declared as “Additional VAT” and will be considered as an expense in determining the income or corporate tax base.
• The method for determining the VAT amount that cannot be offset by discount in a Sale-Lease-Back transaction is illustrated with an example involving a company importing a machine and later transferring it under the Sale-Lease-Back scheme.
• If the VAT paid for the imported machine is fully offset by discount in the period between import and the Sale-Lease-Back transaction, no adjustment is necessary.
• If there is remaining VAT to be offset in the VAT declarations for the period between import and the Sale-Lease-Back transaction, the amount that cannot be offset is declared as “Additional VAT” and considered as an expense in determining the income or corporate tax base.

Source: kpmgvergi.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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