Fields of reporting need improvement in Turkey

Emin Taylan: The International Accounting Standards are being accepted more and more in the world. Governments intend to minimise their accounting system differences and stand out in terms of both comparability and accountability and provide financial statements and exact data and information to the related users thereof on time. Especially, as part of the the public reform (NPM) which was initiated in the 1990s, the leading states ensured a straight transition towards an accounting system based on accruals which provides more detailed information to users and executives on public accounting systems and the cash-based accounting system. Since Turkey has not kept pace with the changes in the accounting standards yet, providing accounting services to foreign investors especially in the fields of reporting and the analysis of financial statements are still troublesome in Turkey. We overcome these obstacles by providing explanation on differences by using IFRS and US GAAP compatible statements and establishing strong communication with our clients.

ET: We conduct our services under the regulation of Public Oversight Authority of Turkey (“POA”) and Grant Thornton International standards. We have a Quality Control System in order to comply with these regulations and that monitors the system with its Quality Control Team (QCT). Publications and new announcements are followed and included in the process by QCT and efficiency of implementation of applicable auditing standards are monitored by QCT annually.

ET: The two top growth practice lines are outsource accounting and advisory services. Despite the economic instability and the pandemic, Turkey has been an attractive market for international investments and this directly affects the growth of our outsource accounting services. Advisory services, the second growth practice line in Turkey is crucial because we have been accredited by the Ministry of Economy as ‘advisor for Turquality’ which is an important government subsidy which intends elevating the beneficiary companies to the level of international benchmarks.

ET: One of them is the Digital Service Tax (DST). According to the respective law DST will be levied for taxpayers and respective law entered into force retroactively from 1 March 2020. According to DST law, the revenue obtained from any kind of advertisement services provided in digital media, including advertising control and performance measurement services, data transmission and management related to users, and technical services related to the presentation of the advertisement, is subject to digital service tax. By this way, digital services tax entered into our lives.

Second one is the CbC MCAA. The CbC MCAA was approved and published in Turkey’s official gazette (1 October 2020); thereby, Turkey is considered a signatory of the CbC MCAA as of 30 December 2019. Turkey has activated its relationship with more than 40 countries regarding the automatic exchange of country-by-country (CbC) reports within the framework of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA).

Additionally, the Turkish Government introduced a restriction on the deduction of financial expenses dated 4 February 2021. The Restrictions stipulated that, in enterprises whose current liabilities exceed the equity, up to 10% of the total amount of expenses and costs incurred (such as interest, commission, maturity differences, delay interests, dividends, exchange rate differences) relating with the excess amount would be treated as non-deductible expenses for the Turkish company. These Articles authorised the President to set the limit of the non-deductible financial costs and expenses, which may not be more than 10% of the total of these costs.

The tax base increase and restructuring opportunity, which was presented many times in Turkey before, was offered to taxpayers many times in the past years, including this year. This opportunity will also be attractive for potential taxpayers who want to invest in Turkey, who want to establish and develop a business here. Because this practice, which is carried out almost every few years in Turkey, has a kind of protective function against a potential tax inspection.

ET: Like most global economies, many sectors in Turkey have been significantly affected by the pandemic. Services industries such as tourism are among the hardest hit, and industrial production and investment slowed in the first half of 2020. Traditionally, Turkey has been one of the fastest-growing markets in the world and this strong growth is expected to return once the spread of COVID-19 is under control.

The investors can mitigate the problem of legislative and bureaucratic obstacles by partnering with a Turkish company. This also eliminates the language barrier. Partners bring their own networks and connections, which are crucial for the sales process. They’re also familiar with local sectoral challenges and how to overcome them. Turkish companies are often interested in partnerships and sharing knowledge rather than purely commercial transactions. This can lead to a beneficial long-term relationship between businesses.

Turkey has adopted a series of legislative reforms to facilitate the reception of foreign investment, such as the creation of the Investment Office of the Presidency of the Republic of Turkey, a showcase of the efforts undertaken to attract foreign operators. Turkey’s incentives programme provides the following benefits to investors: corporate tax reduction; customs duty exemption; value added tax (VAT) exemption and VAT refund; employer’s share social security premium support; income tax withholding allowance; land allocation; and interest rate support for investment loans. The incentives programme gives priority to high-tech, high-value-added, globally competitive sectors and includes regional incentive programmes to reduce regional economic disparities and increase competitiveness.

Although Turkey offers many incentives and opportunities to attract investors and draw foreign exchange in Turkey, there are still regulations in some areas that can be made to attract foreign potential investors. For example, the average time required to establish a company. It has been significantly shortened compared to a few years ago, but it still needs to be improved.

ET: The Covid era has tested and taught us a lot like rest of the world. The restrictions (which are still taking place in Turkey) are not easy to cope with but I must say, I am proud of the agility and dynamism with which our employees performed during all these months. Turkey still has high rates of infections and mortality but alongside the vaccinations, we hope to get better. In Turkey, the first COVID case was recorded on 11^th of March 2020 and as the board of Grant Thornton Turkey, we took the decision of working from home which we still continue to do. We apply a rotative home-office-home cycle in order to keep the risks at minimum. Like the rest of the world, digital channels are crucial for us. Our company performed better compared to the previous year.

ET: As the board of Grant Thornton Turkey, our first commitment is to support our network. We join international proposals and provide expert support when it is needed by the international bids. There is also another issue. There are lots of Turkish companies operating in Balkans, CIS, Middle East and Europe. We do our best to channel the service needs of the overseas operations of these Turkish companies to Grant Thornton network member firms. I believe this creates value.

ET: The Unique Selling Proposition of Grant Thornton Turkey is ‘Go Beyond’. We are committed to foresee for our clients and bring the best solutions to the table. Our growth strategy is to continue to include the best talent.