TAX APPLICATIONS AND MERGERS AND ACQUISITION OF COMPANIES
What is Merger ?
Mergers and acquisition means the transfer of one or more company’s full assets and liabilities to
another or to a new established company. Thus; as provision of merged and transferred assets,
dissolved company’s shareholders acquire shares in the new company according to the ratio to
be determined among the merger process.
In accordance with the current Turkish Commercial Code provisions, it is important to note that
merger is possible only between same type of companies, thus the type of entities to be merged
should be determined at first instance.
In the Turkish set of legislation, several code provide provisions regarding the mergers. Two main
codes of these, are the Turkish Commercial Code and the Corporate Tax Law.
Different Types of Merger
Company mergers are able to be realized by (2) different types; “new establishment” and “merger
by acquisition”.
a)
b)
New establishment: In this type of merger; two or more companies merge and establish
a new company. These merged companies dissolve without liquidation and the
assets/liabilities thereof pass to the new established company.(Fusion)
Merger by acquisition: In this type of merger; one or more company dissolves without
liquidation by transferring all of its assets/liabilities to another existing company. In other
words; one of the two companies joins to other’s constitution. The “acquirer” is the
company which the companies merge therein and the “acquired” is the dissolving entity
free of liquidation.(Absorption)
Taxation of The Profit Obtained From Merger
In general terms from a Turkish Commercial Code (mainly adopted from the German Commercial
Code) point of view, acquisition is a type of merger. According to the Turkish Commercial Code
(Article 146) merger consists of the creation of a new commercial partnership through the
amalgamation of two or more commercial partnerships (fusion); or through the absorption of one
or more commercial partnerships by another existing commercial partnership (acquisition).
In the Turkish Commercial Code, merger has been defined as dissolution without liquidation. In
Articles 451 – 454 of the Turkish Commercial Code, provided under the general caption of
“Dissolution without Liquidation”, it has been stipulated that a merger operation may take place
only through the establishment of a new company, or through acquisition. In other words, an
acquisition or the establishment of a new company are the types of merger. Whereas, in the
Corporate Tax Code, merger and acquisition processes have been regulated under separate
articles. According to the Corporate Tax Code, acquisition is a special type of merger, in the
occurrence of the special circumstances enumerated within the Code.
In Article 18 of the Corporate Tax Code, the merger (subject to tax) of one or several corporations
with another corporation is equivalent to a winding-up with regards to the corporations which are
dissolved due to amalgamation. In case of merger, however, the winding-up profit shall be
replaced by the amalgamation profit for the assessment of the tax. The provisions regarding the
establishment of the winding-up profit shall be enforced for the determination of the amalgamation
profit, with the following difference that the assets given directly or indirectly by the amalgamating
corporation to be associates or owners of the dissolved corporation or corporations shall replace
the assets distributed to the shareholders in the event of the winding-up of the corporation. Assets
received from the amalgamating corporation shall be valued in accordance with the rules set forth
in the Tax Procedure Law.
This provision is followed by the pre-conditions, where the mergers will be regarded as acquisition
(tax free mergers). In accordance with Article 19 of the Code, these pre-conditions of an
acquisition (tax free merger) are as follows;
resident in
Turkey (full taxpayer),
be
transferred to the acquiring company, at their book-values.
Besides the pre-conditions referred in Article 19 of the Corporate Tax Code, there is also a set of
conditions in Article 20 of the Corporate Tax Code, which are as follows:
any and the acquired (dissolved) company shall
submit a
corporate tax declaration for the dissolved company as of the date of acquisition (the
date of registration of the decision of the merging entities competitive organ to the
Trade Registry is the date of acquisition), that they will jointly sign, to the tax office
where the dissolved company is registered, within 30 days from the date of the
announcement of the acquisition in the Trade Registry Gazette,
the
abovely stated declaration of the dissolved company, that it will pay all the tax
related debts of the dissolved company that has accrued and that will accrue, and
that it will fulfill the other obligations that befall on the dissolved company. The
highest civic authority of the region may demand a separate guarantee from the
merged company regarding this subject matter.
In case where these conditions, as well as the pre-conditions, are present, only the profits derived
until the date of acquisition shall become subject to tax, and the profits generated directly from
the merger shall not be calculated and shall not be subject to corporate tax.
In the acquisition operations effected pursuant to the Corporate Tax Code, in which the assets
and liabilities should be transferred to the acquiring company, the depreciation over the
depreciable economic assets of the acquired (dissolved) company will continue to be applied for
their remaining economical lifetime in the acquiring company.
In order to close the acquisition process beforehand, the relevant tax declarations of the acquired
company may be submitted and paid to the Tax Office prior to their due dates.
In determination of corporate tax base; the costs which take place in the previous tax returns can
be utilised by the acquirer company on condition that to show separately the amounts of each
year and not to carry more than 5 years. Besides this for the carry-forward losses of the acquired
company to be utilised by the acquiring entity. The following conditions should be met;

Allowing of corporate tax declaration forms related to last 5 years in their legal period.

Progressing of dissolved company’s activities at least 5 years from the accounting period
in which the acquisition transaction realized.
Procedure of the Merger Transaction
The Turkish Commercial Code does not regulate the procedures of the merger transactions in
details and simply specifies the principles thereof.
The procedure can be summarized as follows;
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Negotiation between the parties
Preparation of the merger balance sheets and commercial books of the parties
Application to the commercial court for the provision of an expert report regarding the
applicability of the merger transaction as well as the determination of the book values of
the parties.
Vesting power to the administrative boards for the preparation of the merger agreement
Approval of the merger contract by the general assembly and capital increase in the
acquirer company (if it is necessary)
Registration and announcement of the merger decision (or establishment of new
company)
Deregistration of the dissolving company
With regards to the meeting and decision quorum; Turkish Commercial Code article 148
stipulates that “ procedures and circumstances about the statute amendments are applicable on
merger decisions”. Thus Article 388/3 will be applicable fort the merger transactions as well.
According to The Ministry of Industry and Trade’s communiqué numbered 2004/2 “if capital
increase of joint-stock company is realized by transfer of capital in kind or firm transfer, expert
report and/or court’s expert assignment decisions should be attached to the registration form.”
Merger decisions are effective within 3 months starting from the announcement day. Insofar;
merger decision may be effective from the announcement day if companies which are merged
pay or deposit their liabilities among the merger procedure and receive a sworn Fiscal Auditor
report as a proof document to be submitted to the Trade Registry.
Each of the creditors of the merged companies are entitled to apply to the competant court within
(3) months from announcement for the rejection of the merger transaction.
Other Turkish Acts Which Concern Merger Transactions
Besides the Turkish Commercial Code and Corporate Tax Code there are different codes
providing additional clauses with regards to the merger transaction which should also be taken
into account among the procedures. These are mainly as follows.
Charges Code numbered 492
Stamp Tax Code numbered 488
Income Tax Law numbered 193
Value Added Tax (VAT) numbered 3065
Banking and Insurance Transactions Tax numbered 6802
Competition Code numbered 4054
Conclusion
Merger is an important instrument for achieving the goals of an enterprise such as the economical
scale, management rationalisation, productivity and enforcement of financial structure. To the
extent of the added values of these restructring transactions, there are plenty of tax incentives in
favor of taxpayers. However for the sake of the application, the most important issue is that the
merger & acquisition transactions are structured in details from a tax & legal point of view.