TCMA 2020 ANNUAL REPORT

The article also stipulated that the taxes withheld may not be offset from any other tax. Additionally, the President is granted authorization to reduce the withholding rate to zero or to increase it up to one fold, individually or jointly, depending on whether (i) the full-fledge taxpayer equity company’s shares are traded on Borsa İstanbul, (ii) the ratio of the traded shares in the total shares, (iii) the repurchased shares are among the shares traded on Borsa İstanbul, (iv) whether they are repurchased from the full-fledge taxpayer companies and (v) the total amount of the annual sales revenue and other income of the full-fledge taxpayer equity company. Revised Withholding Rates Applied under Provisional Article 67 of the Income Tax Law a) Debt instruments and mutual funds The Presidential Decree no. 3032 dated 29 September 2020 published in the Official Gazette issue 31260 dated 30 September 2020 revised the withholding rates applied to deposit rates and profit shares paid by participation banks in return for participation accounts under Provisional Article 67 of the Income Tax Law no. 193. The said revisions will be valid through 31 December 2020. The Association’s opinion and suggestion for application of the reduced withholding rate also to mutual funds and debt instruments were submitted to the T.R. Ministry of Treasury and Finance on 5 October 2020. The Association made another attempt before the T.R. Ministry of Treasury and Finance upon the statements that the implementation period would be extended by another 3 months for deposit and participation accounts on 31 December 2020, which was the deadline for the said decree. Considering it important for investors to be able to select financial products not on the basis of different taxation schemes but in line with their own risk and return preferences, the Association presented its opinions that reduction of withholding rates also for fundamental capital market products such as mutual funds and debt instruments (T-bills, government bonds, private sector bonds, lease certificates) would be beneficial for maintaining an equal distance in terms of taxation to financial products and also for the development of our capital markets. b) Hedge (FC) funds Furthermore, the Presidential Decree no. 2604 dated 2 June 2020 published in the Official Gazette dated 3 June 2020 modified the taxation systematic with respect to hedge (FC) funds. With the enforcement of the said decree on the date of its publication, 15% withholding began to be applied on yields arising from asset management of hedge (FC) funds from the said date. The Association presented its opinion and suggestions that the application of “15% tax withholding on the fund based on the asset management revenues” should be revisited in order not to aggrieve fund investors, and that withholding on these funds should be applied solely to the revenues derived on disposal of fund participation shares as was the case in the former practice, to the T.R. Ministry of Treasury and Finance. With the revisions made to the withholding rates covered in Provisional Article 67 of the Income Tax Law no. 193 by the Presidential Decree no. 3321 published in the Official Gazette issue 31343 dated 23 December 2020; a) In parallel with the taxation of deposit interests and participation account profit shares at discounted rates, it was decided to reduce withholding rates to be applied to yields derived on certain mutual funds that serve as alternatives to the aforementioned and are set up under the Capital Market Law, and on debt instruments issued by banks, until 31 March 2020. b) 15% withholding applied to portfolio yields of hedge (FC) funds exempted from corporate tax was terminated effective from 2021 period. Taxation of Revenues Derived on Leveraged Trading Transactions Based on Article 19 of the Law no. 7256 Regarding Restructuring of Certain Receivables and Amending Certain Laws published in the Official Gazette dated 17 November 2020, and an arrangement inserted within Provisional Article 67 of the Income Tax Law no. 193, revenues derived on contracts for leveraged transactions involving foreign currency, precious metals, and other assets specified by the CMB are subjected to withholding under Provisional Article 67 of the Income Tax Law. In order to clarify the situation for the sector and to steer the implementations, the Association presented its opinions and suggestions to the T.R. Ministry of Treasury and Finance, Revenue Administration. REGULATORY FRAMEWORK 34 TCMA 2020 ANNUAL REPORT