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MARCH - APRIL 2005 pharmacEYnews

relation with goods and services and social insurance premium and REFUNDING OF THE VALUE that they have imported and the payables to general and annexed ADDED TAX THAT HAS value added tax shown on invoices budget administrations and BEEN GENERATED and similar documents that have enterprises whose capital is owned FROM DELIVERIES OF been issued in relation with the by public at a minimum rate of DRUGS SUBJECT TO deliveries made and services 51% or is within the scope of REDUCED RATE performed to them from the value privatization, and later refunded in added tax that they have calculated cash if there are outstanding Hüseyin Fevzi Saltık over the taxable transactions that amounts that could not be they have effected in a fiscal eliminated on an annual basis. - Transition to the reduced VAT period. rate in deliveries of drugs However, the Council of Ministers In periods when the total of the Decree relating to the monetary As it is known, in the section titled value added tax to be deducted thus limit that shall be taken into “B) Other Goods and Services” of are higher than the total of the consideration in application of this the List No. (II) attached to the value added tax that has been provision as of the beginning of Value Added Tax Code that lists calculated over the taxable 2004 to be inserted in article 29 of goods that are subject to (8%) transactions of the tax liable, the the Law has not yet been VAT rate, paragraph No. (9) has difference in between are carried promulgated, although it has been been included. forward and are not refunded. more than a year since this issue has been promulgated. “9.Human pharmaceutical products The exception to this rule has been that have been licensed or stipulated in article 29 of the Law . Since the principles and procedures permitted to be imported by the nd relating to application of the Ministry of Health to be sold with In the 2 paragraph of the said monthly minimum amount to be prescription”. (The paragraph in article it has been stated that “the refunded have not been determined question has been amended as “9- portion of the taxes that are related by the Ministry, the on account Human pharmaceutical products with the deliveries and services refund option that has been that have been licensed or subject to reduced rates as granted by law cannot yet be used permitted to be imported by the stipulated by the Council of by taxpayers. Ministry of Health” through Ministers and cannot be deducted Decree No. 2004/8301, effective in the period these deliveries and Since the Council of Ministers 01.01.2005.) services have been performed, Decree has not yet been stipulated, exceeding the limit determined by the taxes that have been borne in The value added tax rate applying the Council of Ministers shall be relation with the deliveries and on delivery of drugs has been refunded”. services that are subject to reduced reduced from 18% to 8%, through rates in 2004, but cannot be the amendment that came into Through Law No. 5035 significant amendments that have come into eliminated through the deduction effect as of 01.03.2004, based on mechanism are continued to be the authority granted to the Council effect as of 01.01.2004 have been introduced in the article refunded on an annual basis in line of Ministers through article 28 of with the elucidations extended in the Value Added Tax Code. The most significant amendment the VAT General Communiqués Series No. (74), (76) and (85). Thus the deliveries of drugs have has been adopting the principle of become subject to the reduced rate. effecting the refund on monthly basis, rather than annual basis. - The legal basis of the refund of VAT generating Accordingly, the amounts that from deliveries of drugs exceed the monetary limit to be determined by the Council of In the Value Added Tax treatment Ministers for monthly periods the taxpayers can deduct the value should first be paid on account added tax that they have paid in against the payables of the taxpayers within the scope of taxes 1 calculated in relation with the calculated above, the whole of the - Calculation of the refundable transactions subject to reduced total shall be included in the annual amount rates shall be calculated by refund amount and if the tax taxpayers by taking into account carried forward does not exceed the - The tax to be refunded in calendar the books and documents into total in question, the tax carried year 2004 to be refunded shall be account. forward in the April tax return shall determined for the taxation periods be taken into consideration as covering 10 months between The initial calculation shall be “refundable tax” for March and March-December of the same year. made by deducting the tax that has April. been calculated from the tax that - In transactions subject to reduced has been borne in relation with the - These calculations shall be rates, those that come under the full transactions subject to reduced carried out in accordance with the or partial exemption shall be rates. elucidations mentioned above, for subject to the general principles the other months until December relating to application of these This initial calculation shall later 2004. exemptions. be compared with the “tax carried forward” that is found in the tax The difference between the taxes If the transactions subject to return for the same period. that are within the scope of the reduced rates come under the transactions subject to reduced partial exemption, and if the taxes If no tax that is carried forward is rates in December shall be added to that are within the scope of the found in the tax return, the tax that the “refundable tax” that has been transactions in question should be is within the scope of the calculated as of the end of deducted, the taxes that have been transactions subject to reduced November borne within the scope of full rates shall not be included in the exemption should be deducted, and annual refund calculation. This total shall be compared with if they cannot be deducted, they the value added tax of December would have to be asked to be If there is a tax that has been that has been carried forward and if refunded within the framework of carried forward and it exceeds the there is no tax carried forward, no the principles and procedures tax difference between the tax refund for 2004 shall be demanded. relating to application of that within the scope of reduced rates exemption. and value added tax that has been If there is a tax that has been calculated in relation with reduced carried forward exits and it exceeds Therefore, the taxes that are related rates, the whole of this tax, if it this total, then this total, otherwise with transactions that are subject to does not exceed the difference then the tax that has been carried reduced rates and are within the the tax that has been carried forward for December shall be scope of full and partial exemption forward shall be considered as taken into account as “refundable shall not be included in calculation “monthly refundable tax”. tax” for 2004. of the refund. This calculation shall be carried out - The right of refund can be used in for April 2004 as well, and if any, any of the VAT returns for the difference between the taxes January-November/2005 period. If that are within the scope of this right is not used in November, transactions subject to reduced then the right shall be permanently rates and the value added tax lost. The taxpayers who have opted calculated in relation with these not to receive refund cannot change transactions shall be calculated and their minds by submitting a this difference shall be added to the correction tax return. refundable tax for March and this total shall be compared with the tax The “refundable tax” that has been with the tax that has been carried calculated for December 2004 forward on the April tax return. should be compared with the “VAT Carried Forward” that is declared If there is no tax that has been on all tax returns that have been - The calculation of the refund carried forward, it will not be submitted until that period, amount shall start as of March included in the refund account for including the period the refund 2004. the first 2 months. option has been used in 2005. The taxes that are within the scope If there is a tax that is carried (Accordingly, if in any of the tax of the transactions subject to forward, and it exceeds the amount returns submitted from March 2005 reduced rates and the taxes that are 2 period to the period the refund is requested carried forward taxes do THE PROTOCOL not generate, the refund shall not These documents are; CONCERNING DRUG be effected. If in all periods there is PURCHASE TERMS AND a tax carried forward and their - The list of purchase and sales CONDITIONS OF THE amounts exceed the refund invoices in the related year SOCIAL SECURITY calculated as of December 2004, INSTITUTIONS FOR 2005 AND the total refund calculated shall be - The table relating to calculation TAX EVALUATION refunded. If the tax carried forward of the annual refund amount. remains below the refund amount Tuba Aydın in some periods, the amount which is the lowest point of the tax that -General Evaluation The protocol concerning the drugs has been carried forward shall be that would be provided by the refunded). pharmacies that has been The Ministry of Finance has concluded between the Ministry of The taxpayer shall be refunded the amended article 29 of the value Finance and the Turkish portion exceeding TL 9.1 billion. added tax through Law No. 5035 to Pharmacists’ Association Board of The refund thus calculated shall be be effective as of the beginning of Directors relating to the contracts deducted from the tax that has been 2004. that would be concluded between carried forward in the VAT return the institutions and pharmacies has for the period in which the refund Through the amendment in been concluded on 14.12.2004 and has been demanded. question, the regulation through has come into effect as of 10 which it has been adopted to effect February 2005. The subject of our the value added tax return for the present article is the adjustments value added tax that exceeds the introduced through the protocol in limit to be determined by the question and its tax effects. Council of Ministers, which are related with deliveries and services The Deductions to be Effected subject to reduced rates and that within the Scope of the Protocol could not be deducted within the year, at monthly periods, rather In the protocol dated 14.12.2004 than annual periods, is a the deductions for the Institution to regulation that is in favor of be made by pharmacies on the taxpayers. drugs to be sold under prescription that would be purchased by the However, the failure to apply the insured and their beneficiaries have refund treatment that has been been determined as follows: stipulated to be effected as per monthly periods due to lack of a. All generic drugs shall be subject - Refund methods certain administrative regulations to 11% producer and importer creates a significant financial deduction over the retail sales price The that has been generated in burden on the taxpayers that are (VAT included) and a further 3.5% relation with the drug deliveries in within this group. pharmacist deduction shall be 2004 exceeding NTL 9.100 can be applied over the reduced price. refunded in cash or on account In our opinion the monetary limit within the framework of the in question that has been regulated b. The original drugs shall be general principles that have been in article 29 of the Value Added treated under two different indicated in the VAT General Tax Code should be determined as categories and the deduction shall Communiqué Series No. (84). soon as possible and therefore the be applicable for the two taxpayers should be relieved of categories. their financial burdens. The request for in cash or on The First Group: Over drugs whose account refund shall be filed related drug molecule has not filled through a petition. In the its 6th year since the date it has first attachment of the petition, the received a license, a 4% producer documents that are sought by the or importer deduction shall be tax office should be attached. applied on the retail sales price (VAT included) and a further

3 pharmacist deduction of 3.5% shall favor of the Institution might be premium, year-end discount, etc.) be effected over the reduced price. wanted to be the producer/importer shall be subject to VAT, and the firms through the pharmacy payments that have arisen as a Second Group: Over drugs other warehouses. At this point result of an additional work or than those specified above, 11% hesitations have arisen on whether effort, therefore has acquired the producer or importer deduction the issue whether the discounts status of a service rendered to the shall be applied on the retail sales thus effected in favor of the head office and the seller firm has price (VAT included) and a further Institution shall be invoiced to the become entitled to an additional pharmacist deduction of 3.5% shall producer/importer firms as payment in return for the service in be effected over the reduced price. discount of price difference. question and therefore should be subjected to taxation pursuant to c. Pursuant to the “ Decree Discounts involve various article 1/1 of the Law”. Concerning Pricing of Human campaigns, incentive elements, and Pharmaceuticals” that has been marketing techniques that are Within the scope of the promulgated under the Council of applied on sellers at the sales elucidations above, the discounts Ministers Decree No. 2004/6781 stages until the drug reaches the that have not been shown on the dated 06.02.2004, the producer or final consumer or directly to the invoices and have constituted the importer deduction rate applying consumers of the drugs to increase payment for a certain effort, the on original drugs that remain below the demand to these drugs that are amounts in question should be the maximum prices that have been traded as a requirement of trade. subjected to VAT and invoiced. determined by the Ministry of The rate of the invoice to be Health shall be applied at a lesser In article 25 of the Value Added calculated over the invoice should amount, which is equal to the rate Tax Code it has been stipulated be 18%, since the discounts in the price has remained below the that in deliveries and services question are evaluated within the reference price, as of 15.06.2004. transactions, discounts shown in scope of “service”. invoices and similar documents d. Over drugs that have a VAT- made in amounts in conformity included retail sales price no higher with commercial practice shall not than NTL 3.24, 4% producer or be included in the taxable portion. importer deduction shall be applied on the retail sales price (VAT In section B/1 of the Value Added included) and a further pharmacist Tax Code General Communiqué deduction of 3.5% shall be effected Series No. 26 that has been over the reduced price. promulgated in relation with the issue it has been stipulated that “on In application of the deduction the invoices that would be issued in rates that have been elucidated relation with the delivery of the above, the producer or importer good and performance of the deduction rate that has been service, the discounts that are indicated in the “List of Drugs separately shown on the invoices in whose Prices shall be Paid” to be accordance with the commercial promulgated shall be applied on the tendencies shall not be included in retail sales price of the drugs the VAT base. In other words, the (VAT-included) which is not discount shall not be included in higher that NTL 3.24 and then the the VAT base, provided that the When article 25 of the Value deduction rate that would be transaction requiring issuance of an Added Tax Code and the reduced on the basis of a reference, invoice and the discount provisions of the VAT General if any, and a further 3.5% accordingly effected shall be Communiqué Series No. 26 are pharmacist deduction shall be explicitly written on the invoice.” taken into consideration, the applied on the calculated value. reflection of the discounts that are Meanwhile, in section 1/be of the granted to the Institution by Reflecting the Discounts to the same Communiqué it has been pharmacies to the Producer/Importer Firms stipulated that “the payments that producer/importer firms cannot be are not separately shown on evaluated as discounts granted by Within the scope of the protocol invoices and similar documents but the producer/importer firms provision that are analyzed in our are effected at year-end, at the end because, the deductions in question present article, the costs that would of a certain period or when a are clearly not the results of the be generated as a result of the certain turnover is exceeded (such additional effort of pharmacies or discounts applied by pharmacies in as sales premium, revenue pharmacy warehouses or the fact

4 that they have exceeded the pre- Within the scope of the in question, shall be subject to 8% determined turnovers. Therefore, elucidations above, the discounts value added tax. these are adjustments that have made by pharmacies in accordance Therefore, blood pressure been retroactively effected on with the provisions of the protocol measuring device should be warehouse sales prices with a dated 1.12.2004 that have been subjected to 8% value added tax, requirement of sale of the reflected to producer/importer under the Medical Equipment commodities, which have been firms by pharmacy warehouses Directive. purchased by warehouses, to final should be evaluated as price consumers over reduced prices, difference and in the price rather than a deserved discount. In difference invoices to be issued, other words, the deductions that the VAT rate applying on the have been undertaken by commodities that have been sold producer/importer firms should be shall be taken into account. evaluated as price difference, rather than discount, since they do not involve service elements and arise SAMPLE RULING from legal obligation. 1- The Ruling of the Turkish Ministry of Finance General Directorate of Revenues dated 08.02.2005 No. B.07.0.GEL.0.54/5428-1924 005895 Through the Statutory Decree No. 2002/4480 that has been promulgated based on the authority granted to the Council of Ministers through article 28 of the Value Added Tax Code No. 3065, the value added tax rates to apply on deliveries of goods and performance of services. Accordingly, the VAT rate shall be Meanwhile, in article 25 of the applied as 1% over deliveries and Value Added Tax Code where services found in the List No. I and adjustments have been introduced 8% over deliveries and services on price differences it has been found in List II attached to the stated that in cases which the Statutory Decree, 18% for taxable merchandise is returned, the transactions other than those transaction does not take place, the specified in the attached lists. transaction is not carried through or the tax base is changed for any other reason whatsoever, the Through the Statutory Decree No. taxpayer who has effected the 2004/8301 that has been taxable transaction shall amend the promulgated in the Official Gazette corresponding tax; and the dated 29.12.2004, the “Medical taxpayer who is the addressee of Equipment (the equipment defined the transactions shall correct the in the “Medical Equipment tax in the period it has generated Directive”, “Active Medical and in the manner compliant with Equipment Implants Directive” and the nature of the change. The rate “Medical Diagnostic Equipment that should be taken into account in Used Outside the Body Directive” the correction shall be the rate that that have been and are used in is applicable in the period the direct health services and delivery is made. veterinary services, as well as parts and spare parts thereof that have been included in row 13 of the B) Other goods and services section of List No. II attached to the Decree 5 CONCERNING TAX PRACTICAL INFORMATION

The upper limit for drawing up of retail sales slips or payment 480 YTL recording device voucher * The rates shown in the above table are for the investment expenditures to be realized (as of 01.01.2005) within the framework of the incentive certificates for which application has been Income Tax Withholding Applied on the progress payments paid to %5 submitted prior to 24.04.2003. The rate of discount of 40% will be applicable for all those performing multi-year construction and repair work investment expenditures to be realized without the support of investment expenditures, Income Tax levied on rental fees paid for places of business %22 disregarding the place and type of investment. Income tax withholding levied on leasing transactions within the %1 TEMPORARY TAX RATES (FOR 2005) framework of the Financial Leasing Act For Income Tax Liables %20 Income tax withholding levied on independent professional payments %22 For Corporation Tax Liables %30 Income tax withholding levied on interests paid over deposit accounts %18 (with a maximum maturity of 3 months) CHILDREN ALLOWANCE TOTALS EXEMPTED FROM INCOME TAX Income tax withholding levied on interests paid over deposit accounts % 16 (As of 01.01.2005) (with a maximum maturity of 6 months) Children Allowance exempted from Income tax for each child, 20,05 YTL Income tax withholding levied on interests paid over deposit accounts % 12 ( 0-6 ages) (with a maximum maturity of 1 year) Others 10,03 YTL Income tax withholding levied on interests paid over deposit accounts % 7 MEAL ALLOWANCE EXEMPTED FROM INCOME TAX/DAILY (with a minimum maturity of 1 year) As of 01.01.2005 (Excluding VAT) 7,50 YTL Income tax withholding levied on interests paid over foreign %24 exchange deposit accounts (with a maximum maturity of 1 year) STAMP DUTY RATES TO BE LEVIED OVER DOCUMENTS RELATING Income tax withholding levied on interests paid over foreign % 18 TO CERTAIN TRANSACTIONS (2004) exchange deposit accounts (with a minimum maturity of 1 year) On Wages 0. 6% Income tax withholding levied on interest income from government % 0 On Rent Contracts 0.15% bonds and treasury bills (in TL or issued over foreign exchange) (over the rental fee to be determined according to the contract Income tax withholding levied on repo gains % 22 period) Tender Awards 0.45% The upper limit to be sought for the furniture, fittings and fixtures to 480 YTL Balance Sheets 14 YTL be directly expense-recorded (as of 01.01.2005) Profit/Loss Statements 7 YTL The amount exempted from income tax in rental fees paid for housing 2.000 YTL Annual Income Tax Returns 18 YTL (2004) Annual Corporation tax Returns 24 YTL Default interest % 64 Income Withholding Tax Returns 12 YTL Disability allowance (year 2005, for 1st degree disabled) 480 YTL Disability allowance (year 2005, for 2nd degree disabled) 240 YTL INCOME TAX TARIFF APPLICABLE ON INCOME Disability allowance (year 2005, for 3rd degree disabled) 120 YTL (for the year 2005) Income Brackets Tax Rate (%) THE RATES OF REVALUATION APPLICABLE FOR THE LAST (3) YEARS Up to YTL 6.600 , 20 For year 2004 % 11,2 For YTL 15.000 ; for the first YTL 6.600, YTL 1.320 , for above: 25 For year 2003 % 28,5 For YTL 30.000 ; for the first YTL 15.000, YTL 3.420, for above: 30 For year 2002 % 59 For YTL 78.000 ; for the first YTL 30.000, YTL 7.920, for above: 35 Note: Taxpayers who apply special fiscal years, shall take as basis the rate For more than YTL 78.000 ; for the first YTL 78.000, YTL 24.720 , 40 corresponding to the calendar year on which the special fiscal year has begun. for above; DISCOUNT AND INTEREST RATES APPLICABLE ON THE REDISCOUNT * During the taxation of the wage income, the tax rates referred to above shall be AND ADVANCE TRANSACTIONS applied through reduction by 5 points. Applicable Against Notes With Maturity of not more than (92) days (Published in the Official Gazette dated 13.01.2005) PENALTIES OF NON-COMPLIANCE ENVISAGED FOR CERTAIN ACTS Rate of Discount Applicable on Rediscount Transactions (Annual) 32 % (year 2005) Rate of Discount Applicable on Advance Transactions 35 % Acts of Non-Compliance Penalty Total Note: Pursuant to Tax Procedures Code Series No. 238, 35 % rate will be taken as Failure to Issue and to Receive invoices, expense receipts, 10% (of the basis during the rediscount of the notes payable and notes receivable through imputed independent professional vouchers and producer’s receipts amount required discount method. to be specified in the invoice) DOMESTIC DAILY ALLOWANCES EXEMPTED FROM INCOME TAX 118 YTL Gross Salary Total to be Paid as of 01.01.2005 Daily Allowance Exempted Failure to Issue and to Receive invoices, expense receipts 23,6 YTL (YTL) from Income Tax (YTL) independent professional vouchers, producers’ receipts 866,95 and higher 27,60 (for non-tax liables) 859,73- 866,94 24 Failure to keep available or to display tax plates 118 YTL 778,60- 859,72 21,60 Failure to comply with the obligations concerning tax 140 YTL 666,45- 778,59 19,20 account number (for each transaction of non-compliance) 522,69- 666,44 16,80 Failure to comply with the obligation of notification 550 YTL 522,68 and lower 15,60 concerning tax account numbers Failure to provide the information requested by the 1180 YTL THE RATES OF DEFERMENT INTEREST AND DELAY SURCHARGES TO authorities (1st Class Merchants) BE CALCULATED PURSUANT TO LAW 6183 Failure to comply with the uniform chart of accounts and the 2700 YTL RATES OF DELAY INTEREST procedures and principles concerning financial statements Period Rate (%) 21.12.2000-30.03.2001 3 MINIMUM WAGE TOTALS (01.01.2005) 31.03.2001-01.02.2002 6 Payments / Deduction Amount 02.02.2002-11.11.2003 5 Gross Total 488,70 12.11.2003 - 03.03.2005 3 SSK Premium 68,42 As of 04.03.2005 2,5 Unemployment Insurance Premium 4,90 Income Tax Base 415,38 RATES OF DELAY SURCHARGE Income Tax 62,31 Period Rate (%) Stamp Duty 2,93 02.12.2000-28.03.2001 5 Withholdings Total 138,56 29.03.2001-30.01.2002 10 Net Total 350,14 31.01.2002-11.11.2003 7 12.11.2003-01.03.2005 4 UPPER AND LOWER LIMITS TAKEN AS BASIS IN THE CALCULATION As of 02.03.2005 3 OF THE INSURANCE PREMIUM ( year 2005) Upper Limit (As of 01.01.2005) 3.176,70 YTL RATES OF INVESTMENT ALLOWANCE (FOR 2005) Lower Limit (As of 01.01.2005) 488,70 YTL Place of Investment Rate of Investment Allowance (%) UNEMPLOYMENT INSURANCE PREMIUM TOTALS Investments in Normal Regions 40 (between 01.01.2005 – 31.12.2005) From the Worker 1% Investments in Sectors of Special Significance 100 From the Employer 2% Investments to be Realized in Regions of Priority in 100 Government Contribution 1% Development Investments to be Realized in Organized Industrial 100 SEVERANCE INDEMNITY TOTALS EXEMPTED FROM INCOME TAX Zones As of 01.07.2003 1.389.950.000 Investments Exceeding US$ 250 million 200 As of 01.07.2004 1.574.740.000 As of 01.01.2005 1648,90 YTL 6 7 İstanbul Head Office

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