VAT ON DONATIONS COLLECTED THROUGH SMS

Transcription

1 VAT ON DONATIONS COLLECTED THROUGH SMS I. GENERAL EXPLANATION There have been various fund drives organized in recent years for the following reasons: -The construction and restoration of school, dormitory and additional classrooms -Purchase of educational materials -Granting scholarships to students -Providing educational support -Help to officers fighting against terror -Provision of sending girls to schools Yılmaz SEZER* These drives are realized through texting messages from the mobiles by benefiting from the technology. This enables people to donate a special amount by texting messages from their mobile phones. In order this to be possible, there have been related contracts issued between the people or organizations and GSM companies. GSM companies intervene for the collection of donations. In the following, the situations of the donations made in the way that messages are texted through SMS by the mediation of GSM companies against VAT. Our personal views on this issue will also be stated. II. THE SITUATION OF THE DONATIONS COLLECTED THROUGH SMS BY THE MEDIATION OF GSM COMPANIES AGAINST VAT As is known, help is optional. People or organizations cannot be forced to extend help. Moreover, everybody cannot arbitrarily collect donations by organizing fund drives. Therefore, it is needed to analyse the cases in which it is natural to collect donations before getting into the issue of taxation. A. NECESSITY OF ORGANIZING FUND DRIVES WITHIN THE FRAMEWORK OF THE JUDGEMENTS OF THE FUND COLLECTION LAW Procedures and principles based on people and organisations holding the authority to collect donations and the aims for collecting donations and the ways the donations are collected, used and audited are arranged in the Law of Fund Collection numbered 2860 and in the Regulation on the Principles and Procedures of Funds 1 published with reference to the former law. The Section 3 of the latter law states that natural persons, associations, institutions, sports clubs, newspapers and magazines might collect donations in order to realize their aims regarding public benefits, to provide health for needy people and to realize one or some of public services. The Section 5 of the same law states the ways the donations are collected. It is decreed in this section that the following conditions should be satisfied in order to collect donations: - By accepting Donations through receipt forms 1 Official Gazette dated 27/12/1999 and numbered 23919

2 - By putting boxes to determined places - By opening accounts in the banks -By issuing charity stamps - By organizing raffles - By organizing cultural performances and exhibitions - By using the systems processing the related information automatically or electronically One or some of the ways of collecting funds might be used during fund collection. Moreover, it is required that the aims for collecting funds will be presented on the receipts or tickets used for fund collection. It is not possible that people and organizations collect funds without the permission of competent authority (Sec.6 of the Law numbered 2860). However, the Council of Ministers has agreed that some organizations, institutions and foundations are allowable to collect donations without any permission. It is sufficient for these organisations to inform authoritative and related agencies about their covered fund raising activities in accordance with the code of conduct identified by the Section 7 of the Law numbered Fund raising activities attempted without any permission should be prohibited by the security forces and the responsible people should be prosecuted. If any fund raising activity covers more than one district of a city, then the permission of the city governor is required. If the activity is taking place within the borders of any district, then the permission of the lieutenant colonel is required. Natural and legal persons who are going to attempt any fund raising activities are required to get permission from the governor of the settlement in which the legal and natural persons live. Moreover, the related governorships and the Interior Ministry should be informed by the governorship whose permission was taken. The transactions concerning the fund raising activities should be conducted by the club units. Prior to collecting donations, the people and organizations are required to inform the agency holding the permission power about their demands through a brief (Law numbered 2860, Sec. 8). Upon the application made by the agencies holding the permission power, the following issues will be analysed: -the importance of the work -capabilities of those attempting the fund raising activities -the appropriateness of the mentioned service for the aim and public service -whether the fund raising activity will be successful -other issues considered to be important After a detailed consideration, the results will be announced to applicants in no later than 2 months. Judgment concerning the duration of the fund raising activity belongs to the agency giving the permission. This duration cannot exceed 1 year. However, in the cases where reasonable causes are

3 at stake, the provided duration might be extended by the agency giving the permission provided that the duration will not extend 1 year (Law numbered 2860, Sec 9 & 10). B. THE SITUATIONS OF THE DONATIONS MADE AGAINST THE VAT As is mentioned above, those organising the fund raising activity primarily make an agreement with the GSM companies. Then, they announce this activity by determining a number to text messages and an amount of donation per each text. This enables those who like to make donations to text messages to this number and to donate the determined and announced amount (e.g. 5 TL or 10 TL per text). GSM companies issue monthly invoices to their members making donations via SMS. Moreover, GSM companies cash the amount donated by presenting it on the invoice separately. The amount is immediately transferred to people or organisations collecting the donations. In the practice, some concerns regarding the following issues are at stake: -whether the VAT can be calculated at the amount of donations made through SMS and which are cashed by GSM companies by being presented on the invoice -whether the amounts can be cashed from those involved in the campaign It is decreed in the Section 1/1 of the VAT Act numbered 3065 that the commercial, industrial and agricultural and self-employment activities covering deliveries and services made in Turkey are subject to VAT. It is decreed on the Section 1/3-a of the same law that telephone, mail, telegraph services and similar services and the services of radio and television are subject to VAT. It is stated in the Section 20 that the taxable income refers to the amount constituting the returns for deliveries and services. Concerning the mentioned amount, the same law states that it refers to the total of benefits, services and values represented by money in the following ways: -money taken from those to whom the deliveries or services are made -money owed to service or delivery providers -other benefits, services and values which any given product or condition constitutes It is decreed in the Section 24/c of the same Law that all types of benefits, values and services provided under the names of the revenues like term difference, price difference, interest, premium and services and similar names will be included in the taxable income. Regarding these, monetary donations will not principally be covered by the VAT. Therefore, the monetary donations made by the natural or legal persons will not be subject to VAT. Donations in kind will depend on the situations of those who make donations and those to whom the donations are made. Going back to our topic, the monetary donations that people make through SMS by participating in fund raising campaigns are not subject to VAT. The donated amount is cashed from people by being separately presented on the invoice by GSM companies and this leads to some further concerns. The donated amounts the GSM companies cashed from its members involved in the campaigns for mediation purposes are not the components or returns of the GSM companies own delivery and service operations. Therefore, the mentioned amounts are not principally subject

4 to VAT. This requires the GSM companies to separately present the amount of donations on the invoices they issue. The related VAT should not be calculated at this mentioned amount. Further, the transactions based on the transfer of amounts of donations from GSM companies to people and organizations who organized the fund raising campaigns will not be subject to VAT. Further, the mentioned amounts will be subject to VAT according to Section 1/1 of the VAT Law in cases where the GSM companies take an amount in exchange for mediation service from those who organized the campaigns or from those who involved in the campaigns. The practices concerning the post-paid lines are in the ways explained in the above. The following explains some application challenges concerning the prepaid-lines encountered: The amount to be donated for prepaid lines is determined as prepaid minutes. The talks made through these lines are made with the help of prepaid cards. These cards are taxed as special tax bases in terms of the VAT. This means that the VAT concerning the prepaid card sales made by the retailers is returned by the organizations making sales to retailers in the ways that the mentioned organizations additionally include the VAT hitting the retailer profit. The consumers make immediate payments for the prices of telephone talking and texting made through prepaid cards prior to benefiting from the services of their prepaid cards. Therefore, it is not possible to prevent the VAT from the messages sent to fund raising campaigns by using these cards. The Ministry of Finance approves that the minute price determined for donations will be charged to people and organizations arranging the fund raising campaigns by including the VAT in cases where the texts messages are sent to the campaigns through prepaid cards. It is also approved that the VAT hitting this amount will be prevented from taxation in the ways that it is calculated by applying the method of internal percentage rate and the GSM companies make it deductible. The following is the full text of the tax ruling with the same topic but different date, stated by the mentioned Ministry 2 : In your brief, the view of our Presidency is asked concerning the following issues: whether the donation revenues to be collected thanks to the text messages sent to GSM operators through SMS messages for the purposes of fund raising campaigns organized in your city for upgrade of educational level, construction and restoration of dormitories and additional classrooms and purchase of materials will be included in the bases of the Value Added Tax (VAT) and the Private Communication Tax (PCT). The following judgements are stated in the VAT Law numbered 3065: - Section 1/1 states that commercial, industrial and agricultural and self-employment activities covering deliveries and services made in Turkey are subject to VAT. Section 1/3 states that telephone, mail, telegraph services and similar services and the services of radio and television are subject to VAT. - Section 20 states that that the taxable income refers to the amount constituting the returns for deliveries and services. Concerning the mentioned amount, the same law states that it refers to the total of benefits, services and values represented by money in the following ways: money taken from those to whom the deliveries or services are made 2 Tax rulings dated 10/06/2009 and numbered 54/ , dated 27/02/2009 and numbered 56/ /22729, dated 25/10/2007 and numbered 56/ /94836

5 money owed to service or delivery providers other benefits, services and values which any given product or condition constitutes - The Section 24/e states that all types of benefits, values and services provided under the names of the revenues like term difference, price difference, interest, premium and services and similar names will be included in the taxable income. On the other hand, Section 39 of the Expense Taxes Law numbered 6802 decrees that communication services provided by the mobile phone company managers will be subject to PCT at 25 %. It is also decreed that the base of this tax will be consisted of the components consisting the base of VAT. If there are no related judgements stated in this law, the judgements in the VAT Law numbered 3065 will be applied. With regard to these, 1) The amounts of donations cashed by GSM operators from its members and to be transferred to mentioned campaign have not been regarded as the returns for any deliveries or services. Therefore, these amounts will not be included in the bases of VAT and PCT provided that these amounts will be separately presented on the invoices issued by the GSM operators. 2) It is natural that VAT and PCT will be calculated at amounts to be taken by GSM operators in exchange for SMS messages sent according to the campaign. 3) It is possible that GSM operators make the VAT and PCT hitting the donations made through prepaid cards subject to deduction by using the method of internal percentage rate. III. CONCLUSION As is noticed from the explanations above, the donated amounts the GSM companies cashed from its members involved in the campaigns for mediation purposes are not the components or returns of the GSM companies own delivery and service operations. Therefore, the mentioned amounts are not subject to VAT. This requires the GSM companies to separately present the amount of donations on the invoices they issue. The related VAT should not be calculated at this mentioned amount. Additionally, the transactions based on the transfer of amounts of donations from GSM companies to people and organizations who organized the fund raising campaigns will not be subject to VAT. Further, the mentioned amounts will be subject to VAT according to Section 1/1 of the VAT Law in cases where the GSM companies take an amount in exchange for mediation service from those who organized the campaigns or from those who involved in the campaigns. *Sworn-in CPA Explanations of the Abbreviations: VAT: Value Added Tax

6 PCT: Private Communication Tax