BOT及PPP模式下土耳其增值税税收中性问题的研究

In Search of VAT Neutrality for BOTs and PPPs in Turkey 

Turkey attracts significant flows offunds from abroad and imports large quantities of (investment) goods and services from suppliers established in the European Union, inter alia, in the framework of build-operate-transfer (BOT) and public-private-partnership (PPP)structures. The legislature attempts to neutralize the VAT burden on those projects by means of specific, ad hoc measures. In this article, the author examines to what extent the concessions for investment projects under BOT and PPP structures actually achieve the desired neutrality of VAT.

1.Introduction

Since Turkey’s accession to the European Union still seems to be unpredictable, adoption in Turkey of the “harmonized” VAT system of the European Union, which is based on the VAT Directive, is not expedient at this moment. However, the commercial links between Turkey and the European Union are developing rapidly: Turkey attracts significant flows of funds from abroad and imports large quantities of (investment) goods and services from suppliers established in the European Union, inter alia, in the framework of build-operate-transfer(BOT) and public-private-partnership (PPP) structures. The legislature attempts to neutralize the VAT burden on those projects by means of specific, ad hoc measures.

A build-operate-transfer (BOT) scheme is a form of project financing,under which a private entity (“contractor”) receives a concession from the government to finance, design, construct and operate the facility described in the concession contract. The BOT scheme enables the contractor to recover his investment, and operating and maintenance expenses in the project by exploiting the infrastructural facility until the end of the concession period.

The term public-private partnership (PPP)refers to a project that is funded and operated through a partnership between the government and one or more private sector companies (“private partner(s)”).PPPs involve a contract between a public sector authority (public partner) and a private partner, under which the private partner provides a public service or project and assumes substantial financial, technical and operational risks in the project. In private finance projects, the capital investment is made by the private partner on the strength of a contract with the government to provide the agreed services, and the cost of providing the services is borne, in full or in part, by the government.

The government may also contribute to the partnership in kind (in the form of contributing existing assets). In projects that are aimed at creating public goods (infrastructural facilities), the government may provide a one-off subsidy in order to make the project more attractive to the private partner(s). In other cases, the government may support the project by granting revenue subsidies or tax concessions, or by guaranteeing the private partner minimum annual revenues for a fixed period.

In Turkey, the government currently offers a unique PPP model for developing and operating integrated health care facilities: the Ministry of Health contributes, directly or through another governmental entity, in kind to the partnership by granting it the right to use, free of charge and for a period of 49 years, land for developing the agreed facilities. Subsequently, the private partner (contractor) constructs the facilities on the land and operates them for a maximum period of 49 years – in return for lease payments to be made by the Ministry of Health, i.e. the private party leases the facilities to the public partner.

The value of integrated health care facilities provided on the basis of PPPs, and of infrastructural projects based on BOTs is envisaged to exceed USD 50 billion in Turkey in the next five years.

This article examines to what extent the concessions for investment projects under BOT and PPP structures actually achieve the desired neutrality of VAT.

2. Neutrality of VAT

The Turkish VAT Law is based on the general principles of standard VAT systems, i.e. businesses have to account for VAT on their supplies made to third parties and, if hose supplies are subject to VAT, businesses are entitled to deduct related input VAT. Just like under the EU VAT system, the VAT Law does not allow for deduction of VAT where there is a direct and immediate link between specific inputs and exempt transactions, i.e. where inputs and exempt outputs are causally connected and it is likely that the costs of the inputs are incorporated into the prices of the exempt output transactions.

In this context, it should be noted that the fact that the VAT Law contains a list of transactions that are exempt from VAT does not answer the question of whether the supplies made by contractors operating under a BOT scheme, and by private partners in a PPP, are subject to, or exempt from, VAT. The VAT exemptions laid down by the VAT Law are generally limited to supplies made by public institutions, non-profit organizations and other designated bodies acting in the public interest.

The VAT position of private partners and contractors depends on whether or not income they derive from their supplies made in the framework of the BOT or PPP structure is subject to corporate income tax (CIT). In principle, income derived by resident businesses from all transactions is subject to CIT, unless the CIT Law explicitly provides for exemption. Since the CIT Law does not contain an exemption for income received by resident private partners and contractors derived from a PPP or BOT structure, their supplies are subject to CIT and VAT, and the resident private partners and contractors are entitled to deduct input VAT from the start of the investment phase of the project. In particular, in the case of PPP projects under Law 3359, the private partner is entitled to deduct input VAT from the VAT due on the lease of the facilities to the Ministry of Health. In this context, it should be noted that, although they form a partnership, the public partner and the private partner are treated as separate entities for VAT purposes, which means that any supplies made by the private party to the public partner are subject to VAT.

The fact that private partners and contractors are entitled to deduct input VAT does, however, not mean that there are no tax neutrality issues in the framework of BOT and PPP projects because, where, for the tax period, the amount of deductible input VAT exceeds the amount of output VAT due, the tax authorities only refund the excess input VAT to businesses that qualify as“regular exporters of goods”. Other businesses, including private partners and contractors, have no option but to carry forward the excess input VAT, which will,in particular, arise during the investment phase, to subsequent tax period(s) for deduction at a later stage. The limited possibilities for businesses to immediately recover the input tax on new investments hamper those investments, including investments in projects carried out under BOT and PPP structures, and various arrangements are aimed at restoring the neutrality of the tax.

3.VAT Regulation 118

VAT Regulation118 is aimed at providing VAT neutrality in respect of BOT and PPP projects via two steps: firstly, supplies of goods (materials) and services made by resident suppliers to the resident contractors or private partners (“who have been awarded a BOT or PPP tender”) are not subject to VAT. Secondly, those resident suppliers are entitled to claim a refund of the excess input VAT which, due to the fact that their output transactions (supplies to the local private partners and contractors) are VAT free, they were not able to deduct. Therefore, the concession takes the form of zero rating the supplies.

The fact that VAT Regulation 118 defines the scope of the VAT concession (“exemption”) in terms of parties that have been “awarded a PPP or BOT tender” is irrelevant for determining the VAT position of the private partners and contractors engaged in those projects, because VAT Regulation 118 is limited to VAT.

The zero rate under VAT Regulation 118 is limited to domestic supplies of goods and services made by resident suppliers to resident contractors and private partners during the investment phase of BOT and PPP projects, i.e. until the respective facilities become operational. Consequently, the concession does not neutralize the VAT burden on:

– the importation of materials and services during the investment phase or during the operational phase of the project;

– supplies of goods and services during the operational phase, i.e. after completion of the investment phase; and

– interest on loans granted by non-resident lenders during the investment or operational phase.

4.Other Measures

Turkey has signed treaties on the prevention of double taxation, based on the OECD Model,with most EU Member States and other important jurisdictions, such as Brazil, Russia, India and China (“BRIC”), Saudi Arabia, Singapore, Switzerland, the United Arab Emirates, the United States, etc. However, those treaties do not cover VAT and, even if they did cover VAT, double taxation rarely arises. Consequently, the government must ensure the neutrality of the VAT system with other measures.

4.1.Import exemption

The importation of goods is generally subject to VAT and the customs authorities collect import VAT, together with customs duties and other import levies, at the time they release the imported goods for entry into free circulation (at the time of customs clearance). However, investment goods imported by businesses operating in designated industries and located in designated areas are eligible for exemption from import VAT, if the related investment project exceeds a specific threshold. The concession, which also applies to related services, even if the services are supplied by a party other than the supplier of the investment goods, is available up to the point of completion of the investment project(completion of construction or installation), i.e. up to the point where the project is taken into operation. The import exemption only applies where the importer holds an investment certificate issued by the Undersecretary of the Treasury.

The temporary import exemption has been introduced under the most recent “incentive regime”,which came into effect in 2009, and it is expected to continue under the new incentive regime, to be promulgated in June 2012. However, it is likely that not all types of investments to be tendered by the state under a PPP or BOT structure will qualify for the incentive, including the VAT exemption.

4.2.Supplies during the operational phase

Neither VAT Regulation 118 nor the legal incentive regime provides for VAT relief for materials and services purchased after the investment project has been completed and has been taken into operation. Under those circumstances, the general VAT deduction mechanism is the only mechanism that can ensure the neutrality of the VAT system.

4.3.Interest on cross-border financing

The tax authorities generally classify interest on loans granted by non-resident lenders to resident borrowers as consideration for a financial service and, since imported financial services are not exempt from VAT, the borrower must account for VAT in Turkey (at the standard rate of 18%) under the reverse charge mechanism on the interest he must pay to the non-resident lender. However, where the non-resident lender has the status of a “qualified non-resident lender”, the granting of the loan is outside the scope of VAT and also outside the scope of the banking and insurance transactions tax.

Qualified non-resident lenders are financial institutions that are licensed in the jurisdiction of establishment to grant loans – as their main line of business –to non-related borrowers. In order to acquire the status of qualified non-resident lender, the lender must not merely act in the capacity of a fiduciary agent; it must grant the loans from its own resources.

5.Conclusion

VAT is designed as a consumption tax, which means that only final consumers should bear the burden of the tax and that VAT should not be a burden on businesses – producers, distributors, etc. – operating in the processes of production and distribution of goods and services. Consequently, all businesses in the commercial chain, including retailers, should be able to recover the VAT incurred on their inputs in full and immediately. The fact that the tax authorities in Turkey only refund excess input VAT to exporters of goods has made it necessary for the government to neutralize the VAT burden on business investments. The government does so by means of granting specific exemptions, and by means of treating domestic suppliers of investment goods and related services to contractors in BOT projects and private partners in PPP structures in the health care sector on the same footing with exporters of goods, as regards the refunding of excess input VAT. The measures generally have the effect of ensuring VAT neutrality for BOT and PPP projects.

注：原文刊登于荷兰国际财政文献局（IBFD）《国际增值税观察》2012年7/8月期

【译税】是由一群热爱公益的财税学子发起、运营和维护的非营利项目，致力于学习和交流各类国际税收资讯。