THE INCOME TAX GENERAL COMMUNIQUÉ SERIES NO. 257

Temporary Article 67, which was added to the Incomer Tax Law through Article 30 of the law numbered 5281, contains provisions relating to the taxation of the gains derived from the alienation and the retention of the marketable securities and other capital market instruments, and the taxation of the deposit interests, repo gains and the income that is derived from the private finance institutions. The explanations relating to the concerned regulations constitute the subject matter of this Communiqué.1. Legal Regulation The regulations provided in Temporary Article 67, relating to the gains derived from the alienation and the retention of the marketable securities and the other capital market instruments, to gain effectiveness during the period between 01/01/2006 _ 31/12/2015, are as follows:TEMPORARY ARTICLE 67 _ 1) The Banks and the intermediary institutions shall apply withholding tax at a rate of 15% on the types of income mentioned below, at quarterly periods:a) The difference between the purchase price and the sales price of the marketable securities and other capital market instruments, to purchase and sale of those they have acted as intermediaries;b) The difference between the purchase price and the redemption value of the marketable securities and other capital market instruments, to purchase of those they have acted as intermediaries, in case that the underlying securities are redeemed;c) The periodical returns on the marketable securities and other capital market instruments, to which they act as intermediaries to their collection (that are not contingent on any marketable security or any other capital market instrument).d) Gains derived from loan transactions of marketable security and other capital market instruments which they act as intermediary.In case of the partial alienation of the same type of marketable securities or other market instruments which are purchased at different dates, the purchase price to be taken as basis of the assessment of the withholding tax is determined through the application of the first-in-first-out method. In the event that any security or other capital market instrument is alienated prior to its purchase, the first purchase transaction subsequent to the date of alienation is taken as basis in the determination of the amount to be considered as the withholding tax base.At transactions in the same day, weighted average method may be used. The brokerage commissions that are paid on account of the purchase and sale transactions, and the Banking and Insurance Transaction Tax (BITT) are taken into consideration during the determination of the withholding tax base. In cases when more than one purchase and sale transaction is made for the same type of marketable security or other type of capital market instrument within the same quarterly period, for purposes of the application of withholding, all these transactions are taken into consideration as a single transaction. The losses arising from the purchase and sale of the same type of marketable security or other types of capital market instrument are allowed for deducting against the withholding tax base of the subsequent periods, conditional not exceed one year. For the determination of the withholding tax base, the equivalent value of the purchase and sale price of the marketable securities or other types of capital market instruments indexed to foreign currency, gold or any other asset in New Turkish Lira (YTL) as of the date of the transaction is taken as basis. Meanwhile, in cases when the underlying marketable security or other capital market instrument is issued in a foreign currency, the foreign exchange differences are not taken into consideration during the determination of the withholding tax base. In case that the owner of the marketable security or other type of capital market instrument transfers the concerned assets to another bank or intermediary institution, the bank or the intermediary institution to which such transfer is made, will be informed about the purchase price and the date of purchase of the mentioned security or instrument. In the event that the transfer transaction is made to the name of another person or institution, in addition to the notification of the concerned bank or institution on the purchase price and the date of purchase, the Ministry of Finance will also be informed about the transaction. Such notification procedures are also applied in case of the transfer transaction to the name of another person or institution is realized within the structure of the same bank or intermediary institution, or in case the underlying asset is taken over physically by its owner. In cases when the marketable security and other type of capital market instrument is physically delivered to a bank or an intermediary institution, provided that it is authenticated, the declaration submitted by the owner of the asset is taken as basis for the purchase price and the Ministry of Finance is notified on the concerned transaction. The provisions of this sub-paragraph shall not be applied to the return of the participation certificates of the investment funds established according to the Capital Market Law (excluding the stock exchange investment funds) to the concerned mutual funds, the purchase and sale of the stocks of the investment trust, the collection of the returns that have been derived during the purchase and sale and the redemption of the marketable securities issued abroad by the Treasury, and the collection of their periodical return, to the alienation of the shares belonging to full liable corporations and held for a period of more than one year and operated in İstanbul Stock Exchange; and to the collection of the stock dividends on behalf of the owners of the stocks. For incomes derived from alienation of shares held for more than one year and belonging to full corporations and operated in İstanbul stock Exchange, provisions of Repeated Article 80 of Income Tax Code shall not be applied. The withholding tax amounts levied within the scope of this paragraph shall not be included in the withholding tax returns. The banks and intermediary institutions shall declare the taxes that they have withheld, through a tax return, of which form and content shall be determined and announced by the Ministry of Finance, to the concerned tax office until the closing of the twentieth day of the month subsequent to the withholding period, and shall pay the withholding tax incurred until the closing of the twenty sixth day. In the scope of present or transmitted information and documents of banks and intermediary institutions are held responsible with respect to assessment. Necessary assessment is done on behalf of person who gives tax return for understated part because of wrong or lacking information.2) A withholding at a rate of 15% is applied on the income from movable property referred to in the 5 th sub-paragraph of 2 nd paragraph of the Article 75 of this Law (excluding those derived from the marketable securities issued abroad by the Treasury), by those who have made the payment, except the ones paid to the banks and intermediary institutions, or by the mediation of them to the other real persons or legal entities. Withholding is applied to the payment of income from the marketable securities that are delivered without authenticating their purchase price to the banks and the intermediary institutions, even if the payment in question is made through the bank or the intermediary institution. In case that the marketable security is purchased through a bank or an intermediary institution, by the calculation of the withholding total, the difference between the redemption value and the purchase price is taken as basis. A further withholding shall not be applied again on such income pursuant to Article 94 or Article 24 of the Corporation Tax Law.3) In cases when the banks and intermediary institutions purchase a marketable security or another capital market instrument (other than the stocks and the type of marketable securities and other capital market instruments referred to in sub-paragraph six of paragraph (1)) without the application of withholding as defined in paragraph (1), they shall apply a withholding tax at a rate of 15 % on behalf of the party who has sold them the underlying security or capital market instrument, on the difference between the purchase price and the sales price. In the event that the marketable security or capital market instrument has not been previously purchased from a bank or an intermediary institution, during the calculation of the withholding, the issuance price is taken as basis instead of the purchase price. The taxes that have been withheld are declared and paid through inclusion into the tax return to be filed pursuant to paragraph (1). 4)Except interbank deposits and interests reckoned up on intermediary institutions valued money in exchange money market, A withholding tax at a rate of 15 % is applied on the income from movable property referred to in sub-paragraphs (7), (12), and (14) of the 2 nd paragraph of the Article 75, by those who have made the payment.Withholding amount in the scope of this paragraph declared and paid in mentioned periods in 98th and 119th Articles. A further withholding shall not be applied again on such income pursuant to Article 94 or Article 24 of the Corporation Tax Law. 5) The fact that whether the income earner is a real person or a legal entity; whether it is a full liable or a limited taxpayer, whether or not it has a tax liability; whether or not it is exempt from tax; or whether or not the derived income is exempted from tax, does not effect the withholding to be applied pursuant to the provisions in paragraphs (1), (2), (3) and (4). However; the income derived from the stock exchange investment funds or the retirement investment funds established pursuant to the Capital Market Law, are not subject to withholding tax pursuant to paragraphs (1) and (4). 6) The Council of Ministers is authorized to increase withholding tax rates set forth in paragraphs (1), (2), (3) and (4) applicable on income derived from the marketable securities issued on foreign currency and on the interest income derived from the accounts set up in foreign exchange, by five points or decrease back to its legal rate.7) For the gains subject to withholding tax pursuant to the provisions in paragraphs (1), (2), (3) or (4), annual or special tax returns, shall not be filed by real persons. These gains shall not be included in the annual tax returns to be filed on account of other taxable gains. The gains derived within the scope of business activities, are taken into consideration on the determination of the taxable profit within the scope of the provisions regulating business profits, and the taxes that are paid as withholding tax, are deducted against the taxes that are assessed on the tax returns through which the profits subject to withholding are declared, pursuant to the provisions regulating the taxes levied through withholding in Article 94. However, the part of the tax paid through withholding pursuant to paragraphs (2) and (3), that exceeds the amount to be determined through the multiplication of the gain that is derived from the transaction, with the applicable rate of withholding, shall not be deducted against the tax assessed in the annual tax return. 8) The portfolio gains exempted from Corporation Tax derived by the investment funds and investment trusts established in accordance with the Capital Market Law (other than the stock exchange investment funds), are whether or not they are distributed subject to withholding tax at a rate of 15 %. A further withholding shall not be applied again on such income pursuant to Article 94. Annual tax returns should not be filed for the gains that are derived from the return of the participation certificates of the investment funds and investment trusts to the concerned fund, and for the gains derived from the purchase and sale of the stocks. In case that tax returns are filed for the other taxable gains, these gains are not included in the tax return. Gains of this type included in the business enterprises, are excluded from the scope of this paragraph. 9) The provisions of this Article shall not apply to the taxation of interest income derived from all types of bonds and Treasury Bills issued prior to the date of enforcement of this Article, and the gains derived from the retention or alienation of the marketable securities issued by the Mass Housing Administration and the Privatization Administration. For the taxation of these gains, the provisions that are in force as of 31.12.2005, shall apply. 10) The provisions of this Article shall not apply on the gains that are derived from the alienation or the retention of the marketable securities or other capital market instruments that have been acquired prior to the date of enforcement of this article. For the taxation of these gains, the provisions that are in force as of 31.12.2005, shall apply. 11) For gains derived from alienation of marketable securities and other capital market instruments which are mentioned to be withheld in the scope of this article and not to be filed by annual or special tax return including non-resident tax payer annual tax return may be filed as of one calendar year. For same types of marketable securities, all losses formed in year may be deducted from declared income. Tax at a rate of %15 is calculated out of declared income. Withheld tax within the year is deducted from calculated tax amount which can't be deducted is rejected and returned according to general provisions. In so far, undeducted lossess can't be transferred to following calendar years.12) The term "bank" mentioned in this Article refers to Turkish Republic Central Bank and the banks operating in Turkey pursuant to the Turkish Banking Law numbered 4389, dated 18.06.1999; and the term "intermediary institutions" refers to the intermediary institutions operating in Turkey, pursuant to the Capital Market Law No. 2499, dated 28.07.1981. 13) Unless otherwise specified, the term "marketable securities and other capital market instruments" mentioned in this Article, refers to the marketable securities that were issued in Turkey and that have been listed by the Capital Market Board and/or that are traded on the stock exchanges and the exchanges for futures and options in Turkey and other capital market instruments; and all other types of marketable securities and capital market instruments that will be issued by the Treasury or by the other public entities, even if they have not been listed, or even if they are not traded on the stock exchanges and the exchanges for futures and options in Turkey. For purposes of this Article, futures and option contracts to which banks and intermediary institutions act as parties, or that are executed through the brokerage of banks or intermediary institutions; and that grant the right and/or obligation to purchase, sell, exchange money or capital market instrument, commodity, precious metal and foreign currency, within a specific term, and at predetermined prices, quantities and qualities, including those contracts that are drawn up on the basis of an economic or financial indicator, are considered as other capital market instruments. 14) Regarding the gains to be derived in 2006 through the transactions performed in the futures and options exchanges established in Turkey, the withholding rate specified in paragraph (1) should be applicable as nil (0). With respect to gains derived from futures and options contracts among full-liable and limited-liable corporations (except those which don't operate through workplace and permanent representative in Turkey), provision of this Article shall not be applied. In so far, for banks and similar financial institutions, operation through workplace and permanent representative in Turkey is not compulsory.15) The provisions in force as of 31.12.2005 shall apply to the taxation of the gains derived from the alienation of the marketable securities that are not included within the scope of this article, and that have been acquired prior to 01.01.2006. 16) These status of non resident investment funds which is considered as "established investment fund according to Capital Market Law" in 2nd paragrap of 2nd Article of Corporation tax Law before abolishing with 5281 numbered law at a date of 31.12.2005 continue;a) until redemption of entire marketable securities ( except shares) which is limited to those issued before the date of 31.12.2005.b) until these marketable securities first releasing date from the date of 31.12.2005 for shares existing in portfolio in this date17) Ministry of Finance is authorized in the formulation of the procedures and principles relating to the implementation of the provisions of this Article and to hold responsible of sides and intermediaries of transactions, which is subject to taxation. 18) The provisions of this Article shall be applied until 31.12.2015. 2. The withholding tax applicable on the gains to be derived from the alienation or retention of the marketable securities and the other capital market instruments. Through the 1 st paragraph of the Temporary Article 67 of the Income Tax Law, banks and the intermediary institutions have been liable to apply withholding tax on;- The difference between the purchase price and the sales price of the marketable securities and other capital market instruments, of those purchase and sale they have acted as intermediaries;- The difference between the purchase price and the redemption value of the marketable securities and other capital market instruments, of those purchase and sale they have acted as intermediaries;- The periodical returns on the marketable securities and other capital market instruments, of those collection they act as intermediaries (that are not contingent on any marketable security or any other capital market instrument)- Amount remains in favour of loaner on loan transactions of marketable securities and other capital market instruments in which they act as an intermediary.2.1 Parties Responsible for the Application of Withholding TaxThe withholding tax, which is regulated in the 1 st paragraph of the Temporary Article 67 of the Income Tax Law, shall be applied by Turkish Republic Central Bank and the banks operating in Turkey within the scope of the Turkish Banking Law No. 4389, and by the intermediary institutions operating in Turkey within the scope of the Capital Market Law No. 2499.Every institution's responsibility is limited with coming information-document in withholding related to marketable securities and other capital market instruments by banks and intermediary institutions. In this case, lossed tax caused by incomplete, wrong or misleading information shall be assessed on behalf of person or institutions which make notification as penalized.The establishments and institutions other than those above referred to, do not have the liability to apply withholding according to the 1 st paragraph of the Temporary Article 67. The withholding to be applied by the banks or the intermediary institutions, are relevant to the gains to which the concerned banks and institutions act as intermediaries. Accordingly, the gains derived by such entities from the marketable securities or other capital market instruments in their own portfolios, shall not be included within the scope of the withholding tax. For example, the interest income derived from the Government bonds purchased by a bank for its own portfolio through an auction offered by the Treasury during the period between the date of purchase of the Government Bond, until the date of its redemption, is not subject to withholding. Moreover, if the concerned instrument is sold to a real person or a legal entity prior to the date of its redemption, the gain to be derived by the bank shall not be included within the scope of the withholding tax. Similarly, in the event that a bank sells a security in its own portfolio to another bank, the gain to be derived by the bank shall not be subject to withholding tax. On the other hand, if the bank purchases a marketable security through the brokerage of another bank/intermediary institution; obviously, the gains to be derived through the concerned security shall be subject to withholding tax to be applied by the responsible parties. Example:Bank (X) has purchased a Treasury Bill with issue date 06.03.2007, at a purchase price of YTL 3,000,000, and has retained the concerned Treasury Bill until the date of its redemption on 04.03.2008, generating an interest gain of YTL 350,0000. Since the interest payment was made to Bank (X) by the Treasury, who is the issuer of the security, no withholding tax shall be applied by the Treasury. Meanwhile, in the event that Bank (X) sells the Treasury Bill issued on 06.03.2007, before the redemption date, that it has acquired at a purchase price of YTL 3,000,000, to Mr. (A) on 07.06.2007, at a sales price of YTL 3,115,000, the gain to be derived by Bank (X) from this sales transaction, amounting to (3,115,000 _ 3,000,000 =) YTL 115,000, shall not be subject to withholding tax pursuant to Temporary Article 67.However, assuming that Mr. (A) has resold the concerned Treasury Bill to Bank (X) on 08.10.2007, at a price of YTL 3,275,000; in such a case, Bank (X) shall apply a withholding tax at a rate of 15 % on the capital gain to be generated from this transaction amounting to (3,275,000 _ 3,115,000 =) YTL 160,000. 2.1.1. Withholding Responsibility of Custody InstitutionsPersons or institutions which make investment to marketable securities and other capital market instruments can receive custody service related to bought security from custody institutions which serve custody except Clearing Bank _ Central Registry Agency. These institutions manage to registrate their clients' marketable securities movement, to execute transactions related to pursuit and collection of periodical returns and information of cost and sale in frame of authority which is taken from clients and on behalf of them. Intermediary institutions which realize any one transactions of marketable securities transfer bought securities to custody institutions, mentioned by client, accarding to directions of their clients and remaining amount of account related to this transaction is closed especially in transactions in which custody institutions which is used by overseas resident investors become part. When client want to sell their securities, he/she gives direction to any intermediary institution and when transaction of sale is realized, sold securities are transferred to seller intermediary institutions by custody institutions under the direction of client.In the frame of authority which is given to our ministry by 17th paragraph of Temporary Article 67, with respect to investors who receive custody service from custody institutions except Clearing Bank _ Central Registry Agency, it is found relevant to apply withholding by custody institutions in which activities of investors present at, because some over the counter are realized in view of custody institutions without coming under the cognizance of intermediary institutions and marketable securities of clients related to information of cost and price may be followed by custody institutions easily in transactions at which custody institutions are part.2.1.1.1. Method to be FollowedWithholding responsibility of investors who take custody service from custody institutions except Clearing Bank- Central Registry Agency related to income derived from marketable securities and other capital market instruments shall be fulfilled by custody service renderer institutions under the form of procedures and principles of this Communique. So, withholding tax shall be applied by custodyservice renderere institutions shall be realized under the frame of following explanations.Intermediary institution which realize transaction of purchase or sale shall notify information on date, purchase cost or sale price related to marketable securities to client mentioned custody institution as detailed on the day of transaction's realization.Custody institutions shall registrate incoming information for every client as transaction date, cost and sale price information to follow when a purchase or sale information income on account of clients who receive custody service. When information related to second transaction which leads to completion of purchase-sale transaction is notified to custody institution, withholding shall be applied on assessed gains by using first in first out method or information of weighted average in daily transactions.Responsibilities of custody server institutions related to withholding tax shall be limited to information and document which come to them.2.1.1.2. Transfer to other Custody InstitutionWhen marketable securities or other capital market instruments which is existed in view of custody institutions are transferred to other custody institutions, a transaction shall be made under principles which is existed in 2.4.1.13 numbered part of Communique and headed section as "Declaration of Date and Cost in Transfer Transactions".2.1.1.3. Gains Which Is Mediated In Collectionwithholding shall be applied on gains which is mediated by custody institutions in collection under the frame of principles existed in this Communique.On the other hand, in bonds and bills concerning payment of redemption and/or coupon, while redemption gains related to those marketable securities are paying to custody institution which have in view physically or accountably, withholding shall not be applied by payers.Furthermore, in case that, there are no other intermediary instrument in payment of coupon and redemption of bonds and bills which is in view of Clearing Bank, it is found relevant to be applied by Clearing Bank by taking base of information of purchase cost of withholding in payments of coupon and redemption related to mentioned marketable securities an the scope of authority of our ministry which is given by 17th paragraph of Temporary Article 67.2.1.1.4. Withholding In Over The Counter As transferring property of marketable securities and other capital market instruments which exist in view of custody institutions by direction of clients, transactions of transferring juridical and economical disposition right to other client's account in view of an other custody institutions are considered as purchase-sale transactions without looking whether they are registered in organized markets.In transfer transactions done with a total cost the amount, which will arise through dividing of total cost to items of transferred marketable security will be accepted as transaction price; in free transfers the price which the client notified in written will be accepted as transaction price. At the same time , this price which the client notified will be accepted as the purchase cost of stated marketable security for the buyer. In transactions, which client don't notify a price, custody institutions shall asess tax base of withholding according to weighted average prices which is taxed in first session of these marketable securities in Istanbul Stock Exchange and shall apply withholding on Clearing day. These prices which is taken as base shall be cost price of buyer at the same time.By converting marketable securities into special purpose instruments which may be operated as a marketable securities in overseas market, like American depository receipt (ADR), Global depository receipt (GDR) or Depository Receipt (DR) and retention gains formed until these instruments are sent to an other account in overseas, again retention gains formed from date of brought in our country and converting into marketable securities until releasing of them shall be subjected to withholding as gains formed from other over the counter. In assessing of withholding tax base related to these transactions, it should be accepted that mentioned marketable securities released on the date in which they are brought to our country and sale by converting into marketable securities, amounts which are considered as a proceeds on the date of exit to overseas shall be taken into consideration as a cost for hereafter releases.If above mentioned over the counter are made in view of any bank or intermediary institution except custody institution, withholding shall be applied according to above mentioned principles.2.1.1.5. Transactions shall be made by banks and intermediary institutions which carried out directions of investors which receive custody service from custody institutions except from Clearing Bank- Central Registry Agency In case that the client indicates while giving a transaction direction in written that he/she has received custody service from the custody institutions other than Clearing Bank- Central Registry Agency and related withholding tax will be carried out by his/her custody institution, the banks and intermediary institutions, who are mediating to the purchase and sale transactions of the investigators receiving custody service from the custody institutions other than Clearing Bank- Central Registry Agency, will notify the custody institutions that are determined by customers of the information related to the price and cost including the commissions that they have received in return of the transactions rendered by them, and the withholding tax that could arise in accordance with this transaction, shall be applied by the custody institution as of the realization date of the transaction.With respect to these clients, banks and intermediary institutions have not responsibility of withholding.If a client who gives transaction direction don't mention that he/she receives custody service from a custody institution except from Clearing bank-Central Registry Agency for all transactions shall be made hereafter on behalf of his/her and withholding related to this transaction shall be applied by his/her custody institutions while they are giving direction of transaction or with a contract before this date, responsibility of withholding related to mentioned transactions shall be applied by banks or intermediary institutions according to principles mentioned in this Communique.2.1.1.6. Declaration and PaymentTax withheld by custody institutions shall be paid by declaring tax office which these institutions are depend.Withholding which is made quarterly periods of a year in scope of Temporary Article 67, shall be declared until 20th day of month which follows related quarterly periods and shall be paid until 26th day of month. However, withholding amounts which shall be applied by institutions which serve custody for overseas resident foreign investors shall be paid until 26th day of June after declared until 20th day of June if it is limited to first three months of calendar year 2006.2.2 Those Who Will Be Applied Withholding Tax on their IncomeThe income derived by the real persons or legal entities other than the stock exchange investment funds or the retirement investment funds established pursuant to the Capital Market Law shall be included within the scope of withholding tax. During the accrual of the withholding, whether the party receiving such income is a real or a legal person; whether it is a resident or a non-resident taxpayer; whether or not it has a tax liability; or whether or not it is exempted from tax, shall not have any importance. Moreover, whether or not the gains that are derived are exempted from tax, shall not have any effect on the application of the withholding tax. 2.3. Gains Subject to Withholding2.3.1. General Regulation As explained earlier, the types of income that will become subject to withholding tax pursuant to the 1 st paragraph of the Temporary Article 67 have been determined as follows: - Yields derived from purchase and sale of the marketable securities and other capital market instruments;- Yields derived from the redemption of the marketable securities and other capital market instruments;- The periodical returns of the marketable securities and other capital market instruments, (that are not contingent on any marketable security or any other capital market instrument)- Yields derived from loan transactions of marketable securities and other capital market instruments.The term "marketable securities and other capital market instruments" refers to the marketable securities that were issued in Turkey and that have been listed by the Capital Market Board and/or that are traded on the stock exchanges and the exchanges for futures and options in Turkey and other capital market instruments; and all other types of marketable securities and capital market instruments that will be issued by the Treasury or by the other public entities, even if they have not been listed, or even if they are not traded on the stock exchanges and the exchanges for futures and options in Turkey. For purposes of this Article, futures and option contracts to which banks and intermediary institutions act as parties, or that are executed through the brokerage of banks or intermediary institutions; and that grant the right and/or obligation to purchase, sell, exchange money or capital market instrument, commodity, precious metal and foreign currency, within a specific term, and at predetermined prices, quantities and qualities, including those contracts that are drawn up on the basis of an economic or financial indicator, are considered as other capital market instruments. All other returns derived on account of the purchase and sale or redemption of a marketable security or any other capital market instrument which are outside of the definition above, shall not be subject to withholding tax pursuant to the 1 st paragraph of the Temporary Article 67 of the Income Tax Law. 2.3.2. The Exemptions to the General Regulation Even if they are included within the general scope, certain gains have been excluded from the scope of the withholding application regulated in paragraphs (1), (9) and (10) of the Temporary Article 67. Pursuant to the regulation set forth in 1 st paragraph of Temporary Article 67;- The gains derived from the return of the participation certificates of the marketable securities investment funds established according to the Capital Market Law (excluding the stock exchange investment funds) to the concerned investment funds;- The gains derived from the purchase and sale of the shares of marketable securities investment trust;- The gains derived from the purchase and sale and the redemption of the marketable securities issued abroad by the Treasury and their periodical returns;- The gains derived from the alienation of the stocks belonging to full liable corporations and operated in Istanbul Stock Exchange and that are held for a period of more than one year;- Dividends derived from stocks, Shall not be included in the scope of withholding application. On the other hand, provisions of Repeated Article 80 of Income Tax Law related to taxation of capital gains shall not be applied for stocks which alienated after one year and operated in Istanbul Stock Exchange and belonging to full liable corporations; so annual tax return shall not be filed for these incomes in the scope of capital gains.Additionally, the following types of gains shall also not be included in the scope of withholding tax:- Pursuant to the regulation set forth in the 9 th paragraph of Temporary Article 67, the interest income derived from all types of bonds and Treasury Bills issued prior to the date of 01.01.2006, and the gains derived from the retention or alienation of the marketable securities issued by the Mass Housing Administration and the Privatization Administration;- Pursuant to the regulation set forth in the 10 th paragraph of Temporary Article 67, the gains derived from the retention or alienation of the marketable securities and other types of capital market instruments that were acquired prior to 01.01.2006.2.4. The Determination of the Withholding Tax Base 2.4.1. Withholding Tax Base in the Purchase and Sale of Securities In transactions of purchase and sale, the assessment base for the withholding application shall be the difference between the purchase price and the sales price. The commissions that are paid during the purchase and sale transaction and the Banking and Insurance Transactions Taxes that are paid shall be taken into consideration for the determination of the withholding base, and no other expense shall be treated as deductible expense during the assessment of the withholding base. In addition, explanations below need to be taken into consideration in determination of witholding base2.4.1.1. Restitution of Commissions A part of the commission charges paid during the purchase and sale transactions may be restituted according to the transaction volume or to another reason. Notwithstanding the commission-generating transaction, these amounts restituted shall be included in the withholding tax base concerning to the period in which the restitution is realized.2.4.1.2. The Alienation of a Part of the Asset Purchased Subsequent to the Purchase of the Same Type of Marketable Security or Other Type of Capital Market Instrument at Different DatesIn cases when a part of the same type of marketable security or other type of capital market instrument purchased at different dates are subsequently alienated, the purchase price to be taken into consideration in the assessment of the withholding tax base, shall be determined through the application of the first-in-first-out method. However, daily weigted average price may be taken into account for the purchase-sale transactions which realised in the same day.Example:Mr. (A) has purchased/sold the stocks issued by (Z) Inc., that are traded on the stock exchange through the brokerage of the (X) Bank, at dates and quantities listed below:DateRemarkQuantity (Issues)Unit Purchase/Sale Price (YTL)Total Amount (YTL) 03.01.2006Purchase of Share10.000550.000 02.02.2006Purchase of Share5.000420.000 08.05.2006Sale of Share 6.000636.000 09.05.2006Purchase of Share8.0004.536.000 12.05.2006Sale of Share 12.000560.000 22.05.2006Purchase of Share20.0005.5110.000 According to the first-in-first-out method, the cost value corresponding to the stocks sold by Mr. (A) on 08.05.2006 amounts to (6,000 x 5=) 30,000 YTL, and the cost value corresponding to the stocks that he has sold on 12.05.2006 amounts to [(4,000 x 5) + (5,000 x 4) + (3,000 x 4,5) =] 53,500 YTL. According to the first-in-first-out method, the witholding base related to the stock sales transaction realized on 08.05.2006 is (36.000-30.000=) 6.000 YTL and the witholding base related to the sales transaction realized on 12.05.2006 is (60.000-53.500=) 6.500 YTL. In such a case, Bank (X) shall apply a withholding tax at a rate of 15 % over the capital gains (6.000 YTL and 4.500 YTL) generated by Mr. (A), for each transaction.Both in the present example and in the other subsequent examples, it is assumed that the purchase and sale amounts also include the brokerage charges. When marketable security or other capital market instruments are given as a guarantee or be subject to loan transactions, mentioned securities are considered in client portfolio. However, securities which are subject to loan transaction in cost calculation are assumed to out of portfolio, whereae securities which are given as a guarantee are assumed in portfolio.Example:Transactions which is done by Mr. (A) in X Intermediary Institution is as follows.Share Transaction Item Residue Price Akbank Purchase 100 100 2 Akbank Lending -40 60 2 Akbank Giving Guarantee -60 0 2 Akbank Purchase 100 100 3 Akbank Sale -100 0 4 Purchase cost of 100 shares which are sold= 60*2 +40*3 =240 YTL Tax Base= Sale Price _ Purchase Cost = 100*4 _ 240 = 160 YTL Tax base shall be assessed as above because securities which are subject to loan transaction in cost calculation are assumed out of portfolio and securities which are given as a guarantee are assumed in the portfolio.2.4.1.3. The Alienation of a Marketable Security or Other Type of Capital Market Instrument Prior to its PurchaseIn the event that a given marketable security or other type of capital market is alienationd prior to its purchase, in other words, in the even of short selling, the first purchase transaction to be effected after the date of alienation will be taken as basis in the determination of the amount over which the withholding tax will be applied. Example:Mrs. (B) has applied short selling on 100,000 items of the stocks of (X) Inc. through the mediation of the broker firm (T) on 08.05.2006, at 4 YTL. Regarding the same stocks, on 09.05.2006, Mrs. (B) has purchased 100,000 items at 3.80 YTL and on 11.05.2006, 150,000 items at 3.60 YTL. Accordingly, by taking into consideration the first purchase transaction after the short sale, broker firm (T) will apply withholding tax on (400,000 YTL _ 380,000 YTL=) 20,000 YTL.Weighted average price information may be taken into consideration in purchase-sale transactions which are done in same day, but withholding base shall be determined according to first in first out method.2.4.1.4. The Date of Purchase and the Purchase Price of the Stocks that are Acquired due to Capital Increase The acquisition date of the stocks acquired on account of the adding of the capital reserves and the profit reserves into the company capital, shall be taken as the date of purchase of the shares acquired previously. Meanwhile, regarding the stocks that are acquired at their nominal values through the exercise of preemptive rights due to capital increase through bonus issues (bedelli sermaye artırımı), the date of purchase of such stocks shall also be taken as the date of purchase of the stocks previously acquired. In case companies increase their capital through the adding of their capital reserves into the company capital, following the capital increase operation, the purchase price of both the stocks that were previously acquired and those of that were acquired on account of the capital increase operation, shall be determined through the division of the purchase price of the stocks that were acquired previously, into the total number of stocks that were acquired subsequent to the capital increase operation. In case the capital increase operation is realized through the adding of the profit reserves into the company capital, the purchase price of the stocks that are acquired on account of this transaction, shall be calculated through the division of the sum of the purchase price of the stocks acquired previously and the nominal values of the newly acquired stocks, into the total number of stocks that the company owns after the completion of the capital increase operation. Meanwhile, regarding the stocks that are acquired by its owners at their nominal values through the exercise of their preemptive rights, the purchase price shall be determined through the division of the sum of the purchase price of the stocks that were previously owned and the price that is paid for the newly acquired stocks, into the number of the total stocks that are owned following the completion of the capital increase operation. Example: (Capital Increase Through Bonus Issues) On 10.12.2006, Mr. (A) has purchased 2,000 items of stocks of (Z) A.Ş. through the payment of a purchase price amounting to a total of YTL 15,000. On 15.06.2006, (Z) A.Ş. has realized a capital increase of % 50 by financing of the entire equity through its capital reserves. Mr. (A) was granted 1,000 items of stocks on account of this capital increase operation. Hence, the cost value corresponding to each item of stocks at the end of the capital increase through bonus issues, shall be determined through the division of the purchase price paid, amounting to 15,000 YTL, into the total number of stocks that are owned (i.e. 15,000/3,000 =) 5 YTL. In case 2.000 items of the stated stocks are sold amounting to 16.000 YTL on 05.11.2006, the withholding base shall be 6.000 YTL(16.000-10.000)Example : (Capital Increase Through Rights Issues)Mrs. (X) has purchased 1,000 items of stocks of (Z) A.Ş. on 06.02.2006, against a purchase price of 4,000 YTL. On 03.07.2006, (Z) A.Ş. has realized a capital increase through rights issues at a rate of 50% and the price for the exercise of preemptive rights was announced as 1 YTL. Hence, through exercising her preemptive rights, Mrs. (X) has purchased 500 items of stocks by paying a purchase price of 500 YTL. The cost value of the stocks acquired by Mrs. (X) on account of the capital increase operation, shall be determined through the division of the sum of the cost value of the stocks that were previously owned and the price that was paid for the newly acquired stocks, into the total number of stocks that are owned at the end of the capital increase operation, as follows: 4.000 + 500= 4.500 YTL 4.500/ 1.500= 3 YTL In the event that Mrs. (X) sells 800 items of the concerned stocks on 01.11.2006, at a sales price of 5,000 YTL, the withholding base shall be calculated as (5.000- 2.400=) 2.600 YTL. 2.4.1.5. The Cost to be Determined in the event of Sale of the Pre-emptive Right Coupons In the event of sale of a new share coupon relating to the owned stock certificate independent from the stock certificate, the cost of the preemptive right coupon shall be determined through the multiplication of capital increase rate with the total determined through the deduction of the price for the exercise of the preemptive right from the total to be determined through the division of the aggregate of the purchase price of the existing stocks and the price paid for the stocks to be purchased through the exercise of the preemptive right (the cost of the exercise of the preemptive right (first right of purchase), into the number of stocks which are currently owned and which will be owned in the future. Cost of Coupons=( Purchase price of the existing stocks + the cost of the exercise of the preemptive right _ The price for the exercise) *of the preemptiverightCapitalIncrease Rate Number of the currently owned stocks + the number of the stocks to be acquired It will be possible to keep track of the cost of the stocks, which are being continued to be held through the deduction of the cost of the coupon from the original cost of the stock. Example: Mrs. (X) has purchased 1,000 items from the stocks of (Z) A.Ş. on 06.02.2006, by paying 10,000 YTL. On 01.07.2006, (Z) A.Ş. has realized a capital increase at the rate of 50%. The price for the exercise of the preemptive right was announced as 1 YTL. In the event of the sale of the preemptive right coupon acquired by Mrs. (X) on account of the capital increase operation, the cost of coupon will be {[(10,000+500)/(1000+500)]- 1}* %50 = 3 YTL. The cost of the stocks that are being continued to be held is ( 10-3=) 7 YTL. The cost of the coupon may be calculated as follows, by using the base /reference price formulas Cost of the coupon=({[10+(1*% 50)]/(1+0,5)}-1)* %50 =3 YTL 2.4.1.6.Purchase Price in Bonds with Coupons During the purchase of a bond with coupon, if an accrued interest is available, the accrued interest total is accepted as the coupon purchase price; and the clean transaction price (Clean Price = Contract Price _ Accrued Interest) is accepted as the purchase price of the bond. For a bond accrued interest, implies the coupon interest that is required to be added on the clean transaction price and that of proportional to the period of holding of the bond, and is calculated through the multiplication of ratio of the number of days, that have lapsed during the period lasting from the last coupon date to the value date to the number of days of coupon period, with the coupon interest to be paid. This calculation is made within the framework of the principles accepted by the Istanbul Stock Exchange (ISE) This transaction may also be effected by taking into consideration the accrued interest totals announced by the ISE. Example: (The withholding base for the redemption/capital gains if the clean price is below the nominal value) The cash flow related to a Government Bond issued by the Treasury with issue date of 06.12.2006, with a nominal value of 100,000 YTL, covering a maturity of 3 years and offering a coupon payment of 7.5% every 6 months, will be as follows: Date of Payment of the Coupon Coupon Payment YTL) Withholding Base(YTL) 1. Coupon06.06.20077.500 - 2. Coupon05.12.20077.500 - 3. Coupon04.06.20087.5003.420,33 4. Coupon03.12.20087.5007.500 Sale of security10.02.2009------3.079,67 5. Coupon03.06.20097.5007.500 6. Coupon +Principal 02.12.20097.500 +100.0008.579,67(7.500+1.079,67) Mr. (A) has made a purchase from the concerned marketable security with value date 13.03.2008, through the brokerage of Bank (X) at a purchase price of 103.000 YTL (dirty price); and provided the he holds this bond until the date of its redemption, the withholding base as per each coupon period, will be calculated as follows: Last coupon date : 05.12.2007 Value date : 13.03.2008 Date of Payment of the First Coupon : 04.06.2008 Number of Days per Coupon Period: 182 Number of Days Lapsed :99 (05/12/2007-13/03/2008) Coupon Interest : 7.500 Accrued Interest: 4.079,67 (99/182)*7.500 Dirty Price : 103.000 Clean Price 98.920,33(103.000_4.079,67) Withholding Base on the Payment of the FirstCoupon(3rd Coupon)= Coupon Payment _ Accrued Interest = 7.500 _ 4.079,67 = 3.420,33 YTL The withholding base on the payment of the fourth and fifth coupon will be 7.500 YTL, which is the determined coupon payment. The withholding base on the payment of the last coupon shall be calculated as follows: Withholding Base on the Payment of The Last Coupon= Coupon Payment + ( Principal- Clean Purchase Price ) = 7500+ ( 100.000- 98.920,33) = 7500+ 1.079,67 = 8.579,67 Withholding bases are present on above tableau in frame of these calculations. The withholding base shall be calculated as follows in case Mr. (A) resell mentioned marketable security to the (X) Bank at a price of 102.000 YTL with a value date of 10/02/2009: Withholding Base= Sale Price _ Clean Purchase price = 102.000 _ 98.920,33 = 3.079,67 YTL 2.4.1.7. If the Purchase Price of the Bond is Above the Redemption Value and the Accrued Interest Total If, during the purchase of a bond with coupon, the purchase price is above the redemption value and the accrued interest total, if any; in other words, if the clean price exceeds the redemption value, the outstanding portion shall be treated as the cost (purchase value) of the interest coupons for the subsequent periods. Example: (The Withholding Base on the Redemption/Capital Gains if the Clean Price is Higher than the Nominal Value) The cash flow related to a Government Bond issued by the Treasury with issue date 06.12.2006, with a nominal value of 100.000 YTL, covering a maturity of 3 years and offering a coupon payment of 7.5% every 6 months, will be as follows: Date of Payment of the CouponCoupon Payment (YTL) Withholding Base (YTL) 1. Coupon06.06.20077.500 - 2. Coupon05.12.20077.500 - 3. Coupon04.06.20087.500 2.940,25 4. Coupon03.12.20087.500 7.019,92 Sale of Security10.02.2009-------1.039,83 5. Coupon03.06.20097.500 7.019,92 6. Coupon+ Principal02.12.20097.500+100.0007.019,92 Mr. (A) has made a purchase from the concerned marketable security with value date 13.03.2008, through the brokerage of Bank (X) at a purchase price of 106.000 YTL (dirty price); and provided the he holds this bond until the date of its redemption, the withholding base as per each coupon period, will be calculated as follows: Last coupon date : 05.12.2007 Value Date : 13.03.2008 Date of Payment of the First Coupon: 04.06.2008 Number of Days per Coupon Period: 182 Number of Days Lapsed : 99 (05/12/2007 _ 13/03/2008) Coupon Interest : 7.500 Accrued Interest : 4.079,67 (99/182)*7.500 Dirty Price: 106.000 Clean Price : 101.920,33 (106.000 _ 4.079, 67) Payment above the nominal price : 1,920.33 (101.920, 33 _ 100.000) Number of Remaining Coupons: 4 Excess payment per Coupon : 480,08 (1.920, 33/4) Withholding base on the Payment of the First Coupon (3rd Coupon)= Coupon Payment_(Accrued Interest+ Excess Payment per Coupon) = 7.500 _ (4.079, 67 + 480, 08) = 2.940, 25 YTL Withholding Base on Subsequent Payments of the Coupon= Coupon Payment _ Excess payment per Coupon = 7.500 _ 480, 08 = 7.019, 92 YTL If Mr. (A) resells the underlying marketable security with value dated 10.02.2009, to Bank (X) at a price of 102.000 YTL, the withholding base shall be calculated as follows:Withholding Base= Sales Price _ (Clean Purchase Price - Excess payment per coupon that is considered at previous coupon payments = 102.000 _ [101.920,33 _(480,08*2) ]= 1.039,83 YTL 2.4.1.8. Marketable Securities or Other Capital Market Instruments Indexed to Foreign Currency, Gold or to Another Asset In transactions relating to marketable securities or other capital market instruments indexed to foreign currency, gold or another asset; during the determination of the withholding base, the equivalents of the concerned assets in YTL prevailing on the date of transaction are taken as the purchase and the sale price. 2.4.1.9. Marketable Securities or Other Capital Market Instruments Denominated in Foreign Currency Meanwhile, in cases when the marketable security or other type of capital market instrument is denominated in foreign currency, foreign exchange differences shall not be taken into consideration during the assessment of the withholding base. The rate of exchange prevailing on the date of the transaction will be taken as basis; and in the absence of such a rate of exchange, the buying rate of exchange announced by the Turkish Central Bank shall be taken as basis. Example: On 02.05.2006, Mr. (A) has purchased a 3-year Government Bond, indexed to foreign currency with issuance date of 08.02.2006 and with semi-annual coupon payment, at a price of 100.000 US$ through the brokerage of Bank (X). Mr. (A) has sold the concerned Government Bond on 15.06.2006, at a sales price of 101.000 US$, through the brokerage of Bank (X). In transactions conducted in foreign currency, primarily, the rate of exchange applied by the concerned bank on the date of purchase and sale is taken as basis, and in the present example, the rate of exchange was determined as 1.35 YTL on the date of purchase, and as 1.45 YTL on the date of sale. During the determination of the withholding base, the f' differences will be disregarded; and a withholding at a rate of 15 % shall be applied by Bank (X) on (1.000 $ x 1.45 YTL =) 1.450 YTL which is YTL equivalent of the capital gains on the date of sale amounting to (101.000 $ - 100.000 $=) 1.000 $ derived by Mr. (A) 2.4.1.10. Futures, Forwards and OptionsIn 12'th paragraph of Temporary Article 67, it is stated that for purposes of this Article, futures, forward and option contracts to which banks and intermediary institutions act as parties, or that are executed through the brokerage of banks or intermediary institutions; and that grant the right and/or obligation to purchase, sell, exchange cash or capital market instrument, commodity, precious metal and foreign currency, including those of drawn up on the basis of an economic or a financial indicator, within a specific term, and at a predetermined price, quantity and quality, are considered as other capital market instruments. According to this provision, in case the banks or intermediary institutions (broker firms) conduct transactions of this type, the moment they benefit from the provision of the futures, forward or option contract, they shall apply withholding at a rate of 15% on the outstanding difference between the value of the underlying asset on the basis of its market price and the value of the same asset that is based on the transaction price at the date of contract ended. If some of this gain is paid to the beneficiary as the contract in charge, withholding is not necessary. It is clear that the precautions would be taken by the bank or intermediary institution to ensure the payment of tax that will occur at the contract end during the payment of the gains from the contract end to the relative persons (beneficiary) Derivative product contract will be taken into consideration as whole but; profit or loss resulting from contract of derivative products that widen several years is predicted to be paid periodic, withholding will be made from the payment to the beneficiary at every period. Arising losses by periods can be deducted provided that calendar year not exceeded in the frame of explanations made at article 2.4.1.11 of the communiqué. Meanwhile, the withholding rate on the gains derived in 2006 from the transactions conducted in the futures, forwards and options exchanges established in Turkey, shall be applied as nil (0). Full liable and non-resident corporations (except those who active through a workplace or permanent representative in Turkey) will not be withheld for their future, forward and options contracts gains in 2006 made between them. It is clear that if the term of contracts in question lengthens to 2007 and latter years, gains from these contracts will not be withheld. Gains derived by banks and similar financial institutions in this scope will not be withheld even if they don't function through a workplace or permanent representative in Turkey. However non-resident corporations except banks and similar financial institutions need to function through a workplace or permanent representative in Turkey to be able to benefit from this communiqué. The brokerage commissions and the banking and insurance transaction tax that are paid on account of the futures and options contracts, shall be taken into consideration in the assessment of the withholding base. Example: Data about the 3 months Forward USD purchase contract Mr (A) made with Bank (X) at 07.06.2006 are as follows: Contract Total : 1.000.000. USD Term: 3 Months Process Spot Rate: 1,3200 Forward Rate: 1,3600 Term Spot Rate: 1,2900 Based on these data Mr. (A) will pay 1.360.000 YTL at an exchange rate of 1,3600 for 1.000.000 USD at the end of 3 months For the term spot rate is lower than the forward rate this transaction will result with loss and withholding is not in question. Mr. (A) can deduct his loss in the following periods from same kind of gains provided that not exceeding calendar year. In case of spot rate is 1,3700 instead of 1,2900, Mr. (A)'s transaction will result with profit and withholding base will be calculated as follows: Withholding Base = Market Price Value of the security in the contract (Term Spot Rate) _ Transaction Price Value of the security in the contract (Forward Rate) Withholding Base= 1.000.000 USD*(1,3700 _ 1,3600) = 10.000 YTL Example: Mr. (B) has made a 6 Months Option contract with Bank (Y) and acquired the right of buying USD and selling YTL. Data about contract are as follows: Contract Total : 2.000.000. USD Term: 6 Months Process Spot Rate: 1,3400 Option Rate : 14300 Option Money: 20.000 USD (2.000.000*%1) Term Spot Rate: 1,4000 In this case for the spot rate on term date is lower than the option rate Mr. (B) will be disadvantaged and won't use his option right. Mr. (B) does not have any profit or loss for not using his option right however option money he paid for this transaction (20.000 USD) will be converted into Turkish Lira on the exchange rate of the contract date and the losses deriving from this transaction can be deducted from same kind of gains provided that not exceeding calendar year Option Money= 20.000 USD*1,340 = 26.800 YTL In case of Term Spot Rate is 1,4800 instead of 1,400 Mr. (B) will use his option right because of advantage. Mr. (B)'s withholding base will be calculated as follows: Withholding Base = Market Price Value of the security in the contract _ Transaction Price Value of the security in the contract _ Option Money Withholding Base= 2.000.000 USD*(1,4800 _ 1,4300) _ Option Money = 100.000 YTL _ 26.800 YTL = 73.200 YTL Example: Mr. (C) has taken Option Money and sold his 3 Months Term USD buying, YTL selling rights to the bank. Data of this contract are as follows: Contract Total : 1.000.000. USD Term: 3 Months Process Spot Rate: 1,3400 Option Rate : 13800 Option Money: 10.000 USD (1.000.000*%1) Term Spot Rate: 1,3500 In this case, for the spot rate on term date is lower than the option rate Bank will be disadvantaged and won't use option right. Option Money that Mr. (C) derived by the option contract that made with the bank will be considered as a gain of this contract and withheld due to Temporary Article 67. Option Money= 10.000 USD*1,340 = 13.400 YTL Withholding Base= Option Money = 13.400 YTL Example : Mr. (D) has conducted a 5 percent interest rate swap contract with a maturity of 1-year and payment at quarterly periods with Bank (Z) at 15.01.2006 to set off his debt of 10.000.000 USD which has maturity of 1-year and with payment of LIBOR interest. Contract Total : 10.000.000 USD Contract Date: 15.01.2006 Fixed _ Interest: %5 Variable Rate: LIBOR Interest rate dates :LIBOR : 15.04.2006 ………...%5.50 15.07.2006 ………..%4.75 15.10.2006 ………..%5.25 15.01.2007………..%6.00 Change amount in interest rates and Mr. (D)'s Withholding Base will be as follows: Interest Rate Dates LIBOR Interest taken from client (USD) Interest paid to Bank (XY) (USD) Withholding Base (USD) 15.04.20065.50 125.000 137.500 12.500 15.07.20064.75 125.000 118.750 0 15.10.20065.25 125.000 131.250 0 15.01.20076.00 125.000 150.000 25.000 In this case Mr. (D) is advantageous for moving to fixed _ interest from variable rate at 15.04.2006 so Bank (Z) is need to convert 12.500 USD into Turkish Lira on the exchange rate of the transaction date and withhold on this total at %15 rate. However Bank (Z) must pay 137.500 USD interest to Bank (XYZ) under the contract so withholding tax for 12.500 USD equal of YTL at %15 rate which paid in favor of client will be collected from client also. At 15.07.2006 no withholding will be made for Mr. (D) lost 6.250 USD. At 15.10.2006 Mr. (D) makes 6.250 USD profit from swap contract. But his loss will be deducted from his same kind of transactions at the previous quarter so hi will not be withheld in this period also. At 15.01.2007 Mr. (D) is advantageous from the swap contract again so (Z) Bank will convert 25.000 USD into Turkish Lira on the exchange rate of the transaction date and withhold as explained above. " Spot Rate" mentioned above examples means the rate of exchange used by the contracting bank at the time of transaction, if there is no such rate it means Central Bank FX buying rate. 2.4.1.11. Cases When a Portion of the Trading Transactions Result in Loss In 1' st paragraph of Temporary Article 67, it is stipulated that in case more than one trading transaction is conducted in connection with the same type of marketable security or other capital market instrument within the quarterly period, for purposes of withholding application, such transactions shall be considered as a single transaction. According to this provision, provided that the marketable security or other capital market instrument subject of the trading transaction is of the same type, through the consolidation of the transactions conducted within the quarterly period, the taxes that are required to be declared and paid (if any) shall be calculated. In the event that the withholding tax is higher than the tax to be paid (due to the losses arising from some transactions) the excess withholding tax shall be transferred to the account of the client. Meanwhile, in case all of the transactions conducted within the quarterly period result in loss, such losses may be carried forward to the succeeding quarterly period, provided that the calendar year is not exceeded. The losses that are formed on the last quarterly period of the year cannot be carried forward to the succeeding period. During the appraisal of the same type of marketable securities and other capital market instruments, the following classification will be taken as basis: I - Marketable securities and other capital market instruments with fixed income, II - Marketable securities and other capital market instruments with variable income, III _ Futures, Forwards and Options Contracts Classification in the futures, forwards and options contracts conducted with marketable securities shall be applied on the basis of the group to which the marketable security that is associated with the transaction is included. The transactions that are not associated with the marketable security shall be appraised within the scope of the futures, forwards and options contracts included in the III.Group. Example: Information relating to the trading (purchase/sale) transactions conducted by Mr. (A) within the first quarterly period of 2007 through Broker Firm (Z), are as follows. In the present example, it was assumed that the Government Bond was issued after 01.01.2006. Type of SecurityPurchase Price (YTL) Sales Price (YTL) Profit/Loss (YTL) Treasury Bill80.000 70.000 -10.000 Stock Certificate10.000 12.000 2.000 Stock Certificate15.000 20.000 5.000 Government Bond90.000 85.000 -5.000 Stock Certificate10.000 5.000 -5.000 Stock Certificate30.000 45.000 15.000 In the present example, a withholding at a rate of 15% shall be applied by Broker Firm (Z) on the capital gains that Mr (A) derived from purchase and sale of stocks for each transaction. At the end of the consolidation of the transactions conducted by Mr.(A) within the quarterly period it has been understood that, Mr. (A) derived profit amounting to (22.000-5.000=) 17.000 YTL from purchase and sale of stocks and the transactions relating to the trading of government bonds/treasury bills resulted in a loss amounting to 15.000 YTL. In this case, since stocks with variable income and bonds/bills with fixed income are different types of marketable securities, offsetting of losses will not be applicable. Mr. (A) shall be allowed to offset his losses if he generates profits from the trading of bonds/bills within the succeeding quarterly periods, provided that such carry forward transaction does not exceed one calendar year. On the other hand, in the event that the withholding tax is higher than the tax to be paid (due to the losses arising from some transactions) the tax that was withheld in excess amounting to ( 5.000*% 15=) 750 YTL shall be transferred to the account of the client. As is understood from the example loss deduction can be applied to purchase and sale gains provided that related to same kind of securities. So loss in the purchase and sell cannot be deducted from redemption income. 2.4.1.12. Voluntary Declaration Annual tax return should be given considering calendar year for incomes resulting from selling of securities and other capital market instruments withheld in scope of Temporary Article 67 and determined that not to declared by annual or special tax return. Said declaration will only be made for purchase and sell of securities and other capital market instruments but not for interest and redemption incomes. All of the losses occurred in year can be deducted from gains that will declared related to purchase and sell transactions as long as it is related to same kind of securities and other capital market instruments. One rate of %15 will be applied on declared income but not the progressive tax tariff in Article 103 of income tax. Withheld taxes in year will be deducted from the declared income's tax and amount that cannot be deducted will be restituted in scope of general provisions. However withheld taxes must be related to the incomes in the tax return for deduction and restitution. On the other hand it is not possible to deduct losses that cannot be deducted to other income elements or transferred into following years. 2.4.1.13. Declaration of Date and Cost in Transfer Transactions In case a request is submitted concerning the transfer of the a marketable security or any other capital market instrument to another bank or brokerage firm (intermediary institution), the bank or the brokerage firm to which the transfer will be realized shall be notified on the purchase price and the date of purchase of the underlying security by the bank or the brokerage firm that will realize the transfer transaction. The purchase price to be notified, must also include the brokerage charges. In the event of the sale of the underlying asset, the date and the price to be notified, shall also be accepted as the date and the price to be taken as basis in the assessment of the withholding base. In case a marketable security with coupon is transferred, the price to be notified will be dirty purchase price and on transactions related to marketable securities which will be made after transfer conducted by the bank or the intermediary institution to which the underlying asset has been transferred shall assess the withholding base by calculating the clean purchase price and excess payment per coupon based on the dirty price that notified. The bank or the broker firm to which the underlying asset has been transferred, shall be obliged to use this date and price in the determination of the withholding base. During the transfer transactions relating to the bonds and bills issued before 01.01.2006 and the marketable securities or other capital market instruments acquired prior to the said date, the expressing of the fact that the concerned asset has been issued or acquired prior to 01.01.2006, will be adequate; however, the non-resident corporations shall also be required to express the date of purchase and the purchase price. If securities and other capital market instruments are transferred in over-counter transactions to provide possession, process will be done due to explanations in section 2.1.1.4 of this communiqué. 2.4.1.14. The Physical Delivery of the Marketable Security or Other Type of Capital Market Instrument to another Bank or Intermediary Institution In case the real persons or legal entities deliver the marketable security or other type of capital market instrument that they hold, to a bank or an intermediary institution (broker firm), provided that it is authenticated as the purchase price and the date of purchase, the declaration of the owner of the concerned asset will be taken as basis. During the authentication of the purchase price and the date of purchase of the underlying asset, the documents drawn up by the intermediary institution or the bank; or by the issuer shall be used. Within this framework, the documents like entrance and exit check of security, transaction result form, accounting summary of marketable security drawn up by the banks or intermediary institutions and the distribution list drawn up by the issuer, receipt for marketable security, etc. will be considered as the authentic document. 2.4.2. The Withholding Base in the Case of Redemption of the Marketable Security or Other Type of Capital Market Instrument In case of redemption of a marketable security or other type of capital market instrument, the withholding base shall be taken as the difference between the purchase price and the redemption value of the underlying security. The brokerage commissions that are paid on account of the purchase and redemption transactions, and the Banking and Insurance Transaction Tax (BITT) are taken into consideration during the assessment of the withholding tax base. No other expenses besides the foregoing can be taken into consideration during the assessment of the withholding base. 2.4.3. Withholding Tax Base on the Periodical Returns In the periodical returns to be derived from the marketable securities and other type of capital market instruments that are not dependent on another marketable security or other type of capital market instrument, the withholding base shall be equal to the periodical return derived from the underlying instrument. During these transactions, the brokerage commissions and the Banking and Insurance Transactions Taxes paid (if any) shall be taken into consideration. In the event that the periodical returns are dependent on another marketable security or other type of capital market instrument, the withholding base should be assessed in accordance with the explanations provided in sections 2.4.1 or 2.4.2 of the Communiqué. 2.4.4. Withholding Tax Base on the Loan Contracts If securities and other capital market instruments are subject to loan contract, withholding will be made in the benefit of lender. During this process paid commission or Banking and Insurance Transaction Tax if any will be taken into consideration while determining the withholding tax base. On the other hand withholding related to incomes of the lender deriving from security and other capital market instruments subject to loan contract will be made by market member bank or intermediary institutions, which pay the income to the final person or corporation. 2.4.4 Working With More than One Bank or Intermediary Institution (Broker Firms) In case transactions are conducted with more than one bank or intermediary institution, each bank or intermediary institution (broker firm) shall apply withholding on the portion of the gains that have been generated in connection with its own transactions. 2.4.6. Use of More than One Account and the Joint Accounts In case transactions are conducted through the use of more than one account within the same bank or intermediary institution, all these accounts shall be treated as a single account however if client requests they can be evaluated separately. For purposes of Temporary Article 67, joint accounts are also considered as a single account. In case transactions conducted by using both single account and joint account or more than one joint account within the same bank or intermediary institution, the withholding base shall be assessed without relating these accounts with each other. 2.5. Withholding Rate The withholding to be applied by the banks and the intermediary institutions within the scope of the 1st Paragraph of Temporary Article 67, shall be applied at a rate of 15%. However, the withholding on the gains that will be derived from the transactions to be conducted in the futures and options exchanges in Turkey during the year 2006, shall be applied at a rate of nil (0). 2.6. Withholding Period Pursuant to 1' st paragraph of Temporary Article 67, for the withholding made by banks and the intermediary institutions in quarterly periods calendar year. The date taken as basis shall be the transaction date, withholding will be made on barter date related to trading. The quarterly withholding periods will be as follows: The First Quarterly Period:January _ February _ March The Second Quarterly Period :April _ May _ June The Third Quarterly Period :July _ August _ September The Fourth Quarterly Period:October _ November _ December 2.7. Declaration and Payment Banks and intermediary institutions shall declare the taxes that they have withheld in electronic media, through a withholding return of whose form and content will be determined by the Ministry of Finance (see Attachment 1) until the closing of the twentieth day of the month subsequent to the withholding period, to the tax office where they registered, and shall pay the withholding in question until the closing of the twenty sixth day. Headquarters of the concerned bank or intermediary institution will declare and pay witholding tax to the tax office where they registered. 2.8. The Notifications to be submitted to the Ministry of Finance In the occurrence of the following circumstances, the concerned bank or intermediary institution shall be required to notify the Ministry of Finance on the transaction: - The transfer of a marketable security or other type of capital market instrument on behalf of another person or institution (within the same bank or intermediary institution or to another bank or intermediary institution),- The receipt of a marketable security or other type of capital market instrument physically by its owner,- The delivery of a marketable security or other type of capital market instrument physically by its owner. Mentioned notices shall be communicated in electronic media by the end of the month that follows the quarterly withholding periods , in a manner to contain the information contained in the forms concerning "The Notification of Transfer Concerning Marketable Securities and Other Capital Market Instruments" and the "Notification to be Made in the case of the Physical Delivery/Receipt of Marketable Securities and Other Capital Market Instruments", provided in the attachment to the present Communiqué. The notification obligation shall be fulfilled by the headquarters of the concerned bank or intermediary institution. However transactions for possession transfer of security and other capital market instruments by the order of the client to another client's account will be accepted as purchase and sell operation and will be withheld so these transactions are not necessary to be notified to Ministry of Finance separately. 3. The Withholding To Be Applied on the Income From Movable Property Listed in 5th Paragraph of Article 75 of the Income Tax Code Through the regulation introduced in Repeated 1st paragraph of Article 67, it is regulated that a withholding shall be applied on income from movable property derived during the retention or redemption of bills and bonds, by the banks or intermediary institutions who act as intermediaries in the collection of the redemption value or the periodical return derived from the underlying security. The regulation to apply during the application of withholding on income from movable property derived in cases when a bank or an intermediary institution is not available for the collection of the redemption value or the periodical return was provided in paragraph (2) of the concerned Article. In the concerned regulation, it is prescribed that withholding shall not apply on the payments extended to the banks or intermediary institutions on account of the assets that are included within their portfolios. Within this framework, a tax withholding at a rate of 15 % shall apply on the income from movable property referred to in 2nd sub-paragraph of 5 th paragraph of Article 75 of the Income Tax Code, by those who have extended the payments in question, other than those that are extended to the banks or intermediary institutions, or to other real persons or entities through these banks and intermediary institutions. Although defined among income from movable property listed in 5th sub-paragraph of 2nd paragraph of Article 75 of the Income Tax Code, income derived from the marketable securities issued abroad by the Treasury, shall not become subject to withholding pursuant to 2nd paragraph of Temporary Article 67. Income from movable property that are paid to the other real and legal persons through banks and intermediary institutions, have been exempted from the scope of withholding, since the withholding will be applied by the concerned bank or intermediary institution, as already mentioned above. In cases when the withholding can not applied by a bank or an intermediary institution, the withholding shall be applied by the issuing party, even if the income from movable property are paid through the mediation of a bank or an intermediary institution. As a principle, the assessment base to be taken as basis during the application of the withholding is the income that has been specified in the second paragraph of Article 75 of the Income Tax Code. However, in cases when the marketable security is acquired through an intermediary institution, the difference between the redemption value and the purchase price shall be taken as the assessment basis in the calculation of the withholding. The withholdings that are applied shall be declared on a monthly basis through an income withholding tax return. The gains that are declared in this manner shall not additionally become subject to withholding pursuant to Article 94 of the Income Tax Code and Article 24 of the Corporation Tax Code. Example: Mr. (A) has purchased bonds worth 70,000 YTL from (Z) Inc., which is a publicly held company on 01.03.2006, without the mediation of a bank. The date of redemption of the concerned bonds is 03.03.2008, and their redemption value is 100,000 YTL. In this case, a withholding at a rate of 15% should be applied by (Z) Inc. on the redemption gains generated by Mr. (A) amounting to (100,000 YTL _70,000 YTL=) 30,000 YTL. 4. The Withholding to be Applied on the Marketable Securities that are Purchased without the Application of a Withholding by the Banks or Intermediary Institutions In cases when the banks or the intermediary institutions purchase a marketable security or another type of capital market instrument without the application of a withholding pursuant to the provision set forth in paragraph (1) , pursuant to paragraph (3) of Temporary Article 67, they will be required to apply a withholding at a rate of 15% over the outstanding difference between the purchase price and the sales price of the underlying instrument, on behalf of those who have sold them the concerned marketable security or other type of capital market instrument. In the event that the marketable security or other type of capital market instrument subject to the sales transaction has not been previously purchased by a bank or an intermediary institution, determination of the total that will become subject to withholding, the issuance cost will be taken as basis instead of the purchase price, if the issue cost is multiple price the highest price constituted in the auction will be taken as basis. The withholding totals to be applied within this framework shall be declared pursuant to the first paragraph of Temporary Article 67. However, stocks, participation certificates of the marketable securities investment fund established in accordance with the Capital Market Law (excluding the stock exchange investment funds), and the marketable securities that are issued abroad by the Treasury, shall not become subject to withholding within the scope of this sub-paragraph. Furthermore, as per the definition provided, the application of withholding referred to on paragraph (3) on the marketable securities and other types of capital market instruments that have not been appraised within the scope of paragraph (1) of Temporary Article 67, will be out of question. Example: Mr. (A) has purchased bonds with issuance price of 55,000 YTL, from Company (Y) Inc., which is a publicly held corporation, on 01.03.2006, without the brokerage of an intermediary bank. The date of redemption for the bonds is 02.03.2009, and on 03.11.2006, Mr. (A) has sold the bonds to Bank (X) against a sales price of 63,000 YTL. Bank (X) will apply a withholding at a rate of 15% on income from movable property derived by Mr. (A) amounting to (63,000 YTL- 55,000 YTL=) 8,000 YTL from the trading of the underlying bonds, which the bank has purchased from Mr. (A) without the application of any withholding. 5.Withholding on Deposit Interests and Repo Gains In paragraph (4) of Temporary Article 67, it is stipulated through a provision that a tax withholding at a rate of 15% shall be applied on income from movable property referred to in sub paragraphs (7), (12) and (14) of 2nd paragraph of Article 75 of the Income Tax Code, by those who have made the payments . Within this framework; - Interest on deposits. (The interest paid on money deposited on time or on demand with banks, financiers, savings funds, and other institutions accepting deposits of assets, as well as income and benefits in whatever form or under whatever name which are provided for sums of money collected by persons or organizations other than these who are involved in the collection of money on a continued basis, and interest paid on money which is valued in stock money market among intermediary institutions established pursuant to the Capital Market Law shall be considered deposit interest.) (75/7);- Dividends paid to those who provide interest-free loans, as well as dividends paid against profit and loss participation certificates and against profit and loss participation accounts by private finance institutions (75/12);- Benefits that are derived in return for acquisition or alienation of the marketable securities referred to in Article 75/2, sub-paragraph (5) of the Income Tax Code with a commitment for repurchase or resale (repo gains) (75/14),Shall become subject to withholding at a rate of 15% by those who make the payments in question. Meanwhile, the gains derived by the stock exchange investment funds and the retirement investment funds established pursuant to the Capital Market Law, shall not become subject to withholding pursuant to this paragraph. During the application of the withholding, whether the recipient of the income is a real person or legal entity, whether it is a resident taxpayer or a non-resident taxpayer, whether it is registered as a tax liable, whether or not it is granted tax exemption, or whether or not the income that is derived is granted tax exemption, does not create any difference for purpose of the applicability. Since the regulation will be put into effect as of 01/01/2006, the payments to be made subsequent to the said date shall become subject to tax withholding at a rate of 15%.As stated in Article 98 and Article 119 of Income Tax Code ,the withholdings applied shall be declared till the evening of 20 th day of following month through a withholding tax return and shall be paid till the evening of 26 th day . Additional withholding pursuant to Article 94 of the Income Tax Code and Article 24 of the Corporation Tax Code shall not be imposed on the said income.Example:Mr. (A) has opened a time deposit account with a maturity of 6 months in Bank (Z) on 01.08.2005, and has derived an interest gain of 10,000 YTL on the date of maturity, which was 02.02.2006. Since the maturity of the concerned account corresponds to a date that is subsequent to 01.01.2006, a withholding at a rate of 15% shall be applied on the concerned interest gain pursuant to 4th paragrapf of Temporary Article 67. On the other hand, withholding also shall not be applied on the interests reckoned up for the interbank deposit accounts and on those paid for the money which was valued in stock money market by the intermediary institutions, established in accordance with the Capital Market Law numbered 2499. Since, interests derived from these kinds of transactions are declared through adding in corporate gain by banks and intermediary institutions.However, withholding tax on interests paid for the money belonging to the clients of bank and intermediary institution and that valued in stock money market among banks and intermediary institutions established in accordance with the Capital Market Law numbered 2499 shall be applied by the intermediary institutions, members of the market, and banks which fulfill the payment to the person or institution receiving the final gain. The same application shall be also valid for the interest gains derived from cash security.6.Declaration of the Gains Subjected to Withholding Pursuant to Temporary Article 676.1.Real Persons6.1.1. Gains that have not been Derived Within the Scope of Business Operations Through the regulation introduced by Temporary Article 67, it was envisaged that the yields derived from various financial instruments shall be taxed at same level at source, and that this taxation at source shall represent the final tax burden for the gains that are not included within the scope of the business activity. Within this framework, annual or special tax returns shall not be filed for the type of gains that have already become subject to withholding pursuant to Temporary Article 67 and acquired by real person, disregarding the amount of the gain in question. Such gains shall not be included within the annual tax returns to be filed on account of the other gains. The taxpayer status of the enterprise deriving such gain as resident or non-resident taxpayer, shall not change this application. Similarly, annual tax returns shall not be filed for the gains derived from the return of the participation certificates of the marketable securities investment funds established according to the Capital Market Law to the concerned fund, and for the capital gains derived from the purchase and sale of the stock certificates issued by the marketable securities investment trust.6.1.2. Gains Derived Within the Scope of Business Activities In cases when the gains that are subject to withholding pursuant to Temporary Article 67 are generated within the scope of business activities, such gains shall be taken into consideration during the determination of the business profits. The taxes that are paid through withholding, shall be offset against the income tax that is calculated over the tax returns that are filed in connection with the business income pursuant to the general provisions of the tax legislation. Should an outstanding balance remain subsequent to the offset procedure, such balance shall be refund and returned to the concerned taxpayer pursuant to the general provisions. Example:The (A) Market Enterprise, has invested its operation funds by purchasing bonds with issuance price of 100,000 YTL of (Z) Inc., which is a publicly held corporation on 02.03.2006, without the mediation of a bank. The date of redemption of the concerned bond is 01.03.2008, and on 03.11.2006, Mr. (A) has sold these bonds to Bank (X) at a sales price of 110,000 YTL. Since the marketable security was not previously purchased from a bank or an intermediary institution, the withholding base shall correspond to the difference between the sales price and the issuance price of the bonds. Hence, Bank (X) shall be required to apply withholding at a rate of 15% on behalf of the (A) Market Enterprise, over the difference between the sales price and the issuance price (i.e. (110,000 YTL _ 100,000 YTL=) 10,000 YTL. (A) Market Enterprise shall be allowed to offset the tax that has paid through withholding amounting to 1,500 YTL, against the tax burden that it has calculated over the annual income tax return that it has filed for the year 2006. However, the portion of the tax paid through withholding that exceeds the total that is calculated through the multiplication of the gain that is derived from the transaction with the applicable rate of withholding, shall not be offset against the tax that is calculated over the tax return.6.2. CorporationsAs a rule, the gains derived by the corporations that are subject to withholding tax shall be taken into consideration in the calculation of the corporate profit, and the taxes that are levied through withholding, shall be offset against the taxes that are calculated over the tax return that is filed by the concerned corporation pursuant to the general provisions of the tax legislation. However, an annual or a special tax return shall not be filed for the following types of gains derived by the non-resident corporations:- The type of gains that cannot be attributed to their permanent establishments in Turkey, and that has been generated without the mediation of their permanent representatives and that have become subject to withholding pursuant to Temporary Article 67 of the Income Tax Law; and - The type of gains derived through their permanent representatives and that have entirely become subjected to withholding pursuant to Temporary Article 67.In other words, in the case of the aforementioned types of gains, taxation that is applied through withholding shall represent the final tax. 7. The Taxation of the Investment Funds and Investment Trusts7.1. The Taxation of the Investment Funds and Investment Trusts which are resident in Turkey7.1.1 The Withholding to be Applicable on the Portfolio GainsPursuant to 8th paragraph of Temporary Article 67 of the Income Tax Law, the portfolio gains derived by the marketable securities investment funds and investment trusts established in accordance with the Capital Market Law (other than the stock exchange investment funds) that are exempted from Corporation Tax, become subject to a tax withholding at a rate of 15%, disregarding whether or not they are distributed as dividends. Such gains do not become subject to a further withholding pursuant to Article 94.In this scope; stocks of investment funds( other than the stock exchange investment funds) and investment trusts,which were found in portfolios as of 31.12.2005 and operated in İstanbul Stock Exchange, shall be assessed by the weighted average price which comes out at the last day on which stocks were operated in 2005 or by the highest one of the purchase price. This value shall be accepted as the purchase price of the mentioned stocks on the subsequent periods.These funds and trusts shall follow their portfolios existing on 31.12.2005 seperately from the marketable securities which they will purchase and sell after stated date. For stocks acquired prior to 01.01.2006 and portfolio gains, arising at the process of alienation or retention of bonds and Treasury bills issued prior to stated date and excepted from corporate tax; in case at least %25 of this part of portfolio consists of stocks, withholding at a rate of %0 shall be applied pursuant to the Article 94 of Income Tax Code as continued for a long time, otherwise withholding shall be applied at a rate of %10.As, the stocks which will be purchased beginning from 01.01.2006 by these funds and trusts shall not be included in portfolio, the sales of stocks after stated date shall be also accepted preferentially as the sales from the existing part of portfolio on 31.12.2005. However, the gains derived from the alienation or retention of bonds and Treasury bills issued prior to 31.12.2005, shall be followed in this part of portfolio till these securities redeemed entirely.There is no doubt that withholding shall be applied at a rate of %15 pursuant to Temporary Article 67 on the portfolio gains of stated funds and trusts derived from the alienation or retention of marketable securities which were issued /acquired from 01.01.2006 and on those which were excepted from corporate tax.7.1.2 The Withholding to be Applicable on Alienation or Redemption GainsThe withholding shall be applied pursuant to the paragraphs numbered (1) and (4) of Temporary Article 67 of Income Tax Code on the gains derived from trading (purchase-sale) and retention of marketable securities, defined in paragraph numbered (13) of stated Article, of investment funds and trusts established in accordance with Capital Market Law.The taxes taken by withholding on the gains of stated funds and trusts derived from trading and retention of marketable securities shall be offset against withholding amount applied on portfolio gains; in case there is a remaining total which can not be offset, this total shall be rejected and returned themselves. This application is valid for the withholding applied pursuant to the Temporary article 67.On the other hand, the withholding shall not be applied pursuant to the Temporary Article 67 on the gains derived from the retention and alienation of all types of bonds and Treasury bills issued prior to 01.01.2006, and of the marketable securities issued by the Mass Housing Administration and the Privatization Administration.Example:(X) Investment Fund/Trust resident in turkey, derived the following gains in 2006.1- (A Type) of portfolio gains whose %25 of portfolio consists of stocks,a-15.000 YTL from the sale of stocks derived prior to 01/01/2006b-30.000 YTL from the alienation of bonds and Treasury bills issued prior to 01/01/2006c-45.000 YTL from the retention of bonds and Treasury bills issued prior to 01/01/2006d-25.000 YTL from trading of bond within 2006 which was issued prior to 01/01/2006, e-60.000 YTL from the sale of stocks acquired after 01/01/2006 f-75.000 YTL from alienation of bonds and Treasury bills issued after 01/01/2006 g-90.000 YTL from the retention of bonds and Treasury bills issued after 01/01/20062- (B Type) of portfolio gains whose portfolio consists of stocks lower than %25,a-95.000 YTL from the sale of stocks derived prior to 01/01/2006b-40.000 YTL from the alienation of bonds and Treasury bills issued prior to 01/01/2006c-65.000 YTL from the retention of bonds and Treasury bills issued prior to 01/01/2006d-35.000 YTL from trading of bond within 2006 which was issued prior to 01/01/2006, e-70.000 YTL from the sale of stocks acquired after 01/01/2006 f-80.000 YTL from alienation of bonds and Treasury bills issued after 01/01/2006 g-20.000 YTL from the retention of bonds and Treasury bills issued after 01/01/2006According to this, the withholding to be applied on the portfolio gains derived in 2006 by (X) Investment Fund/Trust resident in Turkey shall be calculated as follows.(Costs of fund management are neglected.) For marketable security acquired or issued prior to 01/01/2006 For marketable security acquired or issued after 01/01/2006 A Type B Type Tax Computed(A+B) Withholding Base (A+B) TypeWithholding Rate Tax Computed(A+B) Withholding Base Withholding RateWithholding Base Withholding Rate a- 15.0000 95.00010 9.500e- 130.00015 19.500 b- 30.0000 40.00010 4.000f- 155.00015 23.250 c- 45.0000 65.00010 6.500g- 110.00015 16.500 d- 25.0000 35.00010 3.500Total 395.00015 59.250 Total 115.0000 235.00010 23.500 In such a case; pursuant to the Article 94 and Temporary Article 67 of Income Tax Code, (X) Investment Fund is obliged to apply withholding as mentioned above on the portfolio gains exempted from Corporate tax depending on the issue/acquisition date of marketable security Example:The portfolio composition on 15.02.2006 of (Z) Investment Fund/Trust functioning in Turkey is composed of from Part I and Part II in the way of pursuing the marketable securities issued/ acquired prior to 01.01.2006.Part I Part II Portfolio indicating the marketable securities issued/ acquired prior to 31/12/2005 Marketable SecurityItem (1.000)Price(YTL) Amount(1.000) A Type Stock1.00050 50.000 B Type Stock4.00050 200.000 Government Bond2.00095 190.000 Treasury Bill3.00090 270.000 TOTAL 710.000 Portfolio indicating the marketable securities issued/ acquired as of 01/01/2006 Marketable SecurityItem (1.000)Price(YTL) Amount(1.000)Purchase Date Issue Date A Type Stock2.0004080.00016/1/2006 B Type Stock3.00050150.00017/1/2006 Government Bond20010020.00017/1/2006 Treasury Bill1.0009090.00018/1/2006 TOTAL 340.000 (Z) Investment Fund/Trust is obliged to follow these two portfolios composition seperately because of the fact that it has marketable securities issued/acquired prior to 01.01.2006 and those issued/acquired as of stated date. In case the mentioned Fund/Trust purchases stocks after 01.01.2006, these stocks shall not be included in Part I Portfolio, they shall be followed in Part II Portfolio in any case.In case the mentioned Fund/Trust sells 3.000 items of B Type Stock on 20.01.2006, although the stated stocks which are found both in Part I and Part II Portfolios they are assumed to be exited from Part I Portfolio. In such a case, the composition of portfolio will change and turn into B Type exiting from A Type which consists of %25 and more stocks. In taxationthis case must be taken into consideration.The explanations stated above is valid for also non-resident taxable Investment Funds/Trusts. However, it is not possible for stated funds/trusts to include stocks to be purchased as of 01.01.2006 and marketable securities to be issued as of this date in portfolio.7.2 The Taxation of Investment Funds Subjected to Limited Tax Liability 7.2.1 Withholding to be Applicable on Portfolio GainsAs known, when paragraph numbered 2 of 2 nd Article of Corporate Tax Code abolished by the Law numbered 5281, investment funds subjected to limited tax liability and dealing in only portfolio business in Turkey shall not be accepted as investment fund anymore in aspect of taxation established in accordance with Capital market Law in respect of the application of Income Tax Code and corporate tax Code as of 01.01.2006.However; in aspect of taxation the status of non-resident taxable investment funds, which are considered as investment funds established in accordance with Capital Market Law till 31.12.2005, shall continue till the date on which except stocks and limited with marketable securities issued prior to 31.12.2005 are out of circulation. The status of stated funds for the stocks existing in their portfolios on 31.12.2005 shall continue till the date on which these securities are alienated for the first time.According to this, in case whether bonds and Treasury bills, issued prior to 31.12.2005, existing in portfolio of non-resident taxable investment fund as of stated date or included in portfolio after this date, withholding shall not be applied on the gains derived by the stated funds till the date on which these securities are out of circulation pursuant to the Temporary Article 67, the taxation shall be done pursuant to the provisions which are in effect on 31.12.2005.The withholding shall not be applied pursuant to the Temporary Article 67 on the gains derived by stated funds till the date on which the stocks existing in portfolio on 31.12.2005 are charged off for the first time, the taxation shall be done pursuant to the provisions which are in effect on 31.12.2005.Consequently, the portfolio gains derived from portfolio business concerning marketable securities existing in portfolio of non-resident taxable investment fund as of 31.12.2005, are excepted from corporate tax and these fuds shall be taxed according to the intensivity of stocks in portfolio at a rate of %0 or %10 pursuant to the Article 94 of Income Tax Code as continued for a long time.As it is not possible to include stocks purchased as of 01.01.2006 and marketable securities issued after stated date in portfolios considered as portfolio administration company of non-resident taxable investment funds whose fund status continues only in aspect of taxation and for the transition period; the sales of stocks to be realized by these funds after stated date also accepted as the sales realized preferentially from the stocks which are included in portfolio, considered as in the fund status, prior to 01.01.2006. However, the gains derived from the alienation or retention of bonds and Treasury bills issued prior to 31.12.2005 shall be followed in part of portfolio which is considered as in the fund status till these securities are redeemed entirely.7.2.2 Withholding to be Applicable on Alienation and Redemption GainsOn the grounds that it is not possible for investment funds subjected to limited tax liability to take the marketable securities to be issued as of 01.01.2006 and those of to be purchased on behalf of the clients of stated funds after 01.01.2006, and stocks to be purchased as of stated date into fund portfolio, any withholding shall not be applied in the view of fund.Marketable securities purchased on behalf of clients through these institutions shall be accepted as those which are traded or held by clients. Because of this, pursuant to the paragraph numbered (1) and (4) of Temporary article 67 of Income Tax Code, the withholding shall be applied on the gains of stated persons derived from trading and retention of marketable securities defined in the paragraph numbered (13) of the same Article.According to this, in case whether marketable securities issued prior to 31.12.2005 existing in portfolio of non-resident taxable investment fund as of stated date, pursuant to the Temporary article 67 withholding shall not be applied on the gains derived by the stated funds till the date on which these securities are out of circulation.On the other hand, funds which don' t have any marketable securities in portfolio of fund as of 01.01.2006 shall be accepted as liquidated as of stated date.In case the portfolio of fund is emptied after 01.01.2006, it is out of question that the fund status will be released.Furthermore, it is not possible for non- resident taxable institutions,which don't have investment fund status on 31.12.2005, to funtion as fund status as of 01.01.2006. Example: A- (Y) Non-resident taxable Investment Fund/ Trust functioning in Turkey derived the following gains in 2006. (A Type) portfolio gains whose %25 of its portfolio consists of stocksa-25.000 YTL from the sale of stocks derived prior to 01/01/2006b-40.000 YTL from the alienation of bonds and Treasury bills issued prior to 01/01/2006c-55.000 YTL from the retention of bonds and Treasury bills issued prior to 01/01/2006d-35.000 YTL from trading of bond within 2006 which was issued prior to 01/01/2006,B- (Z) Non-resident taxable Investment Fund/ Trust functioning in Turkey derived the following gains in 2006. (B Type) portfolio gains whose portfolio consists of stocks lower than %25a-105.000 YTL from the sale of stocks derived prior to 01/01/2006b-50.000 YTL from the alienation of bonds and Treasury bills issued prior to 01/01/2006c-75.000 YTL from the retention of bonds and Treasury bills issued prior to 01/01/2006d-45.000 YTL from trading of bond within 2006 which was issued prior to 01/01/2006According to this, the withholding which will be applied on portfolio gains derived in 2006 by (Y and Z) non-resident taxable Investment Fund/Trust. For marketable security acquired or issued prior to 01/01/2006 (A Type) For marketable security acquired or issued prior to 01/01/2006 (B Type) Withholding Base Withholding Rate Tax Computed Withholding Base Withholding Rate Tax Computed a- 25.000 0 0 e- 105.000 10 10.500 b- 40.000 0 0 f- 50.000 10 5.000 c- 55.000 0 0 g- 75.000 10 7.500 d- 35.000 0 0 h- 45.000 10 4.500 Top 130.000 0 0 Top 275.000 10 27.500 In such a case, withholding have to be applied pursuant to the Article 94 of Income Tax Code on the portfolio gains of non-resident taxable Investment Fund/Trust which were excepted from corporate tax.8. The Taxation of the Gains Derived from Bonds and Bills Issued Prior to 01/01/2006 As mentioned earlier, the provisions of Temporary Article 67 shall not apply on the interest income derived from all types of bonds and Treasury Bills issued prior to 01/01/2006, and the gains derived from the retention or alienation of the marketable securities issued by the Mass Housing Administration and the Privatization Administration pursuant to 9th paragraph of Temporary Article 67. Accordingly, banks and intermediary institutions shall not apply withholding on the gains that are derived during the retention or during the alienation of the concerned assets pursuant to Temporary Article 67. The yields derived from such securities during or subsequent to 2006, shall continue to become subject to taxation pursuant to the provisions of the Income Tax Law that are in effect as of 31/12/2005, regulating the procedures to apply in the taxation of the gains. According to this, gains derived from the alienation of all types of bonds and Treasury Bills issued prior to 01.01.2006 and that of marketable securities issued by The Mass Housing Administration and The Privatization Administration shall be declared with special tax return by the non-resident taxable institutions. Gains derived from the retention of stated marketable securities have to be also included in this return. Since this application will continue until the redemption of the underlying assets, the date of acquisition of the concerned assets is not important. In other words, even if the assets have been acquired after 01/01/2006, the provisions of Temporary Article 67 shall not apply on the gains derived from the Government Bonds and Treasury Bills that were issued prior to 01/01/2006. Example: On 10.01.2005, Mrs. (A) has acquired Government Bonds that were issued on 07.07.2004; has alienationd a portion of these Government Bonds on 02.06.2006, and has retained the remaining portion until the date of their redemption on 05.07.2006, deriving an interest gain on the date of redemption. Since the date of issuance of the underlying bonds is before 01.01.2006, both the interest gains and the capital gains derived by Mrs. (A) shall be appraised in accordance with the provisions of the Income Tax Code that are in effect on 31.12.2005. Hence, the gains in question shall be excluded from withholding pursuant to Temporary Article 67 Example: On 05.01.2006, Mrs. (A) has acquired Government Bonds with issue date 13.07.2005; has retained the bonds in question until 02.06.2006, and has sold them to (X) Bank. Since the date of issuance of the underlying bonds is prior to 01/01/2006, the capital gains derived by Mrs. (A) from the trading of securities, shall be appraised pursuant to the provisions of the Income Tax Code that are in effect on 31.12.2005. The gains in question shall not become subject to withholding pursuant to Temporary Article 67. 9. Gains Derived During the Retention or During the Alienation of Marketable Securities or Other Types of Capital Market Instruments that were Acquired Prior to 01/01/2006 Pursuant to Temporary Article 67/(10), the banks and intermediary institutions shall not apply withholding on the gains that are derived from the retention or the alienation of the marketable securities or other types of capital market instruments that were acquired prior to 01/01/2006, and during the taxation of such gains, the provisions of the Income Tax Code that are in effect as of 31/12/2005 shall apply. Gains derived from the alienation of marketable securities or other types of capital market instruments that were acquired prior to 01/01/2006 shall be declared in special tax return by the non-resident institutions. Example: Mr. (A) has purchased the stocks issued by (X) Inc. on 26.12.2005, at a purchase price of 25,000 YTL; and has sold the same stocks at a sales price of 25,000 YTL on 17.02.2006, deriving capital gains amounting to 5,000 YTL. Mr. (A) has also derived a dividend income of 5,000 YTL from the stocks of (Y) Inc., that he has acquired prior to 01.01.2006, due to the dividend distribution that was realized on 19.06.2006. Since Mr. (A) has acquired the stocks issued by (X) Inc. prior to 01.01.2006 and the dividend income is not within the context of Temporary Article 67, both the dividend income and the capital gains that he has derived in 2006 will be taxed pursuant to the provisions of the Income Tax Code that are in effect on 31.12.2005, the gains in question shall not become subject to withholding pursuant to Temporary Article 67. 10. The Implementation of the Double Tax Treaties The provisions set forth in the Double Taxation Treaty concluded between Turkey and the country where the beneficial owner of the income subject to withholding is resident, has a particular significance For purposes of withholding applications regulated in Temporary Article 67. Non-resident taxable individuals/corporations must take tax identification number to invest in the marketable securities in Turkey by themselves or the portfolio managing companies and to benefit from the provisions of the Double Taxation Treaty within the context of Temporary Article 67. In order to take tax identification number, while non-resident taxable real persons are obliged to represent a notarized copy of their passports or origin and copy of them upon approving by the competent persons of tax office, to the related tax office, non-resident taxable corporations are obliged to represent a Turkish copy of foundation document valid in their own countries and which is approved by the representative office of Turkey in that country or a Turkish copy of approved foundation document which is translated by the translation offices to the related tax office. Representation of certification of birth is enough for the Turkish Republic of Northern Cyprus. Furthermore, banks, intermediary institutions and custody institutions will be able to take tax identification number collectively by filling into the 'Demand Form of Tax Identification Number for Foreigners' existing in the enclosure of the general announcement dated 07.11.2003 and numbered 48244, for foreign clients who apply to these institutions in order to transact but cannot represent the tax identification number. In order to take tax identification number collectively, banks and intermediary institutions are obliged to send the documents, which must be represented to the tax office by non-resident taxable real persons and institutions, to the Boğaziçi Tax Administration / Presidency of Istanbul Tax Office by joining them on to the 'Demand Form of Tax Identification Number for Foreigners'. To benefit from the provisions of the Double Taxation Treaty, the original copy of the certificate of residence drown up and signed by the competent authority of the related country and the copy of it translated by the translation offices required to be presented to the related tax office directly or through the banks and intermediary institutions. Certificate of Residence regarding to one calendar year is valid till the 4. mounth of the following year, the stated certificate required to be renewed every year. The tax office will form the tax identification number through making codification indicating that a person or institution is the resident of which country. In this way it will be possible for the taxpayer to benefit from the provisions of the Double Taxation Treaty. Within this framework, the resident of a contracting State that demands the exemption of withholding or the application of withholding at a reduced rate through benefiting from the provisions of the Double Tax Treaty concluded between Turkey and the concerned State, shall be required to present an original copy of certificate of residence drawn up and signed by the competent authority referred to in Article 3 of the Treaty, and a translated copy of it translated by translation office verifying that the concerned party has become subject to taxation over its worldwide gains in that State on the basis of full liable taxpayer status, as a resident of the concerned State to the related tax office directly or through the banks and intermediary institutions prior to the application of withholding. In case this certificate cannot be represented prior to the application of withholding, the relevant provisions of the Double Tax Treaty will be disregarded, and withholding will be applied at a rate of 15%. However, even in such cases, upon the subsequent presentation of the Certificate of Residence refunding of the tax withheld excessively shall be demanded pursuant to the provisions of the concerned Double Taxation Treaty and the Turkish tax legislation. In this case, tax withheld excessively will be refunded to the bank or the intermediary institution which is responsible for applying withholding to pay to the concerned taxpayer by the tax office. When needed Ministry of Finance can also demand from persons and institutions, who will benefit from the provisions of Double Taxation Treaties, to represent the documents proving that they are the real beneficiary owners pursuant to the provisions of treaty to be applied in respect of Turkish marketable securities which they purchased and sold or collected the yield of them. Tax loss is supposed to appear for the taxes which were not assessed and collected on time for those who don' t represent these documents on time, which Ministry of Finance will define, and are determined that they are not the real beneficial owners from these documents or in another way. The texts of all the treaties executed by Turkey to date and the Turkish translations of such treaties, are available in the web site of the General Directorate of Revenues at www.gelirler.gov.tr Kindly Be Informed. ATTACHMENT 1 : Income Withholding Tax Return ATTACHMENT 2 : Declaration for those on Whose Name the Withholding is Levied ATTACHMENT 3: Declaration Concerning the Transfer of the Marketable Security or Other Type of Capital Market Instrument to Another Bank or Intermediary Institution ATTACHMENT 4: Declaration to be Submitted in the case of the Physical Delivery/Receipt of the Marketable Security or Other Type of Capital Market Instrument