Effect of Inflation Adjustment Entries Required under the Tax Procedure Law on Deferred Tax Calculations under TAS/TFRS and BOBİ FRS

Effect of inflation adjustment entries required to be calculated and recorded under the Tax Procedure Law on deferred tax calculations under TAS/TFRS and BOBİ FRS (Turkish GAAP for SMEs) (the Turkish financial reporting standard for large and medium-sized entities)

Deferred taxes arise from temporary differences between the carrying amounts of assets and liabilities (their TAS/TFRS or BOBİ FRS amounts) and their tax bases (their amounts under the Tax Procedure Law, VUK), as well as from unused tax losses and tax credits carried forward to future periods; under the accrual principle, they are reported in the financial statements separately from current taxes.

Because the inflation differences to be calculated under the Tax Procedure Law will be recorded in the statutory books as at 31.12.2023, the inflation-adjusted amounts will be used as tax bases as at 31.12.2023. Therefore, for deferred tax calculations in the financial statements prepared by companies under TAS/TFRS or BOBİ FRS to be correct, the tax bases — that is, the inflation adjustment entries required under the VUK — must first be recorded in the statutory books.