Tax Aspects of Second-Hand Vehicle Sales in Light of Recent Amendments to the Regulation on the Trade of Second-Hand Motor Land Vehicles

Tax Aspects of Second-Hand Vehicle Sales in the Light of the Recent Amendments to the Regulation on the Trade of Second-Hand Motor Land Vehicles

06.07.2023 dated Official Gazette published the "Regulation Amending the Regulation on the Trade of Second Hand Motor Land Vehicles". The effective date of the amendments to the Regulation is 15.07.2023 and includes important regulations for those who sell second-hand motor vehicles through advertisements.

With the Regulation published, Provisional Article 3 titled "Advertisement restriction" has been added to the Regulation on the Trade of Second Hand Motor Land Vehicles. Paragraph (1) of the Article reads as follows: "The marketing of second-hand motor vehicles through advertisements at a price above the current sales price recommended by the manufacturer or distributor shall be deemed as second-hand motor vehicle trade in terms of the application of this Article."

Accordingly, if a price above the current sales price recommended by the manufacturer or distributor is requested in the sales announcements made as of 15.07.2023, the sale will be considered as second hand motor land vehicle trade.

As it is known, in paragraph (1) of Article 5 of the Regulation on the Trade of Second Hand Motor Land Vehicles: "Second-hand motor land vehicle trade is carried out by businesses holding an authorization certificate. The sale of more than three second-hand motor vehicles within a calendar year, either directly or through intermediation, shall be deemed as second-hand motor vehicle trade unless otherwise determined by the Ministry."

The limits of commercial activity are defined in tax laws. According to the tax legislation, the elements of commercial activity are continuity and commercial organization. In the presence of one of these, it is accepted that commercial activity is carried out and the taxpayer is obliged to establish a taxpayer due to commercial activity in the tax office. Continuity is explained in the Income Tax General Communiqué Serial No. 104. Accordingly, transactions that are repeated more than once in a calendar year or repeated consecutively in more than one calendar year will be deemed to have the intent and intention of continuity. As can be seen, according to the tax legislation, even if two vehicles are sold within a year, it is accepted that commercial activity is carried out. To date, the Fiscal Administration has not accepted the existence of commercial activity in the sale of up to three vehicles in accordance with paragraph (1) of Article 5 of the Regulation on the Trade of Second-Hand Motor Land Vehicles, but those who sold four vehicles within a year were identified and investigated. In other words, the taxpayers in question were declared liable for commercial activity, and the taxes they did not declare on time were sought together with late payment interest and tax loss penalties.

With the amendment, even if only one vehicle is sold in vehicles marketed through advertisements, if the advertisement price is above the current sales price recommended by the manufacturer or distributor, it will be accepted that motor land vehicle trade is carried out. It is necessary to evaluate the equivalence of the acceptance of a single sale as a commercial activity in the Income Tax Law.

In the Income Tax Law, commercial income is regulated under two different income elements. While continuous sales are regulated in the commercial income section, those that are not continuous are considered as incidental commercial income in the other earnings and revenues section. The Income Tax Law defines income derived from sales that are not continuous, for example, income derived from a one-off sale without a commercial organization, which is not repeated in successive years, as incidental commercial income. Article 82 of the Income Tax Law states that gains derived from the performance of commercial transactions on an incidental basis are incidental gains, and it is regulated that such gains must be declared in case of gains above the exemption amount.

Although the Income Tax Law regulates in this direction, it is not clear which of the one-off sales will be considered as incidental commercial activities. In this context, in one-off sales, if the sales transaction is made with a commercial motive, in other words, for the purpose of earning profit, the income from this sale should be considered as incidental commercial income.

With the recent amendments, those who sell more than three vehicles through advertisements or otherwise will be considered within the scope of commercial activity in accordance with Articles 37 and following of the Income Tax Law, since the continuity element has been realized. For those who sell three or less vehicles, if the sale is realized through advertisement and the advertisement price is above the manufacturer or distributor price, the income obtained will be considered as incidental commercial income in accordance with the regulation "second hand motor land vehicle trade is accepted" added to the Regulation on the Trade of Second Hand Motor Land Vehicles. The phrase "...trade is accepted" requires the acceptance that the sale of the vehicle is made with a commercial motive, in other words, for the purpose of gaining profit. Therefore, persons who make such sales will be required to submit an annual income tax return to the tax office within the scope of other earnings and revenues, if there is a gain above the exemption amount.

If those who sell three or less vehicles do not make sales through advertisements, or if they make sales through advertisements but the sales prices are below the manufacturer or distributor prices, the acceptance of the incidental commercial gain depends on the proof that the sale is made with a commercial motive, i.e. for the purpose of gaining profit. This situation is very difficult to prove.