Turkey is the most complex country in the world in which to comply with accounting regulations, according to a new report from global corporate services firm TMF Group.
Its Financial Complexity Index 2017 notes: “It is mandatory in Turkish accounting to work with original, hard-copy documents, and statutory accounting ledgers are in a predetermined format.
“If a company is required to use electronic ledgers, they have to use accounting software that has been approved and authorised by the Ministry of Finance (currently, no international software provider has applied to attain authorisation).”
The report points out that Turkey’s extensive tax code is “often changed and updated”, and that these developments “are not always easily traceable, unless there is a specific issue in a particular area where tax requirements are still evolving”.
In addition, local tax knowledge is often required – particularly to determine the correct postings of VAT. “For example,” the report says, “if an expense is non-deductible for corporate income tax, the VAT on the invoice also has to be posted as a non-deductible expense.”
Turkey’s frequent legislative changes also contribute to its complexity, as it is aiming to cultivate a climate of fair competition while boosting intercompany relations and international trade.
However, the report notes, these changes may be a case of short-term pain for long-term gain. One of the driving factors behind the changes, it says, “is an attempt to harmonise Turkish processes with those of the rest of the EU”.
Turkey is tackling this by minimising regulatory differences and equalising tax rates – for example, new tax-procedure codes will reduce the number of articles from 521 to 321.
Other countries in the report’s top 10 chart of the most complex compliance locations include Italy (3), Greece (4), China (7) and Belgium (8).
The report points out that Italy levies national, regional and municipal tax. This is due to the number of separate taxes that must be paid, and the number of reports and returns that must be submitted for each type.
Those paperwork requirements include recently created measures designed to combat behaviours such as base erosion and profit shifting (BEPS) and VAT evasion. As such, the report says, “considerable time” is spent dealing with the Italian tax system.
Turning to Greece, the report cites a “heavy administrative burden” in that territory to administer and collect taxes. Local tax offices are divided into various administrative areas, and each area operates one or more tax office branches.
Greece also has special tax regimes that apply to shipping, airline and real estate investment firms, and others specific to coordination centres and mutual funds. Plus, the report says, “Greece has several layers of VAT and no consistency in the application of the tax.”
Due to the volume and the complexity of Greek tax legislation, the report notes, “it is very common for a taxpayer to be in breach of some tax provision – even unintentionally”.