CFC: Do you need to file a report if the company was sold at the beginning of the year?
Many entrepreneurs face the issue of tax reporting for Controlled Foreign Companies (CFC), especially in the case of selling a company at the beginning of the year. Let’s consider the situation and the tax authority’s position.
Situation
On January 16, 2024, an individual sold 100% of the corporate rights in a Turkish company. The question arises: is it necessary to file a CFC report for 2024 if control over the company was lost immediately after the deal?
Tax Authority’s Position
Despite the company being sold at the beginning of the year, the tax authority requires the taxpayer to file a CFC report together with the annual tax return for 2024. The report must also include the company’s financial statements. The tax authority adheres to a fiscal position, which requires reporting even if control over the company was lost.
Legal Issues That Arise
❓ How can you obtain the financial statements if you no longer have access to the company?
After selling the business, the former owner no longer has the legal grounds to request financial statements from the new owners. Therefore, the tax authority’s requirement seems questionable.
❓ Does the tax authority have the right to demand reporting if the company is no longer controlled?
Previously, the tax authority adhered to the logic that CFC reporting is filed by the entity that controls the company at the end of the reporting year. However, this position has recently changed, which creates legal uncertainty.
❓ How to challenge this norm?
The legislation does not provide a clear answer as to whether the former owner must submit the report after selling the CFC. Therefore, there is an option to challenge such requirements.
What Do Experts Recommend?
✅ Submit an individual tax consultation (ITC)
Receiving an ITC will allow you to fix the tax authority’s position in a specific case. If the answer is negative, it can be appealed in court.
✅ Challenge the tax authority’s requirement in court
There is no established court practice on this issue, but there are grounds for a successful challenge since the tax authority cannot demand financial statements from a company that the taxpayer no longer controls.
Conclusion
If you sold a CFC at the beginning of the year, the tax authority still requires filing a report. However, this requirement is not indisputable and can be challenged. If you have a similar situation, it is worth considering obtaining an ITC or appealing to the court.
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