Transportation, installation, and similar expenses included in the cost of machinery and equipment acquired under an investment incentive certificate no longer retain the characteristic of independent expense items. These expenses are integrated into the cost value of the machinery and cannot be shown separately from the machinery price on the invoice in subsequent transfer transactions. Can Machinery Price and Transportation/Installation Expenses Be Segregated on an Invoice? Introduction Machinery and equipment purchases made within the scope of an investment incentive certificate are among the transactions that require special attention in terms of both accounting practices and tax record-keeping. Specifically, there is frequent ambiguity in practice regarding whether expenses incurred during the acquisition phase—such as transportation, installation, and commissioning—should be included in the cost value and how these should be reflected on the invoice during subsequent transfers. Based on an advance tax ruling issued by the Revenue Administration, this article examines whether transportation and installation expenses of machinery acquired under an investment incentive certificate can be segregated from the machinery price, focusing solely on the specific case presented in the ruling. The Specific Case Subject to the Ruling In the subject case, a power plant along with its machinery and equipment belonging to A… A.Ş., to which the Savings Deposit Insurance Fund (TMSF) was appointed as a trustee, was put up for sale via tender within the framework of relevant legislation. These machines and equipment had previously been acquired by A… A.Ş. under an investment incentive certificate. During the initial acquisition, the company incurred expenses not only for the machinery price but also for transportation, installation, commissioning, customs clearance, and similar service procurements. These expenses were included by the company in the cost value of the machinery. Following the tender, the transfer of the machinery to another company came onto the agenda. However, hesitation arose regarding whether the machinery price and the previously capitalized transportation/installation expenses could be shown separately on the invoice. Consequently, an official opinion was requested from the administration. Documentation and Invoicing Regulations Under the Tax Procedure Law According to the Tax Procedure Law (VUK), taxpayers are required to document their commercial transactions with third parties. This documentation is primarily performed via an invoice. An invoice must clearly show the nature, quantity, price, and total amount of the work performed or the goods sold. However, these general principles regarding invoice regulation are subject to the condition that the legal and economic essence of the transaction is accurately reflected. In other words, items on the invoice must represent the true content of the transaction, and items previously treated as cost elements must not be segregated later in a way that assigns them a different nature. Scope of the Cost Value Under the Tax Procedure Law, the cost value is the sum of payments made and all related expenses incurred for the purpose of acquiring an economic asset or increasing its value. This definition covers expenses that are mandatory for bringing the economic asset into the enterprise and directly serve this purpose. Specifically for machinery and equipment; transportation, installation, and commissioning expenses are mandatory for making the machinery operational within the business. Therefore, such expenses are considered an inseparable part of the machinery’s cost value. Status of Transportation and Installation Expenses in the Specific Case In the case subject to the ruling, the transportation and installation expenses were not treated as a separate expense during initial acquisition but were directly capitalized into the cost of the machinery. Consequently, these expenses were added to the value of the economic asset and ceased to be an independent service fee. At this stage, segregating these expenses during the transfer of the machinery to another company and showing them as a separate item for goods or services would contradict the actual nature of the transaction. Administrative Evaluation and Opinion In the evaluation conducted by the administration, it was explicitly stated that it is not possible to segregate expenses such as transportation and installation—which were included in the cost value of machinery acquired under an investment incentive certificate—and show them as separate items on the invoice during a transfer. In other words, the machinery price and the expenses incurred during its acquisition that were capitalized are recognized as the price of a single economic asset. Their segregation into two distinct types of goods or services on an invoice is not permitted. Conclusion and General Assessment Moving from the specific case in the ruling: transportation, installation, and similar expenses included in the cost of machinery acquired under an investment incentive certificate no longer function as independent expense elements. These expenses are merged with the cost value of the machinery and cannot be shown separately on the invoice in subsequent transfers. This approach is consistent with both the definition of cost value and the tax principles regarding invoice regulation. It is vital for taxpayers facing similar situations in practice to issue their invoices in accordance with this principle of integrity to avoid tax risks during machinery and equipment transfers. Q&A Summary Question Answer Are transportation expenses for machinery under an incentive certificate a cost? Yes, they are included in the cost value of the machinery. Can installation expenses be considered separately from the machinery price? No, they are an inseparable part of the cost. Can transportation expenses be shown separately on a transfer invoice? No, segregation is not possible. Can previously capitalized expenses be deemed a service fee later? No, they cannot be evaluated as an independent service. Can machinery and installation be two separate line items on the invoice? No, they must be shown as a single economic asset. What does the cost value include according to the VUK? All expenses related to acquisition and value enhancement. Do transportation expenses increase the value of the machinery? Yes, as they make the machinery ready for use. Does segregating the price on a transfer invoice create tax risk? Yes, it may lead to the risk of improper invoicing. Is the administration’s opinion clear on this? Yes, it is clearly stated in the tax ruling. What should taxpayers pay attention to in practice? They should issue invoices without disrupting the integrity of the cost. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.