Partners' current account: when a partner withdraws money or lends to the company

In small and mid-sized companies, the most common audit finding is the partners' current account: a partner withdraws from or puts money into the company account, but without an agreement or interest. For tax purposes every transaction between related persons must be at arm's length (Corporate Tax Law art. 13).

1. If a partner withdraws money (account 131, receivables from partners)

An interest-free loan from the company to a partner is not at arm's length; in an audit it may be treated as hidden profit distribution through transfer pricing. Consequences:

• The uncharged interest is added to the company's income, with corporate tax and a tax loss penalty.
• Dividend withholding arises on the amount treated as distributed profit.
• Interest income is subject to VAT; the uncharged VAT is also claimed.

What to do

1. A written loan agreement for the loan to the partner (amount, term, interest).
2. Interest calculation monthly or at period end on the partner's debit balance at an arm's length rate (in practice the company's own borrowing cost or the Central Bank's short-term advance rate). Interest calculator
3. An invoice to the partner for the interest and VAT declared.
4. Settling the partner's debt quickly or offsetting it with a dividend. Dividend calculator

Example: a partner holds TRY 1,000,000 as a debt to the company for 6 months; arm's length rate 40% a year → about TRY 200,000 interest income and TRY 40,000 VAT.

2. If a partner lends to the company (account 331, payables to partners)

A partner putting money in is not a problem by itself; it is a more flexible form of financing than a capital increase. Points to watch:

• Transfer via bank with "partner loan" in the description; cash deposits create cash-book inconsistencies and audit risk.
• A written loan agreement: amount, term, whether interest-bearing, repayment terms.
• An interest-free loan generally causes no problem (it is not against the company).
• If interest is paid: borrowings from partners and related persons exceeding 3 times equity at the start of the period are thin capital; interest and FX differences on that part are not deductible and are treated as distributed profit. The rate must also be at arm's length.
• Finance expense restriction: in companies whose borrowings exceed equity, 10% of the finance cost attributable to the excess is non-deductible. Non-deductible expenses · Calculator

3. Unpaid capital in a limited company

Capital committed but not paid (due within 24 months) is a receivable from the partner; leaving it unpaid for a long time can also be an audit issue. Limited company formation

Checklist

• Monthly reconciliation of accounts 131 and 331
• Written loan agreements
• Periodic interest and invoice on the 131 balance
• Thin capital and arm's length rate checks for interest-bearing loans in 331
• At year end, consider settling partner debt with a dividend

Sources: Corporate Tax Law No. 5520 art. 12 (thin capitalisation), art. 13 (transfer pricing), art. 11/1-i (finance expense restriction); VAT Law No. 3065; General Communiqué on Hidden Profit Distribution through Transfer Pricing.