Recent developments in the Turkish investment fund market have made a previously technical question highly practical for corporate treasury teams: what happens when a company holds a fund investment that has a reported value but cannot immediately be converted into cash?

This distinction matters because Turkish companies increasingly use investment funds as part of short-term treasury management. Foreign corporate investors may also hold Turkish fund interests through their investment arrangements in Türkiye.

1. Illiquidity does not mean that the asset has disappeared

The first distinction is legal. The assets of an investment fund are separate from the proprietary assets of its portfolio management company. A redemption suspension or liquidation process therefore does not automatically reduce the investor’s interest to zero.

In a liquidation, the relevant issue becomes the amount ultimately recoverable from the fund portfolio. That amount may differ from the last published unit price, particularly where underlying assets cannot be realised at previously reported values.

The Capital Markets Board of Türkiye has recently emphasised the importance of valuation practices that reflect economic reality, particularly in relation to certain money-market and hedge fund structures.

2. Tax valuation starts with Article 279 of the Tax Procedure Law

For Turkish tax purposes, investment fund interests held as corporate assets must be examined under the valuation provisions of the Turkish Tax Procedure Law.

Article 279 provides specific treatment for securities. Shares and investment fund participation certificates where at least 51% of the fund portfolio consists of shares in companies established in Türkiye are valued at acquisition cost. Other securities are subject to the valuation rules set out in the same provision.

The practical consequence is important: the figure shown on an investment statement should not automatically be assumed to be the correct Turkish tax carrying value. The nature of the fund and the applicable statutory valuation rule must first be identified.

3. What if a fund still has a published value but cannot be redeemed?

A 25 May 2023 ruling issued by the Istanbul Tax Office considered the valuation of participation units in a foreign-equity-weighted Turkish hedge fund that was not exchange-traded. The tax authority concluded that the unit value calculated and published by the fund for the valuation date should be taken into account.

That administrative position is useful under normal market conditions. A more difficult question arises where redemptions have been suspended or a fund has entered liquidation.

In such a case, a published or previously published fund value and the amount that can ultimately be realised by the investor may no longer be identical. Illiquidity alone does not justify writing the asset down to zero for tax purposes. Equally, an historic displayed value may require closer examination once its economic relevance becomes uncertain.

4. An economic loss is not necessarily a tax loss

This is the central tax distinction.

A deterioration in liquidity or expected recoverable value may be relevant for financial reporting. It does not necessarily mean that an equivalent deduction is immediately available for Turkish corporate income tax purposes.

The Tax Procedure Law does not provide a general mechanism allowing every decline in the economic value of a security to be deducted through an impairment provision. A provision recognised in commercial accounts may therefore require a separate adjustment in the tax computation.

Accounting impairment and tax deductibility should consequently be analysed as separate questions.

5. When does the loss become sufficiently realised?

Assume that the TRY 10 million investment in the example above ultimately produces TRY 7 million of liquidation proceeds.

Once the investor’s entitlement has been finally determined, the economic loss becomes substantially clearer. The position is less straightforward while liquidation remains open, partial distributions are being made and the investor retains rights over assets that have not yet been realised.

The appropriate tax period for recognising a loss therefore depends on the legal status of the liquidation, distributions already received, remaining investor rights and whether the final recoverable amount can be established.

6. The balance-sheet issue is different from the tax issue

A company may still report a material financial asset while being unable to use that asset to meet payroll, taxes or short-term debt. This creates a treasury and financial reporting issue even where a tax loss has not yet crystallised.

For CFO reporting, the important question is therefore not only what value appears on the investment statement, but whether the asset remains genuinely liquid and what amount is realistically recoverable.

7. What if the investor is a foreign company?

The same valuation and recovery issue may also arise for a non-Turkish corporate investor holding participation units in a Turkish investment fund.

The tax analysis, however, should not simply be copied from that of a Turkish-resident company. The investor’s legal status, the nature of the income or liquidation proceeds, Turkish withholding rules, any Turkish permanent establishment and the applicable double tax treaty may all affect the outcome.

For a foreign corporate investor, the fund-level event and the investor-level Turkish tax consequence should therefore be reviewed separately.