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HOW TO CLAIM REFUNDS FOR OVERCHARGED IMPORT TAXES DUE TO SURVEILLANCE CERTIFICATE REQUIREMENTS

August 2016 - Tax & Private Client. Legal Developments by ADMD Law Office .

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Ministry of Economy determines certain minimum thresholds for certain products in order to force the exporters to pay higher taxes on the products in customs. In this respect, the Ministry determines the minimum value threshold per each kilogram of the imported product and sets forth that any exports into Turkey that does not meet this minimum value threshold shall be required to obtain a surveillance certificate from the Ministry. This is mainly implemented for tax purposes and to protect the local producers in Turkey. Based on new precedent, it is now possible to reclaim such overpaid tax and expenses. 

Turkey, a member of the World Trade Organization (WTO), has implemented several trade defence instruments, all of which are currently enforced, in compliance with WTO rules and national legislation. Such measures include anti-dumping, anti-subsidy, anti-circumvention and safeguards as well as mandatory surveillance certificates and were implemented into the Turkish legal system as per the Agreement on Safeguards annexed to the Agreement Establishing the World Trade Organization, which was approved by the Law No. 4067 published at the Legislative Journal dated January 29, 1995 and No. 22186 and the Council of Ministers Decision No. 1995/6525 and dated February 3, 1995 published at the Legislative Journal dated February 25, 1995 and No. 22213.

As per the WTO agreements, numerous Council of Ministers Decisions along with a two separate regulations, the Regulation on the Surveillance and Safeguard Measures for Imports and the Regulation on the Surveillance and Safeguard Measures for Imports from Certain Countries, has been published and implemented which forms the basis of such trade defence instruments and the surveillance certificate requirement. Accordingly, this surveillance certificate procedure implemented for imports in Turkey are essentially a variation of safeguard measures and anti-dumping taxes implemented to imports in Turkey and are implemented with communiques issued by the Ministry and published at the Legislative Journal.

With the surveillance procedure, the Ministry of Economy determines certain minimum thresholds for certain products in order to force the exporters to pay higher taxes on the products in customs. In this respect, the Ministry determines the minimum value threshold per each kilogram of the imported product and sets forth that any exports into Turkey that does not meet this minimum value threshold shall be required to obtain a surveillance certificate from the Ministry. This is mainly implemented for tax purposes and to protect the local producers in Turkey.

In practice, when a surveillance certificate requirement is imposed upon imports of a certain product, the importers have three options; (i) the imported products will need to be equal or above the minimum value threshold per each kilogram as determined by the relevant communique, (ii) if the imported products’ customs value is below the minimum threshold, the local importers will need to apply for a surveillance certificate or (iii) adjust the values declared to the customs at the customs declaration documents and to add expense items into the declaration as overseas expenses in order to raise the total import value to or above the minimum threshold, and circumvent the certification requirement. It should be noted at this point that in order to obtain a surveillance certificate an application to the Ministry of Economy will need to be made (the local importer is required to make the application). Such application shall include a petition and along with all the document required and set forth at the annexes of the relevant Communique. Once the application is made the Ministry will review the application and may request for additional documents and may call for a meeting to which the applicant may need to attend in Ankara. However, it should be noted that, generally such review processes take a long time and the Ministry tends to refrain from issuing surveillance certificates, except for certain special cases and products, since this procedure was implemented to protect the local producers.

Since the Ministry rejects most applications for surveillance certificates, most importers tend to go with the third option and artificially increase the total customs value to circumvent the certification requirement. Although increasing the total import value does not require the importers to actually pay the additional expenses reflected at the declaration, the customs officials will levy the relevant customs duties and all relevant taxes from the increased import value, hence increasing the tax burden of the importers. Therefore, many importers face excessive tax amounts in order to circumvent the certification requirement. However, the levying of such overcharged tax is unlawful, as the legislation regarding trade defense instruments, the tax legislation or the Customs Law No. 4458 does not provide any provisions stating that an increased tax burden may be imposed to importers that fail to meet the surveillance certificate criterion. In practice however, the customs officials do charge higher taxes over the artificially inflated customs value of such products and allow such products into the local market circulation.

This overcharged tax has been a problem ever since the surveillance certification requirements were implemented and was thoroughly reviewed by the Council of State while the Customs Law No. 1615 was still in effect (which has since been abolished with the new Customs Law No. 4458). According to the settled precedent of the Council of State issued by the decision of the Council of State General Assembly on the Unification of Judgments dated July 2, 1966 with the docket no. 1965/16 and decision no. 1966/6, Article 87 of the Law No. 1615 provides the relevant parties to claim refunds for all taxes that were wrongfully or inappropriately levied from the taxpayers. Although this Law No. 1615 and its Article 87 has since been abolished, Article 211 of the new Customs Law No. 4458 is identical to the previous Article 87 and therefore the same precedent of the Council of State also applies to the new Article 211. The same issue was noted at the decision of the Mersin 2nd Tax Court with the docket no. 2015/1708 and decision no. 2016/565 and the Court came to the same conclusion that the settled precedent of the Council of State also applies to Article 211 of the Customs Tax Law No. 4458. Through this reasoning, the Court further ruled that, since surveillance certificates are only imposed to track the imports of certain products to determine whether or not the imports have increased to the detriment of the local producers, charging of excessive taxes for the imports of such products shall be deemed as unlawful and inappropriate, and such overcharge tax amounts shall therefore be refunded to the taxpayers as per Article 211 of the Law No. 4458.

In light of the precedent of the Council of State and the decision of the Mersin 2nd Tax Court, and considering the fact that the Ministry rejects most surveillance certificate applications, the importers that paid the excessive and inflated tax amounts to the customs during imports to circumvent the certificate requirement; may file lawsuits before the administrative/tax courts to claim a refund of the overcharged tax amount.