Trading companies are established with the capital that the founding shareholders have committed to put into the company; this capital is essential for the establishment of trading companies. It is the most important financial duty of the shareholders to provide the capital they have committed to bring to the company in full and on time. In this context, the legislature has strictly regulated this capital commitment, since companies cannot be established without capital and the continuation of a company’s activities is not possible without sufficient capital.
In accordance with Article 332 of Turkish Commercial Code No. 6102 (“TCC”), joint stock companies are established with a minimum of fifty thousand TRY. Pursuant to Article 344 of the TCC, in joint stock companies, at least 25 percent of the shares committed in cash must be paid before the registration and the remaining part must be paid within 24 months following the registration of the company. In situations where the capital commitment is not paid within the period specified in the relevant article of the law, some sanctions are laid out in the TCC. In addition to these sanctions, criticisms are also on the agenda in regard to Article 13 of Corporate Tax Law No. 5520 (“CTL”) by the Ministry of Treasury and Finance.
This article will examine the tax consequences of failure to fullfil a capital commitment payable, under both the TCC and the CTL, with a focus on joint stock companies.
Capital Commitment Payable in Terms of the TCC and Sanctions for Non-fulfillment
In a joint stock company, the company’s capital is the sum of the assets that the shareholders undertake to bring to the company and their expression in cash. Assets that can be brought to commercial companies as capital are specified in Article 127 of the TCC. Pursuant to this article, it is possible to use all kinds of transferable and monetary, especially money and receivables, as capital.
On the other hand, in Article 128 of the TCC, it is stipulated that each shareholder is indebted to the company due to the capital he has committed to invest in the company through the Articles of Association.
As mentioned above, pursuant to Article 344 of the TCC, at least twenty-five percent of the nominal value of the shares committed in cash is paid before the registration of a company, and the rest is paid within twenty-four months following the registration of the company. Pursuant to this provision, both during the establishment of joint stock companies and in case of capital increase, the shareholders of the company must pay at least twenty-five percent of the nominal value of the shares they have committed before registration.
The sanctions to be applied to the partners who do not fulfill their capital commitment debt are also regulated in detail in the TCC. In summary, these sanctions are: (i) payment of default interest, (ii) dismissal and expulsion of the shareholder from the company, (iii) contract penalties, (iv) payment of compensation by the shareholder for the loss suffered by the company, and (v) filing a lawsuit against the shareholder.
Failure to Fulfill Capital Commitment Payable In Terms of Article 13 of the CTL
Pursuant to Article 13 of the CTL entitled “Disguised profit distribution through transfer pricing” if institutions buy or sell goods or services at the price determined contrary to the arm’s length principle, the profit is implicitly deemed to have been distributed in whole or in part through transfer pricing.
The concept of “related party” is broadly defined under Article 13 of the CTL as follows: Shareholders of the Corporation; legal entities or individuals related to the corporation or its shareholders; legal entities or individuals which control the corporation directly or indirectly in terms of management, supervision or capital; legal entities or individuals which are controlled by the corporation directly or indirectly in terms of management, supervision or capital; spouses of shareholders of the Corporation; ascendants and descendants of shareholders or their spouses; and persons who are linked to shareholders or their spouses up to the third degree by direct blood relationship or marriage.
In addition, in the implementation of the disguised profit distribution through transfer pricing, purchases, sales, manufacturing and construction transactions, leasing and leasing transactions, borrowing and lending, bonuses, wages and similar transactions are evaluated as the purchase or sale of goods or services under all circumstances.
When failure to fulfill the capital commitment payable is evaluated within the scope of Article 13 of the CTL, it is undoubted that the shareholder of the company is a related party for the purpose of transfer pricing. However, it is generally considered that the capital commitment should not be included in the scope of “buying or selling goods or services” listed in the Article. The relationship between the capital commitment payable not fulfilled by the shareholders and the transfer pricing regulation can be established as follows: (i) If the capital commitment payable is not fulfilled, the company will not be able to use the amount committed by the shareholder and owed to the company, and there will be a loss of interest up to the amount owed. (ii) Therefore, the shareholder does not transfer the committed capital to the company and uses it by itself. (iii) No income is transferred to the company at the rate of income obtained by the shareholder thanks to the amount of capital commitment debt not fulfilled by the shareholder.
The View of The Ministry of Treasury and Finance
Within the scope of recently increased tax inspections, in cases where the capital commitment payable is not fulfilled by the shareholders, the following criticisms are often made by tax inspectors: (i) companies provide financial services to the shareholders by making use of its resources, (ii) shareholders use the company’s money without interest, (iii) the company’s earnings are fully or partially transferred through transfer pricing and (iv) although interest income should be calculated in return for the financing service regarding the unpaid capital amount, this is not done.
Within the scope of these criticisms; The Ministry of Treasury and Finance accepts that the shareholders of the company, who do not fulfill their capital commitment payable within the legal period, are using borrowed money from the company. The Ministry has requested that interest should be calculated with the adat method, and temporary tax and corporate tax must be paid on this interest amount. In addition, an 18% value added tax must also be calculated by the company in addition to the calculated interest. Finally, companies are also faced with a special irregularity penalty if they do not issue an invoice for the adat interest.
On the other hand; since the companies are deemed to have distributed dividends as of the last day of the year in which the disguised profit distribution is accepted, a 15% withholding tax and tax loss penalty (for shareholders who are not subject to exemption within the scope of Article 5-1/a of the CTL) are requested on this dividend by the Ministry of Treasury and Finance. In addition, if half of the profit assumed to be distributed exceeds the limits specified in the law, a declaration obligation arises for the real person shareholders.
Related Judicial Decisions
Unlike the Ministry of Treasury and Finance, the judiciary does not consider the shareholder’s failure to fulfill its capital commitment payable as the shareholder’s use of debt from the company and does not evaluate the situation within the scope of transfer pricing.
In summary, the following matters are emphasized in the judicial decisions on the subject:
- Capital commitments payable that cannot be fulfilled in due time despite being committed by the shareholders, cannot be considered as selling goods or services free of charge or at low price, or lending money without interest or at low interest within the scope of Article 13 of the CTL.
- It is not possible to evaluate a resource transferred from the company to the shareholder based on the failure to fulfill the capital commitment payable.
- It cannot be claimed that failure to calculate default interest due to unfulfilled capital commitments payable causes disguised profit distribution through transfer pricing.
The sanctions to be applied in case of failure to fulfill capital commitments by shareholders are regulated in detail in the TCC, and the capital commitment debt is strictly protected. However, sanctions for non-fulfillment of the capital commitment debt are not specifically spelled out in the CTL, and it is not included in the scope of “buying or selling goods or services” under Article 13 of the CTL. In addition, the subject is not within the scope of disguised profit distribution through transfer pricing.
Nevertheless, recent reports by tax inspectors make it clear that the view of the Ministry of Finance is that companies making use of interest-free money due to the capital commitment debt that the shareholder had committed but could not fulfill in due time leads to a disguised profit distribution through transfer pricing. This is in contrast to the approach taken by the courts, which have held that the issue cannot be evaluated in terms of transfer pricing.
Although existing judicial decisions are contrary to the opinion of the Ministry of Treasury and Finance, it is recommended that companies pay heed to the approach of the Ministry, since many companies are subject to tax inspection when their shareholders do not fulfill their capital commitment debt.
(Authored by Ozge Kisacik and first published by Erdem & Erdem on September 2021)
 Erdoğan Moroğlu, Anonim Ortaklıklarda Sermaye Artırımı, 4. Baskı, İstanbul, On İki Levha Yayınları, January 2018, p.1.
 Levent Başak, Bir Şirket Ortağının Sermaye Taahhüt Borcunu Zamanında veya Hiç Ödememesi Halinde Bu Durum Transfer Fiyatlandırması Yoluyla Örtülü Kazanç Dağıtımı Olarak Kabul Edilebilir mi?, Lebib Yalkın Mevzuat Dergisi, http://www.lebibyalkin.com.tr/mevzuat/diger/makale/bir-sirket-ortaginin-sermaye-taahhut-borcunu-zamaninda-veya-hic-odememesi-halinde-bu-durum-transfer-fiyatlandirmasi-yoluyla-ortulu-kazanc-dagitimi-olarak-kabul-edilebilir-mi.html, (Access Date: 18.08.2021).
 The decisions of the Ankara Regional Administrative Court 1st Tax Lawsuit Department, dated 22.03.2018 and numbered E.2017/2028, K.2018/482, dated 05.07.2017 and numbered E.2017/2028, K.2018/482, The decision of the 4th Chamber of Council of State, numbered E.1997/4274, K. 1998/5542.