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Is it necessary for a taxpayer to register with the tax authority? Are separate registrations required for corporate income tax and value added tax/sales tax?
Taxpayer status of companies commence at formation with registration to Chamber of Commerce and Industry, this process is also notified to the relevant tax office automatically initiating a tax number for the company. Such notice to the relevant tax office (district) also triggers the tax office to send its officers to the company’s address to verify the formation (no P.O. box companies are permitted and an onsite visit by tax officers to newly formed companies is a requirement). Once the minute by the tax officers is drafted, the tax number provided to the company becomes active.
All individuals residing in Turkey having a Turkish ID or residence number are already tax subjects. Foreign individuals could also obtain potential tax numbers with a visit to the tax offices by submission of their passports.
Individuals who wish to do business (tradesman, artisans, self-employed etc.) can also obtain tax number for such commercial purposes and could obtain such number with a visit to the tax offices or through the interactive tax office (online service). The minute procedure by tax officers also is relevant for such type of personal business formation.
Turkey has a unified tax numbering system, and one tax number is sufficient for corporate, value-added tax/sales taxes and others.
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In general terms, when a taxpayer files a tax return, does the tax authority check it and issue a tax assessment – or there a system of self-assessment where the taxpayer makes their own assessment which stands unless checked?
Turkey has a self-tax-assessment system. The taxpayers make filings for their own tax declarations (either by direct, postal, or electronic submission). Currently the use of electronic submission system is the general rule and the system (based on declarations made) automatically creates a voucher for payment.
Tax authorities have the right to make tax assessments and issue accruals and penalties in case no tax filing is made by the taxpayer or if following an audit, crosschecks or general inspections, the submissions are found to be inconsistent or faulty.
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Can a taxpayer amend the taxpayer’s return after it has been filed? Are there any time limits to do this?
In case of an amendment (correction) is to be made with regards to a submitted declaration, in principle, such could be made at any time (statute of limitations period could be considered as a general limit as for the logicality of such an amendment to be made), however, in case of amendments made later than 15 days following the initial submission, some procedural penalties will be applicable. In addition, if other submissions affected also cause tax loss, additional accruals and penalties may be applicable, subject to an audit.
According to Article 114 of Tax Procedure Law No. 213 (TPL), the statute of limitation period for tax assessment is 5 years starting from the beginning of the year following the calendar year in which the tax claim arises (therefore 6 years in practice).
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Please summarise the main methods for a tax authority to challenge the amount of tax a taxpayer has paid by way of an initial assessment/self-assessment.
The tax offices have a broad authority to audit/inspect the taxpayers either by visits, checking declarations or in connection with cross checks of other relevant taxpayer submissions. Once there is a review and suspicion, the tax offices notify the taxpayer for submission of records and books and explanations regarding the subject declarations being inspected. Following such inspections, additional tax accruals could be made, interest and penalties could be sought for and in cases of tax crimes being detected, criminal charges could be notified to the courts.
In cases of lack of tax declarations, the tax offices also have the authority to issue tax accruals, penalties, and interest automatically without the need for additional inquiry for books and accounts review.
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What is the procedure where a taxpayer has not registered so is unknown to the tax authority (for example a newly incorporated company or a foreign company operating through a permanent establishment?)
All newly incorporated companies are automatically issued tax numbers and then subjected to tax office onsite visit. Accordingly, there is no chance for a non-tax-registered company to be incorporated in Turkey.
Non-resident companies are taxed as full taxpayers for commercial gains obtained in Turkey through their permanent representatives or workplaces in accordance with Article 22 of Corporate Tax Law No. 5520 (CTL), in other words, the Corporate Tax Returns in Turkey where the workplace or permanent representative is located shall be submitted to relevant tax office.
It is not possible to tax the commercial gains of non-residents who do not have a workplace or permanent representative in Turkey.
For international companies operating in Turkey, avoidance of double taxation agreements also come into play. Article 7 of the OECD Model Agreement covers the workplace and the permanent representative, and if the non-resident establishment is determined to have a workplace in Turkey, the income obtained from this workplace shall be taxed according to the legislation in Turkey. In the event that a workplace or a permanent representative is established in Turkey for the sole purpose of supplying goods by institutions whose legal and business centre is not located in Turkey, and the goods procured in these places or through these representatives are not presented to the Turkish domestic market and are sent to foreign countries, there will be no profit earned in Turkey and no tax accruals accordingly.
Additionally, with the reference made in Article 3/4 of CTL, and in accordance with Article 8/3-1 of the Income Tax Law No. 193, commercial representatives, tradesman representatives and its officers, and those who are in the position of agents in accordance with the provisions of the Turkish Commercial Code No. 6102 (TCC) are considered permanent representatives.
In case where the non-resident company is generating revenue from Turkey through direct invoicing from abroad, there is also withholding tax application to the taxpayer that is the source of such revenue as a tax resident in Turkey.
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What are the time limits that apply to such challenges (disregarding any override of these limits to comply with obligations to relief from double taxation under a tax treaty)?
There is a complex system for the tax challenges. If an official tax office accrual for tax or penalties is served to the taxpayer, there is initially an administrative challenge for a correction claim option. This option could be used within the 30 days from the notification(also applicable for tax litigation) and the taxpayer will have the option to use its right to litigate the answer (if negative or not responded within 30 days) again within the same initial 30 days’ time, minus the time consumed before the administrative appeal. However, in cases of direct execution orders for collection sent by the tax offices for payment, the time to challenge with litigation is lesser and is only 7 days. There are also other types of time limits, for instance 7 days against preliminary seizures, 15 days for various stages of administrative appeals.
There is also a general statute of limitations for taxes in Turkey that is 5 years starting from the following calendar year of the relevant tax generating issue.
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How is tax fraud defined in your law?
According to Article 359 of TPL, tax fraud is the illegal arrangement, use, falsification, and destruction of books and records, invoices, or other documents that are kept or regulated in accordance with tax laws and making account and accounting frauds in these documents and records.
In practice, the most common type of tax fraud is the crime of issuing or using fake invoices for tax deductions.
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How is tax fraud treated? Does the tax authority conduct a criminal investigation with a view to seeking a prosecution and custodial sentence?
The investigation and prosecution of tax fraud are carried out as per general provisions of Criminal Procedure Law No. 5271. Tax fraud is not a crime within the scope of reconciliation. Since tax crimes are not subject to complain, they are investigated ex officio. There is no complaint period for these crimes and the period of limitations for these crimes is 8 years. The tax offices or relevant tax audit and inspection units do not prosecute the crimes but notify their findings to the justice system.
Competency in tax crimes belongs to the criminal court of the first instance, however, in cases of tax crimes committed through other crimes requiring higher penalties, for instance forgery of official documents, the competent court may be the high penal courts.
To file a criminal case for tax crimes, two types of reports are prepared by the tax administration, a tax technical report, and a tax crime report. The penalty for tax fraud committed in the ways specified in Article 359/a-1 and a-2 of TPL is imprisonment from 18 months to 5 years. Examples of these crimes are deception in accounts and accounting, illegal book-keeping (double book-keeping) and recording documents, opening fake accounts on behalf of unreal or unrelated transactions, falsifying books, documents, and records, or using falsified documents. According to Article 359-b of TPL, the penalty for crimes committed by changing or destroying books and documents or issuing and using false documents is imprisonment from 3 to 8 years. Pursuant to Article 359/c of TPL, the penalty for tax fraud committed by printing documents that can only be printed by persons who have an agreement with the Ministry of Finance, without such an agreement, and the penalty for tax fraud in the form of knowingly using documents printed by unauthorized persons is imprisonment from 2 to 8 years.
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In practice, how often is a taxpayer audited after a return is filed? Does a tax authority need to have any justification to commence an audit?
The framework of tax audits is regulated in Articles 134 to 141 of TPL. During tax audit, the accuracy of taxes to be paid over taxpayer’s books, records, and declarations and whether books, records, and documents are kept as required by legislation are audited.
The audit could be made at any time until the end of the period of limitations of assessment, including the pending accounting period. The fact that a previous audit has been made or the assessment has been ex officio does not prevent the re-audit and, if necessary, additional assessments. The following are examples of reasons for conducting a tax audit: scanning the tax office file; making selections on the basis of sector, taxpayer, and subject by measuring financial statements through financial analysis; supervision of specific sectors and subjects; counter-audits by central supervisors; entering fake and misleading document codes; continuous transfer of VAT; continuous declaration of damage; return requests disproportionate to its activity; inconsistencies in financial statements; excessive expenses; growth of partner’s current account; notification about the taxpayer; special examinations followed by the Prime Ministry and the Ministry; black money investigations; demand of other supervisory and regulatory institutions (Capital Markets Board, Banking Regulation and Supervision Agency etc.); a reflection of audits made in financial markets such as banks and brokerage houses.
There are around 10.000 tax officers for inspections and audits and almost 13 million active taxpayers in Turkey as of 2021. Again in 2021 around 210,000 individual inspections and audits were made. Therefore, the chance of an audit every year could be roughly estimated to be 1,5%.
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Does the tax authority have to abide by any standards or a code of conduct when carrying out audits? Does the tax authority publish any details of how it in practice conducts audits?
The tax audit is conducted in accordance with the provisions of Article 140 of TPL. Authorities conducting tax audits notify the subject of the inspection in writing, about the subject of the tax audit and the start of the audit. In addition, they send a copy of the letter to the relevant tax office. In the event that the audit is conducted at the workplace, no audit can be made or continued outside of official working hours without the consent of the person being audited.
When the audit is over, a document showing that the audit has been done is submitted to the person who has been audited. Authorities will conduct the audit cannot issue a tax audit report contrary to the President’s decision, regulations, general communiqués, and circulars regarding tax laws. It is essential that the authorities complete the audits within maximum 1 year in case of a full audit, 6 months in case of a limited audit, and 3 in the case of value added tax refund audits, from the date of commencement of the audit. If the audit cannot be completed within these periods, additional time may be requested. This request is evaluated by the unit with which those authorized for tax audit are affiliated, and additional time may be granted, not exceeding 6 months for full and limited audits and 2 months for value-added tax refund audits. Tax audit reports prepared by Tax Inspectors and Assistant Tax Inspectors are evaluated by report assessment commissions to be formed by at least 3 Tax Inspectors that have completed 10 years in profession.
The tax inspection and audit guidelines are publicized and the main control over code of conduct is through administrative justice system (litigation challenges by taxpayers).
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Does the tax authority have the power to compulsorily request information? Does this extend to emails? Is there a right of appeal against the use of such a power?
According to Article 148 of TPL, public administrations and institutions, taxpayers, or other natural and legal persons dealing with taxpayers are obliged to provide the information requested by the Ministry of Finance or those authorized to conduct tax audits; however, relevant persons cannot be brought to the tax office by force to provide information. Natural and legal persons from whom information is requested cannot refrain from providing information by claiming the privacy provisions written in special laws. Some matters are within the scope of the exception. For example, the privacy that the Post, Telegraph, and Telephone Administration is obliged to keep regarding communications is reserved; information on the nature of patients’ diseases cannot be requested from physicians, dentists, dentists, midwives, and health officials; lawyers and attorneys cannot be asked to report the circumstances and issues that they are familiar with due to the jobs or duties entrusted to them.
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Can the tax authority have the power to compulsorily request information from third parties? Is there a right of appeal against the use of such a power?
According to Article 148 of TPL, other natural and legal persons (third parties) who have relations with taxpayers (for crosschecking purposes) are obliged to provide the information requested by those authorized to conduct a tax audit. Natural and legal persons from whom information is requested cannot refrain from providing information by claiming the privacy provisions written in special laws; however, the exceptions listed above under Question 11 are applicable here, as well.
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Is it possible to settle an audit by way of a binding agreement, i.e. without litigation?
Although it is at a preliminary stage before any tax penalty is applied, the initial way that can be resorted to in tax disputes without seeking a judicial remedy is an invitation to explanation. This way of peaceful settlement is regulated in Article 370 of TPL. Accordingly, taxpayers may be invited to explain the preliminary determinations made by the competent authorities that there are signs indicating tax loss before the tax examination is started or referred to the valuation commission, provided that no notification is made until the determination date. If an explanation is made within 30 days from the date of notification of the invitation letter, the matter is re-evaluated, and the evaluation result is notified to the taxpayer.
Following the explanation stage, the situation in which the tax administration and the taxpayer resolve the dispute through mutual discussion, discussion, and bargaining is called reconciliation. Although reconciliation is not defined in TPL, the decision of joint members of the Council of State defines it as “The settlement of disputes arising from the application of tax laws, between the tax administration and the taxpayers or those who have been penalized by mutual negotiation of the parties, by reaching an agreement on the amount of tax and penalty to be paid at the outset, without the need for the application of judicial remedies and procedures.”.
There is also the institution of reconciliation before the assessment regulated under Additional Article 11 of TPL and could be defined as the agreement on the tax and penalty to be levied between the administration and the taxpayer or the person who is penalized before the assessment stage. Pursuant to Additional Article 11 of TPL; the Ministry of Finance may allow reconciliation before assessment for the taxes to be levied on the basis of tax inspection and tax loss penalties to be incurred, and for irregularities and special irregularities fines exceeding 15,000 Turkish Liras for 2023 to be re-evaluated each year – (except for the tax to be levied and the penalty to be imposed in case of causing tax loss due to the acts written in Article 359 of TPL, and the penalty to be imposed on those who participate in these acts).
If an agreement is reached in this way, no lawsuit could be filed, and no complaint could be made to any authority regarding this matter. Over the agreed tax amount, interest of default is calculated in accordance with Article 112 of TPL. In the event that reconciliation could not be reached, taxpayers or those who are subject to penalties cannot demand reconciliation after the tax is assessed and the penalty is imposed.
Reconciliation after the assessment is the settlement of the disputes that arise after a tax is levied and a penalty is imposed, by reaching an agreement between the parties at the administrative stage without being referred to the judicial organs. This is the most common method in practice. This way of reconciliation is for the complementary, ex officio, administrative tax assessments and the tax loss penalties related to these taxes. Penalties to be imposed in case of tax loss due to irregularity and special irregularity penalties and smuggling crimes and penalties are outside the scope of reconciliation. According to Additional Article 1/3 of the Tax Procedure Law, the Ministry of Finance is authorized to determine the taxes, duties, and fees that may be subject to reconciliation.
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If a taxpayer is concerned about how they are being treated, or the speed at which an audit is being conducted, do they have any remedies?
The taxpayer has the right to demand that the inspector to treat with care and courtesy to him/herself, his/her institution, and those who work in his/her institution. The taxpayer may apply to the tax authority, with which he/she is affiliated, with a complaint petition about the inspector who does not act in accordance with this.
In the event that tax inspection report is not prepared in due time including the additional period as explained in Question 10 above, the situation is notified in writing to tax authorities, together with the reasons, by those authorized to conduct tax inspections. The relevant unit may apply disciplinary provisions against the inspector who cannot complete the inspection. Taxpayers who are not satisfied with the reasons for not completing the inspection on time may apply for a lawsuit claiming that the tax inspection made against them has been extended without a legal reason and may even request a stay of execution and prevent the continuation of the inspection until the case is concluded.
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If a taxpayer disagrees with a tax assessment, does the taxpayer have a right of appeal?
At the end of the tax audit, a tax audit report is prepared. The tax office considers the suggestions contained in the report and conducts a supplementary or ex officio assessment. This assessment is notified to the taxpayer with the tax and penalties notice. In principle, the tax audit report does not represent an administrative act that has direct results. Therefore, it is not possible to directly file a lawsuit against the tax assessments. However, if an executive action is established based on such reports (i.e., a tax and penalty notice is issued and served), then it is possible to file a lawsuit against such executive action. As a rule, the transactions made by the tax administration before the tax assessment to form a basis for this transaction do not qualify to be separated from the assessment process and cannot independently be subject to a tax lawsuit. Regarding the issue, the 4th Chamber of the State Council has decided that it is not possible to make the tax audit reports the subject of a lawsuit, since they are transactions that express opinions regarding the internal functioning of the administration, and do not have the nature of a final and mandatory transaction.
However, the situation is different for tax audit reports that do not propose a new assessment or penalty for the taxpayer but reduce the taxpayer’s rights to transfer loss or deduction. Tax audit reports on such cases constitute an executive action that has effective results for the taxpayer. For this reason, the approach of the State Council regarding the tax audit reports that have executive consequences for the taxpayer is that such reports could be the subject of a lawsuit.
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Is the right of appeal to an administrative body (independent or otherwise) or judicial in nature (i.e. to a tribunal or court)?
Taxes and penalties levied on basis of an inspection report must first be notified to the taxpayer. After the notification, the taxpayer must apply to one of the following ways within 30 days against this tax and penalty. If the taxpayer does not resort to any of these methods within 30 days, these taxes and penalties become final, even if they are unjustified. The taxpayer may request settlement with the inspection unit, the Ministry of Finance, and the revenue office or apply to the tax courts. Pursuant to Article 7 of the Law on Administrative Judicial Procedure No. 2577 (LAJP), the period of filing a lawsuit is 30 in tax courts in cases where a separate period is not specified in special laws. The beginning of period starts from the day following the notification of taxes and penalties to the taxpayer.
The person who wants to apply to the tax court should use this right by petition within the time allowed. This application petition and its annexes have to be signed by the company officials or, in cases where a taxpayer is a natural person, by the person him/herself. After the fees and postage fees of the lawsuit petitions are collected in the tax courts, the registration is made, and the lawsuit is deemed to have been filed on the date of registration. In case of a lawsuit, the collection of the taxes and fines levied is suspended until the end of the lawsuit. However, after the court decision, one of the parties may apply to appeal, and in this case, supersedeas should be requested from the Council of State by posting a guarantee to stop the collection at the appeal stage. A hearing could be requested in the taxpayer’s complaint or reply petition or the plea of defence of the tax office. In this case, the courts may decide to hold hearings, (generally an exception) and otherwise, (in principle) tax Courts are based on written pleading exchanges and review over the case file without an actual hearing.
Against the decisions of administrative and tax courts, even if a different legal remedy is foreseen in other laws, an appeal could be filed to the regional (district) administrative court (a higher court than the first instance tax court) in the jurisdiction where the local court is located, within 30 days from the service of decision. However, the decisions rendered by the administrative and tax courts regarding tax lawsuits, full remedy actions, and annulment actions filed against administrative actions, which do not exceed TRY 20,000, for the year of 2023, are final and no appeal could be filed against them. The regional administrative court decisions that cannot be appealed are considered finalized.
Some of the Regional Administrative court decisions could be appealed (to the highest administrative court that is the Council of State) within 30 days from service of the court decision. Regional Administrative court decisions on tax lawsuits, full remedy actions, and administrative proceedings exceeding TRY 581,000 for the year 2023 are appealable.
The court may accept, reject, or partially accept and partially reject the case at the end of its investigations. If the case is accepted, the tax office, in case of rejection, and the taxpayer, in case of partial acceptance and partial rejection, both parties may appeal against the court’s decision
The party entitled to appeal must submit a petition to the Presidency of the Council of State within 30 days following the service of the decision of the Tax court. A hearing may be requested in this petition. However, unlike the Tax courts, the Council of State holds a hearing when it deems fit, otherwise, it is not held. Appeals submitted to the Council of State are notified to the other party. The other party can reply within 30 days. In particular, in the appeal of partially approved or partially rejected cases, even if the respondent has not filed an appeal, he/she may request an appeal in the reply petition. This petition replaces the petition of appeal.
After the examination of the decision of the Tax court, the Council of State may uphold, reverse, or partially uphold and partially reverse the decision. However, the Council of State cannot decide on the merits and therefore, sends the case back to the same Tax court. If the Council of State upholds the court’s decision, the decision becomes final. If it is reversed, the court either abides by the Council of State’s reversal and retries the case, or insists on its first decision. If the court insists on its first decision and this decision is appealed again by one of the parties, this time the case is heard in the General Assembly of Tax Litigation Offices. The decision to be made here becomes final, and the Tax court are obliged to decide in line with the decision made by the General Assembly.
A final option for appeal is an application to the Constitutional court. In accordance with Article 45 of the Law on the Establishment and Trial Procedures of the Constitutional Court No. 6216, “Anyone can apply to the Constitutional court with the claim that any of the fundamental rights and freedoms guaranteed in the Constitution and also within the scope of the European Convention on Human Rights and the additional protocols to which Turkey is a party has been violated by the public force.”. It should be noted that all of the administrative and judicial remedies stipulated in the law for the action, act, or omission alleged to have caused the violation has to be exhausted before the individual application is made. After the prescribed legal remedies have been exhausted, if no legal remedy is foreseen, from the date of learning of the violation the application must be made within 30 days. Foreigners cannot make individual applications regarding the rights granted only to Turkish citizens.
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Is the hearing in public? Is the decision published? What other information about the appeal can be accessed by a third party/the public?
According to Article 1 of LAJP, in tax proceedings, it is essential to examine the written procedure and file. Although the principle of being written is essential; a hearing may be held in tax proceedings, within the framework of certain limitations, if requested by the parties and/or a decision is made ex officio by the court.
As per Article 17 of LAJP, a hearing is held upon the request of one of the parties in annulment and full remedy lawsuits filed at the Council of State, administrative and tax courts, and lawsuits for taxes, duties, fees, and similar financial liabilities levied and their increase and penalties exceeding TRY 25,000, for the year of 2022, in total. Hearing in case of cassation and appeal is subject to the party’s request and the decision of the Council of State or the relevant regional administrative court. However, it should be noted that the Council of State, the court, and the judge may decide to hold hearings ipso facto.
In the proceedings in tax courts, the request for a hearing could be made in the lawsuit, response, and defence petitions. Although it is not explicitly regulated in LAJP, it is accepted that a hearing request could be made for additional petitions submitted during the lawsuit, response, and defence periods.
In taxation-related transactions and lawsuits, if no results are obtained after the consumption of ordinary administrative and legal remedies, an individual application may be made to the Constitutional court with the claim that the rights that fall under the common protection of the fundamental rights and freedoms guaranteed by the Constitution and the European Convention on Human Rights and its annexed Protocols have been violated.
In accordance with Article 18 of LAJP, as a rule, hearings are held publicly. In cases where morality or public safety is required, a part or all of the hearing may be held in private, with the decision of the competent chamber or court. This rule and its exception are regulated in parallel with Article 141 of the Turkish Constitution. Supreme Court Decisions and Constitutional Court Decisions are accessible to everyone provided that the personal data is anonymized. However, there is no system where the decisions of local courts are accessible; however, attorneys, judges, and prosecutors have the right to visit the courthouses to examine the files and decisions of local courts.
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Is the procedure mainly written or a combination of written and oral?
In tax proceedings, the examination is based on the written procedure. Although the principle of written procedure is essential, a hearing may be held in tax proceedings, within the framework of certain limitations, if requested by the parties and/or the court decides ex officio.
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Is there a document discovery process?
There is no court ordered discovery process where parties examine the documents and evidence that may be kept by the other party under the Turkish law. Article 20 of LAJP states that “the Council of State, regional administrative courts, administrative and tax courts shall conduct all kinds of examinations in relation to the cases they are hearing on their own. Courts may request the parties and other relevant places to send the documents and provide any information they deem necessary within the specified period.”. In line that, the courts are authorized to conduct all kinds of examinations.
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Are witnesses called to give evidence?
In principle, witness statements in tax cases are rarely accepted into evidence. In compliance with Article 3 of TPL, the taxable event and the real nature of the transactions related to this event are essential in taxation. On the other hand, Article 20 of LAJP states that the administrative judge and the Council of State are in charge of managing the case and conducting all kinds of examinations and investigations ipso facto. In this context, in order for the witness statement to be used as evidence, the witness’s interest in the taxable event shall exist. However, all kinds of witness statements do not qualify as evidence. The witness has to have a direct economic relationship with the taxable event. An ordinary relationship is not sufficient for witness testimony to be accepted as evidence. For example, it is accepted that the person who borrows money in return interest, the taxpayer’s accountant, the employee working at the workplace, or the broker is naturally related to the taxable event due to the legal transaction or relationship.
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Is the burden on the taxpayer to disprove the assessment the subject of the appeal?
Under Article 3/B-2 of TPL, the burden of proof is also on the party making the claim (therefore in most cases, the tax offices in cases of determinations made for illegal or uncompliant actions). However, this is a tricky situation since for example, in the application of concealed gain transfer through transfer pricing, the burden of proof that the earnings were not distributed implicitly is on the taxpayer. Therefore, the determination of who bears the burden of proof in tax proceedings should be examined separately in each case. The burden of proof is not only an obligation for taxpayers, but there are cases where the burden of proof is on the administration. For example, the administration, which claims that there is veiling in an event or transaction, is obliged to prove it. Also, the administration claiming that the taxpayer whose employment was terminated continues to work has to prove such determination. Similarly, the burden of proving the existence of the reasons for complementary and ex officio tax assessment under Articles 29 and 30 of TPL is on the administration and the tax administration that claims the information in books and documents is not correct has to prove it.
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How long does an appeal usually take to conclude?
Pursuant to Article 20/5 of LAJP; “in the Council of State, regional administrative, administrative and tax courts, the files shall be examined according to the date of their arrival, taking into account the priority or urgency specified in this Law and other laws and the priority works to be determined by the Council of Presidents for the Council of State and by the High Council of Judges and Prosecutors for the other courts and announced in the Official Gazette, and shall be concluded in the order in which they are finalized. The remaining files shall be finalized in the order in which they are submitted and within 6 months at the latest as of the date of submission.”
Accordingly, there is a 6-month period in which the case should be finalized at the latest. It should be noted that the 6-month period starts after petitions from the plaintiff and the defendant have been submitted and the petition submission period for both parties has been completed. However, in practice, it may take longer than 6 months for an appeal to conclude depending on the workload. Article 20/A of the LAJP “summary procedure” sets forth a shorter time for an appeal to conclude for the disputes listed below:
a) Tender procedures, excluding decisions prohibiting bidding.
b) Urgent expropriation transactions.
c) Decisions of the High Council of Privatization.
d) Sales, allocation, and leasing transactions pursuant to the Tourism Incentive Law No. 2634.
e) Decisions taken as a result of environmental impact assessment pursuant to the Environmental Law No. 2872, except for administrative sanction decisions.
f) Presidential decisions taken according to the Law on Transformation of Areas Under Disaster Risk No. 6306.
For the above-mentioned lawsuits, the appeal process shall be concluded within two months.
In practice, for administrative cases it takes approximately 1 to 2 years, for regional administrative court cases 1 to 2 years, and for the Council of State cases, again, 1 to 2 years to conclude; however, in general, it takes fewer time for an administrative case to conclude compared to civil/private law cases.
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Does the taxpayer have to pay the assessment pending the outcome of the appeal?
As per Article 27/4 of LAJP, “the filing of lawsuits arising from tax disputes before the tax courts shall suspend the collection of the taxes, duties, fees and similar financial obligations and their increases and penalties that are subject to litigation.”. According to Article 112 of TPL, a default interest shall be applied to the unpaid portion of the taxes subject to the lawsuit from normal due date to the date of service of the court decision. Taxes and penalties, which are not collected due to litigation, could be paid partially or completely during the – lawsuit, if the taxpayers choose to do so.
As a general rule, the collection stops automatically when a lawsuit has been filed before a tax court, however, the rule is not without exceptions. According to Article 52 of LAJP, the fact that an appeal or cassation has been filed does not stop the execution of the decisions of judges, courts, and the Council of State. However, the suspension of execution of these decisions may be granted by the Council of State, which is authorized to examine the cassation, or by the regional administrative court, which is authorized to examine the appeal application, in return of a security deposit. Decisions made on requests for suspension of execution during the cassation and appeal are final.
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Are there any restrictions on who can conduct or appear in the appeal on behalf of the taxpayer?
Article 35 of the Legal Profession Law No. 1136 states that “Only attorneys registered in the bar association are authorized to give opinions on legal matters and legal issues, to sue and defend the rights of real and legal persons before courts, arbitrators or other bodies having jurisdiction, to follow up judicial proceedings, and to prepare all documents pertaining to these matters. Anyone who has the capacity to file a lawsuit may draw up the documents pertaining to his/her own lawsuit, file his/her lawsuit in person and follow up his/her case…”
In line with the relevant legislation, other than the lawyers registered in the bar or the person himself/herself, no one can appeal or follow the judicial proceedings before the courts.
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Is there a system where the “loser pays” the winner’s legal/professional costs of an appeal?
Article 31 of LAJP regulates that “for matters not provided for in this Law, ..trial expenses… the provisions of the Code of Civil Procedure shall apply.”. The relevant Article 326 of the Civil Procedure Law states that “(1) Except for the cases stipulated in the Law, it shall be decided that the costs of the trial shall be recovered from the party against whom a judgment is rendered. (2) If each of the two parties is partially justified in the case, the court shall apportion the trial expenses according to the proportion of justification of the parties.”
Thus, in accordance with Article 326 of Civil Procedure Law, “loser” shall have to bear the cost of an appeal.
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Is it possible to use alternative forms of dispute resolution – such as voluntary mediation or binding arbitration? Are there any restrictions on when this alternative form of dispute resolution can be pursued?
There are two types of an alternative forms of dispute resolution: pre-assessment reconciliation and post-assessment reconciliation. The pre-assessment reconciliation is regulated in Additional Article 11 of TPL, which regulates that “The Ministry of Finance may allow pre-assessment reconciliation for the taxes to be assessed based on the tax inspection and the tax loss penalties to be imposed in relation thereto and the irregularity and special irregularity penalties exceeding 15.00 Turkish Liras (except for the tax and penalty to be imposed in case of tax loss caused by the acts written in Article 359 and the penalty to be imposed on those who participate in these acts).”. In line with Article 9 of the Regulation on Reconciliation Before Assessment published in the Official Gazette on October 31, 2011, to request a pre-assessment reconciliation, there should be a tax inspection first, and until the tax inspection report is finalized a pre-assessment reconciliation request could be made.
In case there is an agreement, a minute is prepared. The reconciliation is final and cannot be subject to a lawsuit. According to Article 17 of the Regulation, the minutes of reconciliation to be issued by the reconciliation commissions as a result of the reconciliation are final and shall be immediately executed by the tax offices. No lawsuits or complaints may be filed to any authority regarding the matters agreed upon or determined by the minutes.
The second mediation method is post-assessment reconciliation. Post-assessment reconciliation is regulated under Additional Article 1 of the TPL. Accordingly, the taxpayer may invoke one of the below to resort to post-assessment reconciliation for taxes levied by way of assessment, ex officio, or administration and related tax loss penalties, subject to certain exemptions, e.g., smuggling.
According to Additional Article 1 of TPL, in the event that it is claimed that the tax loss is caused by the failure to sufficiently penetrate the provisions of the law or by the mistake written in Article 369 of TPL, or that there are tax errors written in Articles 116, 117, and 118 of TPL and all kinds of material errors other than this, or that there is a difference of opinion between the judicial decisions and the administration in the case subject to dispute, the administration may reconcile with the taxpayers within the framework of the provisions of this Section 3 of TPL.
Additional Article 6 of TPL states that: “the reconciliation minutes to be kept by the reconciliation commissions are final and are promptly fulfilled by the tax offices. The taxpayer or on behalf of whom a penalty has been imposed; cannot file a lawsuit or complain to any authority on matters that have been agreed upon and determined in the minutes.”. In line with Article 7 of TPL, the taxpayer may file a lawsuit in case a reconciliation has been requested but did not materialize and was not successful.
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Is there a right of onward appeal? If so, what are all the levels of onward appeal before the case reaches the highest appellate court.
There is a right of onward appeal subject to certain conditions, the right of appeal is regulated under LAJP. Before the case reaches the highest appellate court, which is the Council of State, there are Regional Administrative Courts between the first instance courts and the Council of State. The right of onward appeal is explained in Article 45 of LAJP, which regulates that “An appeal may be filed against the decisions of administrative and tax courts, even if a different remedy is provided for in other laws, to the regional administrative court in the judicial circuit where the court is located, within 30 days from the service of the decision. However, the decisions rendered by the administrative and tax courts on tax cases not exceeding TRY 20,000, full judgment cases, and annulment cases filed against administrative actions are final and cannot be appealed.”
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What are the main penalties that can be applied when additional tax is charged? What are the minimum and maximum penalties?
Additional tax is defined in Article 29 of TPL. Article 29 of TPL sets forth that “additional tax assessment is the assessment of the tax to be charged on a base or base difference, which arises after a tax has been levied in any way whatsoever, and whose amount is determined based on books, records, and documents or legal measures.”.
Loss of tax revenue is subject to penalties, and the penalties are regulated under Article 344 of TPL as follows: “In the event that tax loss is caused in the cases specified in Article 341, a tax loss penalty amounting to one time the amount of the tax loss shall be imposed on the taxpayer or responsible person. In the event that the tax loss is caused by the acts written in Article 359, this penalty is applied three times and one time for those who participate in these acts. The penalty to be imposed pursuant to this article shall be applied at the rate of fifty percent for tax returns submitted after the statutory deadline, except for those submitted after the commencement of a tax audit or referral to an appraisal commission.” Acts written in Article 359 of TPL are smuggling offenses.
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If penalties can be mitigated, what factors are taken into account?
According to Article 376 of TPL, penalties may be mitigated. Article 376 of TPL, penalties that may be mitigated are tax loss penalty, irregularity penalty, and special irregularity penalty. To be able to reduce the tax penalty:
- the taxpayer should apply to the relevant tax office with a petition within 30 days from the date of notification,
- the taxpayer should pay the tax or tax difference within 30 days or within 3 months from the end of the due date by showing collateral of the type specified in Law on Procedure for Collection of Public Receivables No. 6183 (Law No. 6183),
- the notification should not be made subject to litigation.
The rate of reduction for tax loss is 50% for the first tax loss penalty, and 1/3 for the following penalties. For irregularity and special irregularity penalties, the rate of reduction is 50%.
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Within your jurisdiction, are you finding that tax authorities are more inclined to bring challenges in particular areas? If so, what are these?
Based on 2021 lawsuit statistics, Value Added Tax is the most filed lawsuit in tax courts with more than 22,000 cases. The top five most filed lawsuits in tax courts are as follows:
- Value Added Tax Cases (22,887)
- Collection of Public Receivables Cases (16,499)
- Actions Arising from Rejection of Correction Procedures Cases (15,576)
- Tax Penalty Cases (13,714)
- Income Tax Cases (11,274)