On 12 September 2018, President Erdoğan has issued the Presidential Order numbered 85 on the Amendment (the "Amendment") of the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Decision No. 32") -that had been issued pursuant to the Law Numbered 1567 on the Protection of the Value of Turkish Currency (the "Law No. 1567")- which envisaged a new restriction relating to the determination of the payment obligations in foreign currency by and among the persons residing in Turkey.
The Amendment has been published in the Official Gazette dated 13 September 2018 and numbered 30534 and entered into force on its publication date.
As per the Amendment, the Ministry of Treasury and Finance (the "Ministry") shall execute the Amendment. The Ministry, under the Article 20 of the Decision No. 32 and for the purposes of ensuring the application of and compliance with the Amendment, shall further be authorized to take any measures and request any document and information from the legal entities and natural persons in the form and timeframes it deems convenient.
The Scope of the Restriction
As per the Article 1 of the Amendment which is adding the new clause (g) to the Article 4 of the Decision No. 32, except for the cases that will be determined by the Ministry, neither the contract price nor the other payment obligations arising from the following transactions, executed between the persons residing in Turkey, may be determined in or indexed to foreign currency:
- Purchase and sale of movable and immovable properties;
- Lease of all kinds of movable and immovable properties, including leasing of vehicles and financial leasing;
- Employment, service, construction and work agreements
As it is stated, the Ministry is authorized to determine the transactions and/or the cases that will be exempted from this restriction.
Under these circumstances -given that the restriction is brought for and applicable solely to the persons residing in Turkey-, although the contract price and/or payment obligations relating to the above-defined goods and/or services that are imported to Turkey and is owned by the persons residing in Turkey may be determined in foreign currency, the transactions that will be made to commercialize those in the Turkish market will need to be agreed and priced in Turkish currency. Thus, it will not be possible to reflect the contractual price and/or the payment obligations that are agreed by the importer in the original contract with the foreign person to the contracts to be entered into in the Turkish market.
The Adaptation Period
As per the Provisional Article 8 of the Decision No. 32 as amended by the Amendment, except for cases which will be determined by the Ministry, the values and/or payment obligations that are determined in the foreign currency by the agreements which are executed before the entry into force of the Amendment, shall be re-determined in Turkish currency within a period of 30 days (until 13 October 2018).
The Supervision of the Compliance
The Ministry shall be responsible from supervising the compliance of the Amendment and may apply measures in that respect. For instance, in case of non-fulfillment of the obligations and necessities stipulated in the Amendment, search and seizure measures may be enforced by the authorities assigned to conduct audits, in accordance with the Code of Criminal Procedure. Furthermore, as part of the audit to be conducted, the Ministry shall be authorized to wholly or partially, continuously or temporarily cease the operations of the persons bound by the Amendment or request caution to secure the compliance of the consecutive transactions.
The Sanctions of Non-Compliance
As per the Article 3 of the Law, regulating the sanctions of non-compliance with the decisions and orders to be issued pursuant to the Law, the persons, who act in breach of the obligations envisaged by the Amendment shall be subject to an administrative fine from TL 3,000 (three thousand Turkish Liras) to TL 25,000 (twenty five thousand Turkish Liras) to be imposed by the Public Prosecutor.
Apart from that if the breach is found to be collusive due to comprising the intention for embezzling of foreign or Turkish currency, the persons, who commit such shall be subject to an administrative fine equal to the market worth of the value they have embezzled. The acts that only constitute an attempt of embezzling shall be fined by half of the original value.
Yet, (i) the default interest to run starting from the date of the breach until the collection of the fine, shall also be accrued on top of the fine; (ii) the foreign currency selling rate as announced by the Turkish Central Bank on the date of the breach shall be considered for calculating the administrative fine that will be applied to breaches committed in foreign currency; and (iii) the fines shall be doubled in case of repetition of the breach.
Nevertheless, if the breach is committed to the benefit of a legal entity, the legal entity shall also be subject to the administrative fine, at the same amount.
The Existing Situation
The most important issue that requires further clarification, with regards to the application of the Amendment, is the transactions and/or the cases to be exempted from the scope of the Amendment and such clarification is yet to be made by the Ministry. Currently, the Ministry has not expressed a stance on such, nor do they theorized a criterion or a set of rules applicable for determining the exceptions. Given these circumstances, it is construed that the Amendment will be applicable to any types of transactions that fall under the scope of the aforementioned definition provided in the Amendment and the Ministry will henceforth be rendering certain exemptions or determining certain set of rules applicable for determining the exceptions, on an as needed basis.
Apart from that when the existing situation, especially prevailing the business to business transactions, is as above, another very recent amendment made on 31 August 2018 in the Regulation of Commercial Advertisements and Unfair Commercial Practices, envisaged a new misleading commercial activity, which would be relevant to the business to consumer transactions. According to such amendment, making raise in the sale price of the goods or services marketed to the consumers, as if such raise was triggered by the increase in foreign currency -despite not being so-, will be construed as a misleading commercial activity and be sanctioned under the related legislation (with administrative fine amounting around TL 7,000 -seven thousand Turkish Liras- and cease of operations up to 3 months). This, when read together with the Amendment, express the perception of the Turkish government aiming to avoid use (and hence the impact) of the foreign currency in the domestic market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.