Turkey: Tax Offences Under Turkish Law

Last Updated: 28 October 2010
Article by Okan Gündüz

A tax offence is a consequence of the acts that induces loss of tax revenue for the state and the distortion of public order due to the non-fulfillment or breach of the material or procedural obligations stated in the law.

In the broad context, tax offences and penalties are set forth in the Tax Procedure Code ("TPC") numbered 213. Tax office may identify contradictions to the law when conducting an examination or investigation. Administrative penalties should be served to the party/parties through a service of process by the relevant tax office once an examination or investigation report is prepared on the subject.

Whom could be the subject of the penalties?

Penalties could be imposed either on real persons or legal entities. Penalties that could not be collected from the assets of the legal entity may be directed to the personal wealth of the legal representatives of the entity who could be the managers of the limited liability partnership (LLP) or board of directors (BoD) of the joint stock corporations (JSC). In LLPs, liability even reaches to the partners in proportion to their capital ratios if the penalties could not be collected through the assets of the manager(s).

On the other hand, liability of BoDs in JSCs may be limited with specific member/members of the board or an employee of the legal entity whom should be delegated with the powers to represent and bind the company before the administrative bodies in tax related transactions. In order to hold the legal representative liable, non-compliance with the tax obligation should have occurred at the relevant period, between the appointment date and termination date of the duty of the legal representative. In other words, only the legal representative who was on duty when the tax offence occurred could be hold liable.

Tax offences engendering administrative penalties

Tax offences under Turkish law are classified as a) loss of tax revenue b) general type of non-compliance with the procedural obligations and c) specific type of non-compliance with the procedural obligations.

Loss of tax revenue may arise on various forms such as incomplete or late accrual of tax, filing wrong declarations, giving incorrect information on personal or family status or receiving return of tax without any legal basis.

Loss of tax revenue offence could only arise at the accrual phase of the related tax and late payment or non-payment of an accrued tax does not constitute a loss of tax revenue offence. Acts inducing loss of tax revenue offence are categorized as material breaches, less material breaches and non-defined breaches. If the to give an example on some of the material breaches; fraudulent acts on accounts, creating fake accounts, keeping illegal copies of commercial books, production or use of fake documents may be listed as the pioneering ones among the others. Less material breaches are defined as filing of the tax declarations regarding loss of tax revenue on the tax payer's own record after the legal deadline for the filing is ended. If the tax payer, on his own record, files the declaration prior to an investigation is initiated or the issue is brought before the reconciliation committee, then the loss of tax revenue offence would be categorized as less material breach. Lastly, if the loss of tax offence is not within the scope of material or less material breach, it would be deemed to fall in the category of non-defined breaches. According to article 341 of the TPC, breaches are fined with one time more of the amount of loss of tax revenue. Material breaches are fined with three times more whereas less material breaches are fined with the half of the amount of loss of tax revenue.

Tax offences engendering Criminal Action

If an administrative tax offence concurrently constitutes a criminal tax offence according to the law, then a criminal action may be initiated by the public prosecutor before the relevant Criminal Court and the accused individuals may be imprisoned, if the Court decides that a criminal tax offence has been committed. Some of the noteworthy criminal tax offences are tax evasion, which consist of the same acts remained within the category of material breaches engendering loss of tax revenue and the breach of tax confidentiality.

Criminal Procedure

Prosecutor before filing a lawsuit has to inform the relevant tax office about the offence and would request a conduct of examination from the relevant tax authority on the matter. Prosecutor may decide to file a lawsuit if he reaches to an opinion that a tax offence has been committed based on the facts determined in the examination report of the tax authority. According to Tax Procedure Code, tax offences may cause an imprisonment varying from 18 months to 5 years depending on the type of the offence.

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.

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