Turkey: Recent Developments Regarding Duties In Turkey

Nothing is certain but death and taxes. Is this really the case for taxes though? With new regulatory developments everyday, the taxing procedures are becoming unpredictable.

Pursuant to Article 23 of Part IV of Table 2 of the Stamp Tax Law numbered 488 (the "Stamp Tax Law"), if the loans are extended by banks, foreign credit institutions or international finance institutions, the instruments that would be issued for the grant and repayment of the loan, as well as annotations to those instruments, shall be exempted from stamp duty. If the loan is granted by institutions other than those mentioned above, then a stamp duty of 0.825% should be calculated over the amounts referred to in the instruments and annotations.

Furthermore, in the Law on Charges numbered 492 (the "Law on Charges"), it is stated that, loans extended by banks, foreign credit institutions or international finance institutions and security established to secure the same and the repayment of such loans are exempt from the charges described under the Law on Charges.

Recently, two local courts has applied to the Constitutional Court alleging that the wording "banks, foreign credit institutions or international finance institutions" articulated in the above mentioned laws is conflicting with the 2nd (Characteristics of the Republic), 5th (Fundamental Aims and Duties of the State), 10th (Equality before the Law), 11th (Supremacy and Binding Force of the Constitution) and 36th (Freedom to Claim Rights) Articles of the Constitution of the Republic of Turkey (the "Constitution"). The ground of the claim is the enforcement proceedings initiated due to non-repayment of the loans that banks extended to its customers as per their general loan agreements. The banks claimed that charges collected for the execution proceedings initiated against non-repaid loans should be within the scope of the foregoing exemptions granted by the law. The local courts assessing the objection of the banks applied to the Constitutional Court for the annulment of the relevant wording.

In its decision, the Constitutional Court has stated that the transactions exempt from the relevant charges are related to the extension and repayments of loans and collaterals securing the loan. The legislator aimed to reduce the costs arising from loan transactions and to alleviate the banks to receive large amounts of financial support from local or foreign credit institutions.

In other words, no charges will be collected from certain transactions concerning loans provided by banks, foreign credit corporations and international institutions. Thus, signing of general loan agreements by banks and extension of loan to real or legal persons, either secured or non-secured, and funded from their own resources or from other credit institutions cannot be considered to fall within the scope of the objection.

Similar to the decision of the Constitutional Court, in its decision dated 6 October 2010 and numbered 2010/471, Supreme Court Assembly of Civil Chambers stated that since no charge will be collected from certain transactions regarding loans provided by banks, foreign credit corporations and international institutions; then, in the event of loan extension by the banks to real or legal persons under general loan agreement, either secured or non-secured, and funded from their own resources or from other credit institutions, it is unattainable for them to benefit from the exception under the Law on Charges.

In their decisions, both the Constitutional Court and the Supreme Court Assembly of Civil Chambers stress that the general loan agreements, whether secured or unsecured, funded from their own resources or from other credit institutions will not be in the scope of the exemption in question. In this case, will the loan agreements other than the general loan agreements be within the scope of the exemption?

It is clearly understood that the judicial authorities aimed to emphasize that enforcement proceedings would not be deemed to fall within the context of the exemption granted to the financial institutions if they relate to charges to be collected regarding extension of loans, their security and repayment of loans. However, wording used in the said decisions may lead to many controversial issues.

Firstly, it is unclear from the context of the decisions that which charges are in the scope of the exemption. The Supreme Court Assembly of Civil Chambers stated that the charges to be paid with respect to litigation and enforcement proceedings are clearly not included in the scope of the exemption. However, the Constitutional Court does not express this opinion. Instead, it just expresses that the general loan agreements funded from the banks' own resources or other financial institutions are not included in the scope.

Secondly, the types and the scope of the general loan agreements are not described in the decisions. It is not clear whether the consumer loans, loans extended to small and medium sized enterprises or other facilities will be assessed as general loan agreements. In other words, the types of loan agreements and their context are not adequately described which may lead to confusion and subjective comments.

It is currently decided by the courts that in case the borrower goes into default, the cost of execution and litigation proceedings will not benefit from the exemptions set forth in the legislation. We hope the decisions of the Supreme Court and the Constitutions Court would not cause more restrictive interpretations leading the exemption to not serve its purpose and negatively affect the 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.

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