Turkey: General Abuse Prevention Provision: Practice In Turkish Tax Law

Last Updated: 29 May 2013
Article by Zeki Gündüz

I. Introduction

Like many other countries within the Civil Law tradition, there is a provision in Turkish tax law which acts as a general abuse prevention provision. The "primacy of substance over form" principle, which was introduced to Turkish substantive law in 1980 with an amendment made to Article 3 of the Tax Procedure Law, is expressed as "The basis of taxation is the taxable event and the actual nature of the transactions related to the event". According to the preamble of the Article, the basis of the amendment is Article 1 of the German Tax Procedure Law. On the other hand, the principle was being implemented in Council of State decisions and found in some legislation, without being patently mentioned, even before the said provision was introduced; e.g. the provisions regarding hidden income and hidden capital in Article 15 of the VAT Law No. 5420, and the provision stipulating that taxation must be based on the actual nature of the documents set forth in Article 4 of the Stamp Duty Law.

II. Debates regarding the scope

As it has been in other countries, the relevant provision has been controversial among Turkish tax practitioners and academics during its 30 years of history. The crux of the debate can be said to be formed by two axes. The first axis of the debate is concerned with whether the economic approach is a proof rule or a qualification rule; the second axis discusses the characteristics of the provision and its scope and place for implementation. Regarding the former debate, while most commentators approach the subject under the title of "interpretation and proof", there are authors who consider the issue as a qualification problem.

Regarding the second debate, according to some jurists, the provision bears the characteristics of a general abuse prevention provision, while some other jurists maintain that the provision, apart from displaying such characteristics, is a reflection of the civil law prohibition of abuse of rights. Nevertheless, there is consensus amongst commentators on the principle that the provision should not be used arbitrarily and in a manner inconsistent with the rule of law.

III. Practice of the tax administration

In current practice, the tax administration uses Article 3 of the Tax Procedure Law in order to justify actions like disregarding companies founded in free trade zones, rejecting tax exemptions regarding income generated from sale of participation shares and real estate, making VAT assessments claiming that a service which is non-existent is actually rendered, wholesale rejection of all transactions made with related parties, etc. The administration's approach is founded on two important concepts of civil law, namely simulation and tax-veiling.

In order to properly understand the theoretical basis of simulation and tax-veiling, these concepts must be handled carefully along the lines of the provision in Article 3 of the Tax Procedure Law. The said provision, in essence, theoretically addresses both tax dodging, i.e. tax-veiling actions (indirect cheating), and tax/financial simulation (direct cheating). In tax-veiling, the economic result is left out of the scope of taxation through a different legal appellation; the law is sought to be circumvented in this way, with a solely tax-related motive. Therefore, the elements of the act resulting in tax-veiling may be set forth as an economic result, legal form, abuse of legal form and will to abuse legal form. If the utilization of a legal form can be said to be artificial, irregular, contrary to the ordinary progression of affairs, discordant, complex, confusing, or illogical, then a finding of abuse can be made.

In tax-veiling, the form of the actual event is altered with intent to circumvent tax, although the result of the actual event is not changed. There never are two separate acts (in the form of apparent act and covert act) in tax-veiling; the apparent legal form is desired by the parties, it is valid in civil law, but it does not correspond with the economic context of the actual event. Therefore, in terms of "actuality" stipulated in Article 3B of the Tax Procedure Law, in tax-veiling the "legal actuality" (legal form) does not correspond to the "economic actuality" (economic context).

On the other hand, in tax/financial simulation, there are two acts, namely the apparent act and the actual act. The covert act, which is hidden under the apparent act, is the act of which the parties desire the economic results, and this act is directly subject to tax according to the tax laws. In tax simulation, the act which the taxpayers do not want to perform but perform nonetheless as cover is invalid, while the actual act which the taxpayers desire to perform and perform according to the conditions of validity is valid. Therefore, in terms of "actuality" stipulated in Article 3B of the Tax Procedure Law, simulation of the "legal appearance" does not correspond to the "legal actuality".

IV. Conclusion

"The primacy of matter against form principle", whose theoretical foundations and development in Turkish Law has been briefly touched upon above, is an important tax law principle which is controversial still and will be so in the future. We would like to point out that it is essential in the practice of this principle (whether or not the absence of the principle would cause a problem should also be debated), that the rule of law be respected, that the constitutional principles regarding taxation be not violated (especially the legality rule), and the issue be addressed within the practice of wilful conformity with tax and democratic governance.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Zeki Gündüz
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions