Turkey: Scope Of Liability On Tax Penalties And Economic Crimes

As per the Article 331 of Law No. 213 on Tax Procedural Law (the "Law"), any person who violates a provision of the tax laws will be subject to tax penalties. Accordingly, except for the additional taxes that may accrue as a result of a violation of a tax provision, the Turkish legal system also set forth various penalties. These penalties may be in the form of monetary fines or imprisonment.

Under the systems of the Law, monetary fines can be classified into two types:

  • Fines imposed in the event of violation of a rule of procedure. As per Article 352 of the Law, such fines will be determined according to the level of the irregularity; and
  • Fines applied if a tax loss is incurred to the detriment of the state treasury. In such cases, these fines will be higher, and it is common that they are calculated pro rata to the loss of the taxes.

The tax provisions state that certain acts must be punished with more severe sanctions. For instance, Law No. 5607 on Fighting Against Smuggling set forth a prison sentence for violation of the customs provisions. In such cases, the liable person will be tried by a criminal court, and the relevant trial will be conducted according to Law No. 5271 of the Criminal Procedural Code1. As stated above, criminal sanctions and additional taxes can apply cumulatively.

Such legal remedies must be applied to the relevant taxpayer. When the taxpayer is a real person, both civil and criminal liability will be borne by such person. However, insofar as the legal entities are concerned, there is a difference between the two types of liability. While the liability for the additional taxes will obviously be on the shoulders of the legal entity, the representatives of such company will be liable for criminal acts associated therewith. Therefore, it is important to determine who will carry criminal liability in commercial entities. In this article, emphasis is given to joint stock companies and limited liability companies.

Legal representatives of a limited liability company are the company's managers. For joint stock companies, representatives are the members of the board of directors. Company managers can be appointed among third parties for both limited liability companies and joint stock companies. The law does not foresee any difference between the liability of a shareholding manager and a non-shareholding manager. As per Article 317 of the Turkish Commercial Code, a board member has the authority to represent and manage the company. In this respect, tax duties of these companies must be carried out by their legal representatives or managers.

According to the Turkish Commercial Code, the liability of the shareholders of limited liability companies and joint stock companies is limited to the capital they undertake to invest in the company. In other words, shareholders cannot be held liable for any amount except for the capital amount to be invested.

However, the liability of a shareholder of a joint stock company and a limited liability company regarding public receivables is different. If the public receivables cannot be collected from the assets of a limited liability company, or it becomes apparent that the assets cannot cover the debts, the treasury is entitled to commence proceedings against the shareholders of such company. This provision is stated in Article 35 of Law No. 6183 on Procedure of Collection of Public Receivables. It is clear that the tax receivables qualify as public receivables. Yet, the same Article clarifies that each shareholder will bear personal liability for such debt, pro rata to his/her share percentage. This provision does not cover the shareholders of a joint stock company.

Law No. 6183 further stipulates that taxes that cannot be collected from legal entities will be collected from the legal representatives or managers of the legal entities2. The decision of the Council of State dated 30 May 1967, numbered 124/1829, reads as follows: "(...) Legal representatives cannot be held liable unless collection of the debt is impossible. In such a case, the treasury may seek recourse from the legal representatives to collect its receivables."

The liability of the directors of joint stock companies or of managers of limited liability companies for the tax periods that cover their term in office does not end even if they have retired from the duty. In fact, many times, a tax investigation may take place after the relevant period. Yet, the liability is not for the period when the investigation takes place, but for the period when the relevant tax has arisen. Thus, the liability of the former legal representative will not end even if the tax loss is detected at a later stage. This is also confirmed by the decision of the 11th Chamber of the Council of State dated 26 November 1999 numbered 1997/2550 E. and 1999/224 K.

When it comes to criminal penalties, one must first consider the personality principle governing criminal law. As per the "personality principle," criminal liability shall be personal. No person shall be held liable for another person's actions. In this respect, with regard to unincorporated companies, each partner of such company will be held liable for his/her actions. An unincorporated company will not bear any liability since it is not a legal entity; whereas, companies that have been incorporated will be primarily liable for tax penalties. The legal representatives of a legal entity will bear the liability in terms of criminal law.

For instance, with respect to the criminal liability for smuggling, the subject of the liability is the legal representative of the legal entity. Yet, the liability will arise only for the representative who is aware of the details of the crime, and who was involved in the crime. As per the personality principle, the legal representative who has no information about the committed crime cannot be subject to any punishment. The prosecutor may include all representatives in the indictment; however, a representative who has no relation to an actual or moral element of the crime may not be punished by the criminal court. The decision of the 9th Criminal Chamber of the Court of Appeals numbered 1990/4303 E and 1991/238 K. reads as follows: "The causal link of a legal representative to the alleged crime must first be determined, and then the punishment will be decided, accordingly." Also, the 11th Criminal Chamber of the Court of Appeals, in its decision of 27 September 2001, and numbered 2001/5007 E. and 2001/8710 K has expressed the same principle. In light of these explanations, it must be noted that the task allocations among the legal representatives (sales, finance, customs clearances) must be determined. In such a case, if a criminal investigation takes place, a legal representative will be able to use the assignment of duty to prove that he/she has no relation to the alleged crime since the matter is beyond the scope of his/her responsibilities.

In addition, it should be noted that the sworn accountants are liable for tax losses and fines arising out of documents they have attested to, together with the taxpayers3. According to the internal circular of the Ministry of Finance4, for determination of the liability of accountants regarding the basis and taxes, the tax controllers must first send the tax and fine notice to the taxpayer. Once the tax accrual become definite, the controllers may initiate proceedings against these accountants, as well.

A person who is responsible for the taxes has the right to apply for legal remedies with respect to administrative decisions regarding tax fines. Administrative decisions may be subjected to judicial review through two types of legal action: An action for annulment, and an action for damages. An action for annulment enables an unlawful administrative act to be annulled by the court. An action for damages is brought by persons seeking recompense for violation of their subjective rights caused by an administrative act or decision, and the resulting loss. The period in which to bring such legal action is 30 days in the case of tax courts, unless a different period is stipulated in special laws, such as the 7 day period that is allowed with respect to cautionary attachments. The period in which to bring a legal action starts to run from the date upon which the taxpayer is notified of the administrative act.

Because of the increase in criminal proceedings against taxpayers in recent years, company representatives are advised to maintain commercial ledgers and records under the supervision of an expert financial adviser, and to retain a lawyer who is an expert in the field of tax litigation to handle any tax disputes. In of the event of any doubt, taxpayers are strongly recommended to request a special communique (özelge) from the tax authority in order to clarify a given tax issue, which would eliminate the risk of penalties.


1 Tax Procedural Code, Article 359.

2 Tax Procedural Code, Article 10.

3 Law on Independent Accountants and Financial Advisory, Article 12.

4 Internal circular No. 1996/1 related to Law No. 3568.

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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