The fact that decisions of the European Court of Human Rights
apply to domestic law makes such decisions even more critical.
These decisions also provide guidance for tax practices, so it is
essential to address this subject in our article.
Bulves/Bulgaria Decision: Joint Liability of VAT
The reason for this dispute which was sent to the European Court
of Human Rights was that the buyer's request to apply a
deduction to the VAT paid to the seller was rejected because the
seller failed to record and present the VAT in a timely manner. The
Bulves decision states that the liability to pay the VAT that
someone else is obliged to pay is "wrongful interference with
assets". Also, the same decision states that authority to
follow up whether or not VAT was paid by the seller should be
granted and the buyer who followed up his/her tax liabilities
should not bear the results of a tax breach which occurs because
the seller did not take on his/her responsibility to pay his/her
own tax liabilities.
The Turkish Tax Authority has interpreted Article 11 of the Tax
Procedural Law similarly. According to this regulation, in a
merchandise transaction, the parties to the transaction are
severally responsible by reserving the right to recourse. The
existing interpretation of Article 11 of the Tax Procedural Law is
contradictory to the Bulves decision. Current interpretation and
practice are also contradictory to the Constitutional Law,
specifically, the prohibition of drudgery which is regulated by
Article 18 of the Constitutional Law and the rule in Article 128 of
the Constitutional Law which states that public services and duties
should be conducted by public servants. In addition, withholding
tax is mentioned in Article 11 of the Tax Procedural Law. VAT is
Funke/France Decision: Document Submission During a Tax
In the Funke case, Funke was invited by financial police to
submit documents regarding his possessions overseas and his home
was searched because he did not respond to this invitation. The
police could not find any documents at his home and for this reason
a penalty in the form of a fine along with preventive detention was
requested. However, the court only imposed the fine. On the
principle that no one shall be forced to provide statements and
evidence against himself as per the fair trial provision in Article
6 of the European Convention on Human Rights (ECHR), the court
asserted that the Convention had been breached and stated that
evidence should be found in other ways and not be requested from
the defendant. Also, the court considered it "impeaching"
that authorities reviewing customs crimes requested evidence from a
person and suspended his/her bank accounts.
It is contrary to the right to remain silent, which is a
constitutional right, and contrary to the Funke/France decision for
civil servants to conduct tax inspections in such a way that they:
do not show tax inspection minutes, ask tricky questions, give
directions, oppress, force the taxpayer to give statements or
documents impeaching himself, and act in a hasty manner.
Yukos/Russia Decision: Rejection of an Objection Mark-up
The Yukos case was widely covered in the Russian media for a
long time; Yukos is a significant oil company in Russia and among
the major companies which affect the Russian economy. It was
asserted that tax-veiling and a fictitious company structure were
identified during a tax inspection of Yukos, resulting in a tax
assessment of more than EUR12 billion, a fine which included
interest, due to the accusation of tax fraud. In addition, a
punitive execution compensation of approximately EUR1.16 billion
was applied on the total debt of the company because the debtor did
not follow the requirements of the payment order. Important shares
of the Yukos company group were sold through execution.
Consequently, the company went bankrupt and began the process of
liquidation. The ECHR found this intervention undue and beyond
The Turkish Tax Law regulates the "rejection of objection
markup" in a way similar to the punitive execution
compensation mentioned in the decision of the ECHR. The rejection
of an objection markup is a binding financial sanction which is
applied to a taxpayer whose objection to a payment order was
rejected. This regulation is contradictory to the Yukos/Russia
decision because taxpayers fall into difficult situations when the
amount of the rejection of objection markup increases. In addition,
it is not clear which loss or expense this markup provides
compensation for. In this respect, the practice of applying a
rejection of objection markup is contrary to Constitutional
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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