The first instance tax court decision in question is a leading
decision in Turkish law in terms of the grounds on which it is
based. We believe this tax court decision will also be approved by
the Council of State. Case law of the European Court of Human
Rights has rarely been used as a supportive element in Turkish
courts. However, in the decision in question, the case law of the
ECHR has been used for the first time by a Turkish tax court as the
main foundational element of a decision. With this decision, in
accordance with our defence arguments and for the first time in a
tax related conflict, Turkish courts made a reference to the right
to equality of arms and the right to a fair trial. In addition, in
a conflict regarding transfer pricing, for the first time the ECHR
France v. Henrich decision number 13616/881 has been referred to.
For the reasons mentioned above, this dispute was more than a mere
transfer pricing conflict. The decision is lighting the way for
Turkish tax experts and will guide doctrine after it is approved by
the Council of State and is starting to have an effect even now, at
this early point. This decision will set an example for the courts
of first instance in future conflicts and it is highly possible
that the same grounds will be used in the courts in the future.
Facts of the case are as follows:
The Client resides in Istanbul and operates a business which
imports and markets computers and measurement systems, in addition
to offering technical services with respect to these products.
The tax inspection report, which was issued at the end of the
tax inspection examining the corporate tax liability of the Client,
alleges that the Client has been involved in disguised profit
distribution because it purchased computers and technological
products defined as falling in the "Desktops and Laptops
Group" and the "Imaging and Printing Group" from its
overseas intra-group company, at a price higher than that of an
arm's length transaction.
A lawsuit was filed against the above mentioned assessments
based on both procedural and substantive grounds. The very basic
procedural defence was that the use of a secret comparable during
the audit restricts our right of defence and our right to fair
trial. Although the tax audit report was provided to the Client
along with its annexes comprising numerous documents, any
information on the comparable and related documents (although
stated in the report) were not included in the annexes.
As to the substantive arguments, it has been set forth that the
tax audit is not in compliance with transfer pricing
In accordance with our defense arguments, the court has ruled
that the tax assessments are not based on rightful grounds since
those grounds consist of a hidden comparable and so violate the
equality of arms resulting from the right to fair trial which is
protected under the Constitution and Article 6 of the European
Convention of Human Rights.
This astonishing justification of the first instance tax court
decision is pointing the way to new and important developments for
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