The Council of Minister has issued a Decree (2015/7713; "Decree") which introduces additional customs duties for certain goods. However, the additional customs duties arguably run contrary to provisions of the Turkish Constitution, European Union Customs Zone requirements, and a World Trade Organization agreement about Information Technology.
Since the Decree's legality is questionable, parties which must pay additional custom duties based on the Decree's requirements should consider challenging these taxes to the relevant administration and possibly before the tax courts.
The Decree was published in Official Gazette number 29379 and entered into force on 7 June 2015.
1. Scope of the additional customs duties
The Decree introduces an additional 30% customs duty on the following goods which have an A.TR Movement Certificate and which originate outside Turkey or the European Union:
- "Vacuum cleaners (excluding 8508.70)", classified under tariff code 85.08.
- "Electro mechanic domestic appliances with self-contained electromotor (excluding vacuum cleaners classified under tariff code 85.08 and 8509.90)", classified under tariff code 85.09.
- "Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric smoothing irons; other electro- thermic appliances of a kind used for domestic purposes; electric heating resistors, (excluding 85.54 and 8516.90)", classified under tariff code 85.16.
The Decree also introduces an additional 10% customs duty on "parts and pieces" for the goods noted above, which are classified under tariff codes 8508.70, 8509.90 and 8516.90.
2. Council of Minister's legal power to impose taxes
The Turkish Constitution states that taxes, fees, duties and other such financial obligations must be imposed, amended, or revoked by law (Article 73). Therefore, taxes must be based on a law enacted by the parliament. The Council of Ministers is not empowered to impose new taxes via Decrees.
However, the Constitution allows the Council of Ministers to amend the percentages of exemptions, exceptions and reductions for taxes, fees, duties and other financial obligations, within certain legislative limits. Therefore, the Council of Ministers can legitimately change the percentage of an existing tax, provided the change remains within legislative limits and it has been granted this authority.
The Constitution also empowers the Council of Ministers to impose additional financial liabilities on imports to regulate foreign trade, but it specifically excludes imposing new taxes (Article 167). The concept of "additional financial liability" is relatively narrow and well defined under Turkish legislation. It does not include taxes and additional customs duties, which can only be imposed by law.
The Decree identifies Article 2 of the Law on Customs Entry Tariff Schedule number 474 as its empowering legislation. The empowering article enables the Council of Minister to amend the customs duty percentage by up to 50% for goods listed under the Customs Entry Tariff Schedule. The article's wording clearly empowers the Council of Ministers to amend an existing percentage, but not to impose a new financial liability. Despite this, the Council of Ministers has introduced a new liability alongside existing customs duties, rather than increasing the percentage of existing customs duties.
Accordingly, a strong argument exists that the financial liability introduced by the Decree is a new tax, as opposed to a percentage increase for an existing tax or an additional financial liability. This interpretation is supported by the Decree identifying the new liability an "Additional Customs Duty". Further, the Decree does not mention any changes to existing percentages, but rather introduces a separate and additional customs duty.
3. European Union Customs Zone
Turkey has been included in the European Union Customs Zone ("Customs Zone") since December 1995 (Association Council Decision numbered 1/95, within the scope of the Ankara Agreement between Turkey and European Community). Membership allows free trade between Customs Zone countries without being subject to any customs duties or tariffs. Members can also determine mutual trade policy and tariff applications for imports from third countries.
Customs Zone countries (including Turkey) cannot impose duties or similar financial liabilities on goods which have entered free circulation within the Customs Zone.
Under Turkey's arrangement with the European Union, products from third countries will be considered to be in "free circulation" if the following criteria are all met:
- Import formalities have been complied with.
- Customs duties or charges of equivalent effect have been levied, either in the Customs Zone or in Turkey.
- The exporter has not benefited from a total or partial reimbursement of duties or charges.
Exporters issue an A.TR Movement Certificate in order to benefit from the exemption. Any goods carrying an A.TR Movement Certificate are accordingly deemed to be in free circulation. Therefore, customs duties or similar taxes cannot be requested for goods carrying such certificates.
Accordingly, the Decree's additional customs duties arguably run contrary to the exemption from custom duties which applies to goods in free circulation within the Customs Zone, which did not originate from the European Union or Turkey.
4. The World Trade Organization's Information Technology Agreement
On 24 July 2015, members of the World Trade Organization agreed in Geneva to expand the Information Technology Agreement's scope and remove customs duties applied to high-tech products. The parties undertook to eliminate the customs duty within three years. The intention is that consumers' costs will decrease and consumers will benefit from innovative products.
Therefore, the Decree's introduction of an additional customs duty in Turkey ostensibly contradicts Turkey's international undertakings to eliminate customs duties on high-tech products.
Accordingly, it remains to be seen whether the Decree's requirements will stand up to legal scrutiny and challenges from parties which may now receive significantly reduced economic incentives to trade these goods in the Turkish market.