Turkey: Intragroup Loans

Under Article 241 of Turkish Criminal Law No. 5237 ("TCL"), lending for the sake to gain profit is forbidden. However, in practice, for the purpose of financing affiliated companies, intragroup loans are a frequently employed method.

The intention is to eliminate such prohibition as foreseen under the TCL, through an amendment to be introduced to Additional Article 1 of Law on Financial Leasing, Factoring and Financing Companies No. 6361 ("Law on Financing Companies"), through the Legislative Proposal on Amendments on Certain Law and Decree Laws dated 30.11.2018 and numbered 2/1369 ("Legislative Proposal").

Under this Article, the current legal status of intragroup loans, and the status to be construed through the Legislative Proposal, are evaluated.

Current Situation

As above-explained, the TCL forbids lending to gain profit, and deems the same to be the crime of usury. In contrast, however, the former Turkish Criminal Law No. 765 had regulated constancy as a material condition of such crime. Following the amendment as to the essential conditions of such crime, in the event of multiple implementations of such act, in other words, in the event of the existence of constancy, the Court of Appeal decisions[i] accept the existence of successive crime.

Although the application of interest in the case of lending money in the course of commercial life is usual, in the decisions of the Court of Appeal[ii], without considering whether the transactions are commercial transactions, it is deemed sufficient to apply interest for the existence of the material element of the crime.

On the other hand, there are various regulations preventing interest-free lending in commercial transactions. In the ongoing sections, regulations concerning lending, and the regulations on interest-free loans, will be evaluated.

Code of Obligations

Money lending is regulated under Article 386 of Turkish Code of Obligations No. 6098 ("TCO") under the concept of "consumption loans". It is regulated under Article 387 of the TCO that interest may be demanded for commercial loans, in any event, and for regular loans, if agreed to by the parties.

Additionally, Article 388 of the TCO foresees the designation method of interest rates in the cases in which the parties have not agreed upon the same. Also, the last paragraph of the Article forbids the application of compound interest.

Within this scope, under the TCO, in both commercial and regular loans, interest is allowed.

Capital Market Law

Pursuant to Article 21/1 of Capital Market Law No. 6362 ("CML"), it is forbidden for publicly-held corporations and collective investment schemes and their subsidiaries and affiliates to transfer income to real persons or legal entities with whom they have a direct or indirect relationship in terms of management, audit or capital, by decreasing their profits or their assets, or by preventing the increase of their profits or their assets through performing transactions, such as making contracts or commercial practices containing different prices, fees, costs or conditions, or producing a trading volume in violation of the conformity with market practices and comparability to similar transactions, prudence, and honesty principles of commercial life.

In such cases, under the CML, there is the risk that loans granted interest-free to direct or indirect related parties, in other words, which are not in conformity with market practices and prudence, and honesty principles of commercial life, to be deemed as illegal transfer pricing activities.

Law on Financing Companies

Law on Financing Companies has abolished Decree Law on Lending No. 90 ("Decree No. 90").

The expression stated under Article 2/2 of Decree No. 90 as "Banks, insurance companies and other institutions which are authorized to lend money under other laws, and lending transactions of legal entities to other legal entities, which they have direct, or through their affiliates, indirect, shareholding relation...are not subject to this Decree Law," had been evaluated as intragroup loans are allowed.

As such expression included in Decree Law No. 90 is not included in the Financing Companies Law, and such evaluation is eliminated.

Turkish Commercial Code

Article 358 of Turkish Commercial Code No. 6102 ("TCC"), regulates loans granted to affiliated persons and group companies.

Pursuant to Article 358 of the TCC, shareholders cannot be granted loans by the company, unless they have paid their due obligations arising from their capital subscription and profit of the company and, together with its surplus legal reserves, are sufficient to cover its previous year's loss.

Under the TCC, there is no prohibition on lending money except by a company that has insufficient means to cover its losses to its shareholders, and which has not fulfilled its capital subscription.

Corporate Income Tax Law

Pursuant to Article 13 of Corporate Income Tax Law No. 5520 ("Law No. 5520"), the purchase or sale of goods or services of corporations to its related parties at a price or fee that they have determined, and which are in contradiction with the arm's length principle, the gain is deemed to be distributed in whole or in part through transfer pricing. Purchase, sale, production and construction operations, leasing and leasing transactions, borrowing and lending money, and other transactions requiring bonuses, fees and similar payments to be paid are deemed as service rendering and having so obtained.

Law No. 5520, in conformity with the regulation under the CML, requires the arm's length principle to be met. In the event that an interest-free (not comparable to similar transactions) loan is granted, the risk of such a transaction is that it may be deemed as illegal profit distribution through transfer pricing.

Conclusion

Despite the fact that various regulations forbid interest-free loans, due to the modality of regulation on the crime of usury under the TCL, in practice, companies suspense on whether intragroup loans construe a crime.

Therefore, a statement, similar to that which was regulated under the former Decree Law No. 90, such as "Under the provisions of Article 195 of the TCC, companies comprised of a group of companies may lend money to each other in accordance with the provisions of the relevant legislation on interest," is planned to be included in the Law on Financing Companies through Article 63 of Legislative Proposal.

Through such expression, the intention is to eliminate the risk of occurrence of the crime of usury, and such intention is explicitly stated under the preambles of the Legislative Proposal.

Footnotes

[i] Decision of Criminal Chamber of Court of Appeal numbered E. 2017/5-1131, K. 2018/331 and dated 03.07.2018; Decision of 15th Chamber of Court of Appeal numbered E. 2015/9915, K. 2018/6260 and dated 03.10.2018.

[ii] Decision of 5th Chamber of Court of Appeal numbered E. 2016/5192, K. 2018/4511, and dated 19.6.2018; Decision of 15th Chamber of Court of Appeal numbered E. 2015/9915, K. 2018/6260 and dated 03.10.2018.

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
 
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
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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