In its decision published in the Official Gazette on 12.09.2023, the Constitutional Court emphasized that when introducing tax security measures to protect the public interest, the restrictions on fundamental rights and freedoms must be commensurate with the public interest and not violate the principle of proportionality. In its decision dated 18.5.2023, E: 2020/11, the Constitutional Court ruled that the restriction imposed on the freedom of enterprise by the second paragraph of Article 7 of the "Law on Digital Service Tax and Amendments to Certain Laws and Decree Laws" (Law No. 7194) is excessive and contrary to the principle of proportionality provided under the Constitution.

According to the tax security provision in Law No. 7194, the Tax Administration is authorized to issue a warning notice to digital service providers or their authorized representatives in Turkey who fail to submit their digital service tax returns and meet their tax payment obligations on time. This notice may be issued using information obtained from websites such as communication tools, domain names, IP addresses, and similar sources. Such warning notices are also published on the website of the Tax Administration.

According to the second clause of Article 7 of Law No. 7194, if the digital service providers or their authorized representatives in Turkey do not fulfill their declaration and tax payment obligations on time for the taxes covered by the Tax Procedural Law No. 213 within 30 days after the said notice, the Ministry of Treasury and Finance may decide to block access to their services until these obligations are fulfilled. This decision is communicated to the access providers through the Information Technologies and Communications Authority. The access providers are required to implement the blocking decision within 24 hours of notification.

The rule mentioned above was contested before the Constitutional Court on the grounds that it effectively serves as a penalty that leads to the closure of a digital service business. Imposing this penalty on digital service taxpayers, especially when it's not applied consistently to the same taxpayers for other tax matters or all taxpayers, contradicts the principle of equality enshrined in Article 10 of the Constitution. Furthermore, it's contended that the rule infringes upon the freedom of communication safeguarded by Article 22 of the Constitution. As per Article 13, this freedom can only be curtailed by a court decision based on constitutional justifications. Yet, the access-blocking decision made by the Ministry of Treasury and Finance appears to breach this provision. There's also concern that the rule impedes the freedom of expression and dissemination of thought, as defined in Article 26 of the Constitution.

In the mentioned decision, the Constitutional Court did not make an evaluation within the scope of the equality principle and the freedom of communication but instead found that the rule that provides for a tax security measure constitutes a disproportionate restriction on the "entrepreneurial freedom" protected under Article 48 of the Constitution titled "Freedom to Work and to Contract" and therefore violates the "principle of proportionality" provided under Article 13 of the Constitution titled "Limitation of Fundamental Rights and Freedoms".

In the context of the decision, it was observed that the rule in question, which mandates limitations on the services offered by digital service providers, is perceived to infringe upon the freedom of enterprise. This freedom is a subset of the broader "freedom to work and contract." The importance of the freedom of enterprise is underscored, highlighting that it ensures the right of any individual or legal entity to found an enterprise for economic or commercial pursuits in their chosen field, engage in any professional activity of their choice, and operate their profession as they see fit, free from State or third-party interference.

On the other hand, the court recognized that establishing certain safeguards and measures is customary to ensure tax collection in the domain of tax law. Pertaining to the specific case, the court articulated that the regulation introduced to guarantee digital service providers adhere to their tax obligations is certain, feasible, predictable, consistent with the principle of legality, and serves a legitimate purpose. However, the court highlighted that while the legislative body has broad discretion in securing the collection of public receivables, this power must be wielded in harmony with the proportionality principle set forth in Article 13 of the Constitution.

The Constitutional Court highlighted the sub-principles of the proportionality principle and emphasized that the envisaged restrictions must be "appropriate" to achieve the intended purpose, that the limitation should be "essential" to achieve the desired outcome, and there should be a balanced relationship between the curtailment of the right and the targeted objective, making it "proportional." Given its persuasive impact on digital service providers subject to the digital service tax, the limitation has been deemed both "appropriate" and "essential" in ensuring they meet their reporting and tax payment obligations. However, regarding proportionality, the Court articulated that a balanced equilibrium must exist between public interest and an individual's entrepreneurial freedom and that the sanction levied by the Ministry of Treasury and Finance shouldn't place an undue and intolerable burden on entrepreneurs.

Within this scope, in its reasoning for the annulment of the article, the Constitutional Court stated that limiting the availability of digital service providers' services that do not meet their tax filing and payment obligations essentially equates to prohibiting access to their entire website, which is the most severe measure possible. It was suggested that lighter penalties, such as imposing an advertising ban on the primary website where these digital service providers operate, prohibiting new contract formations, and incrementally reducing the website's internet traffic bandwidth, should be taken as initial steps. Harsher measures should be considered only if these providers continue to neglect their tax responsibilities after these milder sanctions. Ultimately, continued non-compliance could result in a complete blockade of access to the website's digital services. The court suggested that direct access blockades place an undue burden on service providers, potentially disrupting the critical balance between entrepreneurial freedom and public welfare. Furthermore, these restrictions on entrepreneurial freedom may be excessive, violating the principle of proportionality.

The decision states that the provision for cancellation will take effect 9 months after its publication in the Official Gazette. It is anticipated that during this period, the Grand Assembly will introduce new legislation that follows the approach offered in the decision, implementing a gradual tax security measure instead of the current tax security provision.

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