Turkey: The Right To A Fair Trial And The Notification Of Tax Inspection Reports

Introduction

As per Article 34 of Tax Procedural Code No. 213 ("TPC"), additional and ex-officio assessments are notified to the relevant taxpayers through a "notice," and the items that should be indicated in the notice are listed under Article 35 of the TPC. In practice, these notices are called "tax notices." Additionally, under Article 366 of the TPC, it is stipulated that tax penalties will be also notified through a "penalty notice," and the items that the penalty notice should include are regulated in a detailed manner. However, in practice, the tax and penalty notices are unified, and one notice called the "tax penalty notice" is notified to the taxpayers.

Tax inspection reports, being the legal basis of the tax assessments (the legal basis of the tax penalty notice) are defined under the Regulation on the Procedures and Principles on Tax Inspections as the reports that are prepared as a result of tax inspections.

The TPC comprises specific provisions regarding the notification of the tax inspection reports. Within this scope, Article 35 of the TPC stipulates that the valuation commission's decision and one copy of the relevant tax inspection reports should be notified to the taxpayer if a tax assessment made based on a valuation committee decision.

However, in practice, the Tax Administration may send relevant tax penalty notices without enclosing/notifying the relevant tax inspection reports to the taxpayers, especially for the tax assessments that are made based on tax inspection reports instead of a valuation committee decision. The referred application (the non-notification of the tax inspection reports) may result in the violation of the taxpayers' rights. Thus, this application has been made subject to dispute before the tax courts, and several decisions have been rendered by different chambers of the Council of State, as it will be detailed in the following sections of this newsletter article.

Lastly, in its decision dated 03.07.2019 and No. E. 2019/559, K.2019/437, the Council of State's Plenary Session of the Chambers for Tax Cases ("PSCT")¹ stated that the non-notification of the tax inspection report with the tax penalty notice does not constitute violation of the right to a fair trial.

Within this scope, this newsletter article analyzes the above-summarized PSCT decision, and evaluates the relation between the notification of the tax inspection report and the right to a fair trial.

Right to a Fair Trial

Due to the fact that this Newsletter Article evaluates that non-notification of the tax inspection reports may constitute violation of the right to a fair trial, we believe that a brief summary regarding the scope of the right to a fair trial should be made.

Under Article 6 of the European Convention on Human Rights ("ECHR"), titled as "Right to a Fair Trial", it is regulated that in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. According to Article 90 of the Constitution of the Republic of Turkey ("Constitution"), the referred provision of the ECHR is binding in terms of national law.

Additionally, the referred provision of the ECHR also regulates that everyone charged with a criminal offence has the rights (i) to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him and (ii) to have adequate time and facilities for the preparation of his defense².

Additionally, under Article 36 of the Constitution, it is regulated that everyone has the right of litigation either as plaintiff or defendant, as well as the right to a fair trial before the courts, through legitimate means and procedures. Within this scope, it may be concluded that the right for a fair trial and the right of defense are regulated at ultimate level.

The Relation between the Tax Inspection Reports and the Right of Defense and Right to a Fair Trial

As detailed in the introduction part of this Newsletter Article, in principle, a tax inspection report should be prepared as the legal basis of the ex-officio and additional assessment.

Tax inspection reports are comprised of the following sections: introduction, procedural examination, examination on the accounts, and issues that are subject to criticism and conclusion. The tax and tax loss penalty amounts that are suggested to be assessed should be clearly set forth in the conclusion part of the tax inspection report, and in no uncertain terms. Therefore, the reasoning of the tax assessments/tax penalty notices, meaning the criticism points alleged by the Tax Administration, are set forth in the tax inspection report.

Through the evaluation of the criticism points set forth in the tax inspection reports, taxpayers may prefer (i) to benefit from the deduction of the tax and tax loss penalty amounts in line with Article 376 of the TPC (ii) to apply for settlement procedure or (iii) to initiate the tax litigation procedure with the cancellation claim of the relevant tax assessments.

If the tax inspection report is not notified, the taxpayers' evaluation right with respect to the above-mentioned remedies will be restricted in a sense. Likewise, the possibility of a taxpayer being able to decide on the most efficient legal remedy in relation to the tax assessments without seeing the criticism points indicated in the tax inspection report will be restricted.

Additionally, even if the taxpayer initiates the tax litigation procedure without being able to analyze the criticism points as stated in the tax inspection report, the claims indicated in the lawsuit petition may be insufficient or irrelevant. At this point, it may be claimed that the non-notification of the tax inspection reports result in the breach of the taxpayers' right of defense and right to a fair trial due to the fact that it prevents taxpayers from being informed promptly of the nature and cause of the accusation against him/her, and to use the right of choice regarding any legal remedies available³.

Former Decisions of the Council of State

Through the analysis of the former decisions of the Council of State, it is observed that, in general, the non-notification of tax inspection reports is accepted as a breach of the constitutional right of defense⁴. Additionally, there are also decisions stating that the non-notification of the tax inspection report is in the nature of a mispleading that results in the invalidity of the tax penalty notice⁵.

On the other hand, in some court decisions, it is stated that tax inspection reports may also be notified to the taxpayer via an interim decision of the court and, therefore, the non-notification of tax inspection reports with the tax penalty notices are not in the nature of a procedural deficiency that results in the breach of the right⁶.

Current Decision of the PSCT

As indicated in the introduction part of this newsletter article, in its decision dated 03.07.2019 and No. E. 2019/559, K.2019/437, the PSCT refers to the decision of the ECHR in the Miailhe/France case⁷. Accordingly, the PSCT claims that during the evaluation of the right to a fair trial, all of the stages should be evaluated in a cumulative manner, and a deficiency at one stage of the proceeding should be compensated at another stage of the proceeding. Accordingly, it is concluded that the tax inspection report may be notified through an interim court decision and notified to the taxpayer during the litigation procedure. Therefore, the right to a fair trial should be constituted by the courts, and the deficiency of the tax administration regarding the issue, should not be accepted as a breach of the right to a fair trial.

In the case of Miailhe/France, to which the PSCT decision refers, the applicant has claimed that the principle of equality in terms of administrative process and the right to defense in the judicial process have been infringed. The European Court of Human Rights, in its examination, states there are some irregularities in the administrative process, but also denote that the courts have resolved the irregularities in the judicial process. According to the Court, if the proceedings that someone has been exposed to, taken as a whole, are fair, it cannot be said that there is a violation of the right to a fair trial. Consequently, the case of Miailhe contributes to interpretation of Article 6 as it constitutes the criterion of being fair in the process, as a whole. However, it should be noted that the referred decision has been made subject to discussions and criticisms in the doctrine⁸.

Conclusion

Provisions of the TPC clearly regulate that tax inspection reports should be enclosed with the tax penalty notices. One aim of this regulation is to enable the taxpayers to be apprised of the criticism alleged by the tax administration against them, and to decide on the legal remedies that may be utilized against the tax assessments.

If the tax inspection report is not notified, the taxpayers' evaluation right on the above-mentioned remedies will be restricted in one sense. Likewise, the possibility of a taxpayer to decide on the most efficient legal remedy in relation to the tax assessments without seeing the criticism points indicated in the tax inspection report will have been restricted. Additionally, even if the taxpayer initiates the tax litigation procedure without being able to analyze the criticism points indicated in the tax inspection report, the claims indicated in the lawsuit petition may be insufficient or irrelevant.

In the above-detailed decision of the PSCT, it is stated that the right to a fair trial should be constituted by the courts, not by the tax administration. We believe that this is a "literal" interpretation of the right to a fair trial.

Footnotes

1 https://www.danistay.gov.tr/upload/guncelkarar/03_10_2019_100050.pdf (Access date: 19.12.2019).

2 Aydemir, İsa: Savunma Hakkı Kapsamında Vergi İnceleme ve Vergi Tekniği Raporlarının Mükelleflere Tebliği, http://denetimakademisi.com/wp-content/uploads/2017/07/SAVUNMA-HAKKI-KAPSAMINDA-VERG%C4%B0-%C4%B0NCELEME-VE-VERG%C4%B0-TEKN%C4%B0%C4%9E%C4%B0-RAPORLARININ-M%C3%9CKELLEFLERE-TEBL%C4%B0%C4%9E%C4%B0.pdf (Access date: 19.12.2019).

3 Yıldırım, Murat: İnceleme Raporlarının İhbarnamelere Eklenmemesi, Vergi Dünyası, No. 454, June 2019.

4 The decision of the 3rd Chamber of the Council of State, E.2006/4527, K.2008/649, 03.03.2008.

⁵ The decision of the 9th Chamber of the Council of State, E.2008/3530, K.2009/3998, 05.11.2009.

6 The decision of the 3th Chamber of the Council of State, E.2010/5968, K.2013/497, 20.02.2013.

7 https://hudoc.echr.coe.int/tur#{%22itemid%22:[%22001-58077%22]}, (Access date: 29.12.2019)

8 Turinay, Faruk: Avrupa İnsan Hakları Mahkemesi'nin 1996 tarihli Miailhe v. Fransa Kararı Üzerine Bir İnceleme, Ankara Barosu Dergisi, No. 2014/3.

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.