Key Issues in Tax Litigation Procedures in Turkey
Often a tax dispute will arise out of a “difference of opinion” between the taxpayer and the tax office.
This essay briefly explains the main sources of tax disputes in Turkey and provides a useful overview on the procedure and processes for lawsuits before the Tax Courts.
In Turkey, the tax law is governed by the principle of the Legality of Tax. This principle is defined in Article 73 of the Turkish Constitution as follows: “Everyone has the duty to pay taxes in accordance with their means in order to finance public expenditures. The equitable and balanced distribution of the tax burden is the social objective of fiscal policy. Taxes, duties, fees and similar fiscal obligations shall be imposed, changed or abolished by law. The Council of Ministers may be granted the power to make changes, within upper and lower limits specified by law, to the provisions concerning exemption, exceptions and deduction rates of taxes, duties, fees and similar fiscal obligations.”
According to tax legislation, the equity companies, cooperatives and joint ventures that have their legal or principal place of business located in Turkey shall be taxed on their earnings both within Turkey and outside of Turkey. These are called “fully accountable taxpayers.” On the other hand, those who do not have their legal or principal place of business in Turkey shall only be taxed on their earnings within Turkey. Those are called “limited taxpayers.”
Despite the principle of the Legality of Tax and the numerous tax provisions provided in the tax laws, often a tax dispute will arise out of a “difference of opinion” between the taxpayer and the tax office. It is not uncommon for a tax inspector to evaluate a tax issue from a point of view different from the taxpayer, resulting in additional tax accruals, interest and penalties for the taxpayer. For instance, a taxpayer will attempt to limit its tax liability by taking advantage of a “loophole” in the tax law that would prove beneficial in limiting its tax obligations as much as possible. On the other hand, the tax administration might interpret the same tax provisions differently and might even consider any attempt to avoid paying the tax as fraud or a violation of the law. Another source of conflict occurs when the taxes are not paid on time.