Edition 50: 11 August 2017
Editorial Team:
Orçun Çetinkaya, LL.M., Ezgi Baklacı, LL.M., and Pelin Oğuzer, LL.M.
Turkey Announces Details of Explanation Procedures in Context of Suspected Tax Evasion

Turkey’s Ministry of Finance has announced details for the process whereby taxpayers can provide a written explanation, seeking to potentially avoid audit or referral in the context of suspected tax evasion. Accordingly, the Evaluation Commission will be formed within the Revenue Administration. The Presidency of the Tax Inspection Board will conduct preliminary evaluations and determine which taxpayers are eligible to use the process.

The “invitation to explain” process was first introduced in mid-2016 by the Law Amending Certain Laws for Improvement of the Investment Environment numbered 6728, published on 9 August 2016. Further details for the procedures have now been outlined in the Tax Procedure Law General Communiqué Series No. 482 (“Communiqué”), entering into force on 1 September 2017.

Taxpayers deemed eligible must submit their responses to the Evaluation Commission within 15 days of receiving an invitation. The proceedings that will take place after the evaluation of the explanations may be summarized as follows:

– If the Evaluation Commission deems the explanation sufficient, the taxpayer will avoid audit and referral.

– If the Evaluation Commission deems the explanation as insufficient or as confirming that tax evasion occurred, the taxpayer will be asked to fulfil certain conditions (such as completing tax returns and paying any amounts due, with additions). If the taxpayer meets these conditions, they will receive a discounted penalty for tax evasion.

– If the taxpayer provides insufficient information and then fails to meet the requested conditions, the taxpayer will be audited or referred to the Valuation Commission.

In principle, the invitation to explain process will not be applicable if the tax evasion may have been resulted from acts that constitute tax fraud. However, if the preliminary evaluations show that the tax fraud is committed by using forged or misleading documents, the taxpayers may be invited for explanation on condition that the value per document does not exceed TRY 50,000 or 5% of the taxpayer’s total purchase of goods and services in the relevant year.

Please see this link for the full text of the Communiqué (only available in Turkish).

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Turkish Supreme Court Clarifies Trademark Infringement in Context of Violating Personal Rights

The Turkish Supreme Court recently ruled that if trademark infringement also infringes personal rights, then the right holder can seek protection under Law Number 5651 Regulating Internet Broadcasting and Fighting Crimes Committed through Internet Broadcasting (“Law”). Under the Law, parties which suffer violations of personal rights can ask the courts to remove the offending content from the internet and deny access. The decision is the first time the courts have clearly indicated how the Law can be used in trademark infringement conflicts.

In the case at hand, the complainant was a company, which claimed its registered trademark was being used on counterfeit products, as well as in photos of the goods on social media.

Article 9 of the Law allows parties to request content be removed from the internet and access denied if the content damages their personal rights.

Accordingly, the complainant asked the First Instance Court to remove access to the content on the basis that it damaged the company’s personal rights.

The First Instance Court rejected the complainant’s request, ruling that:

– The complaint petition did not include the relevant URL addresses.

– Mere broadcast of musical instruments’ photos should not be deemed illegitimate.

The complainant appealed the First Instance Court’s decision to the Supreme Court.

Legal Standing to Make the Request

As a first step, the Supreme Court considered whether the complainant (as a company) possessed valid legal standing to request access be denied based on alleged personal right violations.

The court considered provisions of the Turkish Civil Code, Turkish Commercial Code and Turkish Criminal Law. It ultimately ruled that legal entities do possess certain personal rights: prestige, honuor, as well as professional and personal values.

Therefore, the court determined that the complainant does hold legal standing to request access be denied under Article 9, if its personal rights are violated.

Trademark Infringement as a Breach of Personal Rights

The broadcast in dispute involved visuals of counterfeit products. Therefore, the court held that the claim must be considered in terms of both trademark infringement and personal rights.

The court noted that broadcasts which may damage the prestige of a trademark owner can be deemed to be an infringement of personal rights, if all other conditions in the Law are met. This is the first time the Turkish courts have given such a clear indication on this point.

However, the Supreme Court rejected the complainant’s appeal, ruling that the situation did not represent an emergency (one of the elements which must be met for under Article 9) and it had not yet been established whether the social media content actually constituted trademark infringement.

(Case reference: Yargıtay 19. CD. 15.05.2017 T., 2016/74 E., 2017/4574 K.)

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Turkey Announces System Security Rules for Critical Energy Facilities

Turkey’s Energy Market Regulatory Authority (“Authority”) has announced new rules for IT processes in industrial control systems in certain energy facilities which are deemed critical for public services. The rules address system continuity and cyber security matters.

Under the new rules, the following organizations are defined as “Responsible Companies” and are considered responsible for critical energy infrastructure:

– Electricity transmission license holders.

– Electricity distribution license holders.

– Electricity generation facility owners that have temporary acceptance and installed power of 100 MW or more.

– Natural gas transmission license holders which undertake transmission via pipeline.

– Natural gas distribution license holders which are obliged to establish a shipping control center.

– Natural gas storage license holders (LNG, underground storage).

– Crude oil transmission license holders.

– Refinery license holders.

Among other things, these Responsible Companies must:

– Prepare a risk inventory to monitor the information process and ensure safety of industrial control systems (“Systems”) used in critical energy infrastructure.

– Prepare a treatment plan clearly outlining risk mitigation actions.

– Provide the Authority with a System recognition form, outlining related processes, as well as work which has been performed for information security and source information.

The Regulation on Information Security of Industrial Systems Used in the Energy Sector was published in Official Gazette number 30123 on 13 July 2017, entering into force on 13 September 2017. Please see the link for full text of the Regulation (only available in Turkish).

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Turkish Constitutional Court: Fixed Fines for Breaching the Electricity Market Legislation Not Unconstitutional

Turkey’s Constitutional Court recently considered the constitutionality of fixed administrative fines for breaches of electricity legislation or license terms. The court ruled by majority that a fixed administrative fine of TRY 500,000, regardless of the breach’s quality or consequences, does not contradict constitutional principles regarding the rule of law and legality.

Article 16(1)(c) of the Electricity Market Law imposes a fixed fine for irreversible breaches of the Law, secondary legislation, or license terms (decisions 2017/103 E. and 2017/108 K. made on 31 May 2017, published in Official Gazette number 30127 on 18 July 2017).

An Administrative Court applied to the Constitutional Court, seeking to annul Article 16(1)(c). It argued the provision is unconstitutional because the provision:

– Fails to consider an act’s fault or economic gravity.

– Breaches principles of certainty and predictability by imposing the same fine regardless of an act’s nature.

– Fails to ensure a fair and reasonable balance, as required by principles of justice and equity.

The Constitutional Court considered the provision against the rule of law and legality principles (Article 2 and 38 of the Constitution, respectively). Ultimately, the court ruled by majority that Article 16(1)(c) does not breach these constitutional principles.

A separate dissenting opinion (from five of the 16 judges) outlined the minority group’s view that the provision is contrary to equity and the acts subject to the administrative fine are uncertain. 

Please see this link for the full text of the decision and dissenting opinions (only available in Turkish).

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Turkish Constitutional Court: Legislative Limit on Reservation Notations for Tax Declarations Not Unconstitutional

Taxpayers in Turkey can file lawsuits against assessments of tax bases, provided their declaration included a reservation annotation and was made by the relevant deadline. Taxpayers cannot add a reservation annotation if their declaration was made after the deadline (correction declarations). The Constitutional Court considered this limitation. By majority, the court ruled that while the provision limits taxpayers’ opportunity to put forward their claims and defenses, it does not harm the core of the right to access the courts, nor disproportionality limit the right to legal remedies.

The court noted that adding reservation annotations to correction declarations and lawsuits against correction declarations are a matter of case law, rather than directly relating to the wording of the legislation. Therefore, the court ruled that these aspects are not a constitutional issue.

Please see this link for the full text of the Constitutional Court’s decision dated 14 June 2017, numbered E. 2017/24, K. 2017/112 which was published in the Official Gazette number 30128 on 19 July 2017 (only available in Turkish).

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Turkey’s Supreme Court Clarifies Procedural Steps for Initiating Enforcement Proceedings

There are two main types of enforcement actions available in Turkey, intended respectively for circumstances where a judgment exists (“Judgment-Based”) and where a judgment does not exist (“Non Judgment-Based”). The highest body within Turkey’s Supreme Court recently clarified that parties who have a court judgment cannot initiate Non Judgement-Based enforcement proceedings. Inconsistent practices on this topic had arisen among execution offices. These circumstances meant Turkey’s judicial system had become congested with unnecessary and repetitive actions seeking to object to and annul procedurally incorrect enforcement proceedings.

Judgment-Based enforcement proceedings do not allow the counterparty any procedural opportunity to object to owing the debt.

If a party wishes to initiate enforcement proceedings without first receiving a court judgment, usually they can only launch a Non Judgment-Based proceeding. These proceedings allow the alleged debtor the opportunity to put forward any objection to owing the debt. If the alleged debtor raises an objection, the creditor party usually initiates an annulment of objection action, requesting annulment of the enforcement action.

In its recent majority decision, the Supreme Court Assembly of Civil Chambers noted that:

– Initiating Non Judgment-Based enforcement proceedings despite having obtained a judgment for the debts contradicts enforcement law and litigation techniques.

– Creditors have no legitimate legal interest in using Non Judgment-Based enforcement proceeding despite having obtained a court order, which also damages debtors’ legal conditions. Therefore, the balance between the parties is disrupted.

Please see this link for full text of the Decision of Joint Chambers which was published in Official Gazette numbered 30130 on 21 July 2017 (only available in Turkish).

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Google Fined €2.42 billion in Europe for Abuse of Dominance, While Turkish Investigation Continues

The European Competition Commission recently issued a €2.42 billion fine to Google for abusing its market dominance as a search engine by granting advantages to its own comparison shopping service. In general, Turkey tends to follow European competition law in both its substantive content, exclusions, as well as interpreting developing legal concepts. Therefore, European decisions and trends are worth keeping a close eye on, since they will likely act as indirect guides to Turkish competition law developments over the short and medium term.

In an unrelated investigation, Google is also being investigated in Turkey regarding its exclusivity agreements with original equipment manufacturers. Although the investigations are not related, they collectively represent Google’s activities attracting increased scrutiny from competition regulators.

The European Commission’s Decision Against Google 

Google’s comparison shopping platform allows consumers to compare similar products and their prices, to discover different deals from various online sellers.

However, the Commission found Google had abused its dominant position within comparison shopping service by:

– Relying on its dominance in general internet searches to boost its position as a comparison shopping platform, rather than competing based on its platform’s relative merits.

– Systematically gave prominent placement to its own comparison shopping service.

– Demoted rival comparison shopping services in its search results by including several criteria in search algorithms, making its comparison shopping service much more visible to consumers within Google’s search results.

Joint Report from the French and German Competition Regulators

The French (Authorité de la Concurrence) and German (Bundeskartellamt) Competition Authorities recently issued a joint report titled “Competition Law and Data”. The report addressed issues related to companies like Google.

The report’s introduction offers valuable insight into the feelings of local regulators, as well as their increasing sensitivity and attention to the use of data and the consequential impact on market competition dynamics.

The report states:

“The collection, processing and commercial use of data is often seen not as a competition law issue but rather as an issue which concerns data protection enforcement. However, several recent proceedings point to the fact that competition authorities have begun to look at possible competition issues arising from the possession and use of data, even if, in the end, none were ascertained in the specific cases.

Recent developments in digital markets have led to the emergence of a number of firms that achieve extremely significant turnovers based on business models which involve the collection and commercial use of (often personal) data. Some of them enjoy a very high share of users in the service sector in which they are active. The Google search engine and the Facebook social network are probably the most prominent examples. While many of the services provided by these firms are marketed as ‘free’, their use involves in practice making possible the collection of personal information about the users. This has spurred new discussions about the role of data in economic relationships as well as in the application of competition law to such relationships, in particular as regards the assessment of data as a factor to establish market power. It is important to note that although these questions are often examined with the examples of Google and of Facebook in mind, they are also relevant for many other industries. Indeed, the development of data collection already goes well beyond search engines, social networking or online advertising and extends today to sectors such as energy, telecommunications, insurance, banking or transport. Furthermore, in the near future, the development of connected devices should make data more and more relevant for product industries and not only for services.”

European eCommerce Sector Enquiry

Also worth noting, the European Competition Commission published the results of a two-year examination of the e-commerce sector in May 2017. The examination had been conducted as part of the Digital Single Market strategy, based on EU competition rules (more).

It is likely the Turkish authorities will also consider the local e-commerce sector more closely in coming years. As with the European enquiry, issues under the spotlight in Turkey could include selective distribution, geo-blocking, price maintenance and platform bans.

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