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Introduction
The stamp tax, introduced based on the principle of taxation of papers that constitute the ground of legal transactions, has existed in our country’s tax system since the 1800s. In the preamble of the current Stamp Tax Law (“STL”) No.488, accepted on 01/07/1964, it is stated that the previous stamp tax law could not satisfy the social and economic functions of a tax and that it presents difficulties in terms of tax technique and practice.
Therefore, the current STL was interpreted as an attempt at reform. It has been stated that the aim of this law was to introduce clarity and accuracy into stamp tax practice.
Looking at the period from the date that this law entered into force until the present, it is still debatable whether the aims stated in the preamble of the STL were fulfilled or not. Unfortunately, in stamp law practice, there are a variety of subjects which remains unclear, or which cannot be clarified for taxpayers. In certain circumstances, the amount of stamp tax may even surpass the value of the principal transaction subject to an agreement.
Consequently, stamp tax law constitutes perhaps the most compelling illustration of why it is so important to consider tax law together with other branches of law during the negotiation stage of an agreement. As a matter of fact, any term included into a contract by disregarding the stamp tax regulations may result in stamp tax in an amount exceeding even the amount of agreement’s main deed/subject. If parties do not do so, the main negative outcomes of such a situation include (i) eliminating the expected benefit of the contract, and (ii) undertaking a much heavier financial burden for both the attorneys who prepared the agreement and the taxpayers who are the parties to the agreement.
Within this context, this Newsletter will first review regulations related to the Stamp Tax Law and then go on to examine the opinions of the Turkish Revenue Administration presented in tax rulings between 2019 and 2021.
Main Regulations of the STL
In terms of stamp duty, pursuant to Article 1 of the Stamp Tax Code (“STC”), “the event giving rise to tax” shall occur on the condition that there is a document indicated in Table (1) attached to the STC, and that this document has been drawn up by setting thereon a signature, that it may be produced in order to prove or designate anything.
Therefore, the main subject of the stamp tax is the “paper” — not the legal transaction. Paper types included in list number 1, attached to the STL, will be subject to stamp tax. As agreements are included in list 1, they are subject to the stamp tax. List number 2, attached to the Law lists papers exempted from stamp tax.
Pursuant to Article 10 of the STC, stamp duty is collected in the form of ad valorem duty or fixed duty. In the case of ad valorem duty, stamp tax is calculated upon the amount indicated in the document according to the kind and nature of the document, and, in the event of fixed duty, according to the nature of the document.
In the form of ad valorem duty, it is necessary to consider whether or not the document contains a certain amount of money and if there is a certain amount or an amount which can be calculated, the amount must be subject to ad valorem tax. A certain amount of money can be determined if the amount of the transaction is denominated clearly on the document or if not denominated, it can be calculated indirectly.
If several contracts and transactions entirely different from each other are indicated in the same documents, each of these contacts and transactions shall be separately subject to stamp duty. Article 6 of the STC states that in cases where contracts are bound to each other and originate from one principal, stamp tax is calculated on the one which constitutes the highest amount.
Apart from this, with the amendment of Article 6 of the STL by Article 24/para.1‐b of the Law No.6728, if there is a penal clause, earnest money, forfeit money et cetera which are in the nature of a sanction of the agreement and stated on the same agreement, stamp tax will not be collected from such undertakings. However, if such undertakings are subject to separate documents, stamp tax will be collected from them.
Current Rulings of the Turkish Revenue Administration
Stamp tax regarding agreements that do not include a specific value other than a penalty clause
Through the amendment of Article 6 of the STL by the Law No.6728, if there is an undertaking such as penal clause, earnest money, forfeit money et cetera which are in the nature of a sanction of the agreement and stated on the same agreement, stamp tax will not be collected from such undertakings. However, if such undertakings are subject to separate documents stamp tax will be collected from such undertakings.
In regard to the application of the stamp tax exemption, contracts that do not include any value other than a penal clause have caused a lot of discussions in terms of their stamp tax application.
However, a ruling of the Sakarya Tax Office dated 12.08.2020 and numbered 28921[1] stated that documents not containing a certain amount of money apart from a penal clause should not be subject to the stamp tax.
Stamp Tax exemption for papers prepared in relation to merger transactions
First, it should be noted that, in paragraph 17 of the section titled “IV-Papers Related to Commercial and Civil Operations” of Table 2 attached to Law No. 488, it is stated that papers prepared regarding merger transactions fulfilled in accordance with the Corporate Tax Law (“CPL”) No.5520 are exempted from stamp tax.
With regard to the aforementioned stamp tax exemption, according to the ruling of Gaziantep Tax Office dated 15.04.2021 and numbered 24674[2], the stamp duty exemption will not be applied to the deeds of undertakings of final permits if they have been reissued because of merger for the following reasons:
- The deeds of undertakings have been rearranged by referring to the first deeds since the transfer of the final permit commitment bills of the transferee companies to the acquiring company by merger is allowed.
- Apart from the title change, fundamental changes such as the final permit fee, the amount of the guarantee and the square meter of the area subject to the permit have been made in the final permit commitment notes.
Accordingly, it is clear that this decision narrowly interprets the stamp tax exemption as being limited to “change of title” for papers prepared for merger.
With respect to this narrow interpretation, the decision of the 7th Chamber of the Council of State, dated 10.04.2021 and numbered 2008/7150-2012/1313 should also be considered. Pursuant to the decision, the opinion of the Council of State is that any transaction fulfilled with the aim of merger should be evaluated within the scope of the exemption clause, since the clause on tax exemption does not contain a restrictive statement. This decision, considered along with the Revenue Administration decision mentioned above, show that it is essential in terms of stamp tax exemption to determine whether changes such as the permit fee, the amount of the guarantee and the square meter area of the area subject of the permit have occurred as a result of the merger transaction.
Stamp Tax during the transfer of loan agreements subject to demerger/partial spin-off
In sub-paragraph 17 of section titled “IV-Papers Related to Commercial and Civil Operations” of Table 2 attached to the Law No.488, it is stated that papers prepared due to partial spin-off transactions fulfilled in accordance with the Corporate Tax Law (“CPL”) No.5520 are exempted from stamp tax.
In the ruling of İstanbul Tax Office, dated 07/05/2019 and numbered 380484[3], the stamp tax on the loan agreements that will be transferred to the transferee company as a result of partial spin-off are evaluated.
As per the view of the Tax Office, loan agreements can be exempted from the stamp tax limited to loan debt amount corresponding to the partial spin-off, in accordance with the paragraph IV/17 of the Table 2 attached to the Law No.488.
Stamp Tax Exemption Regarding Free Trade Zones
Paragraph 2 (c) of Provisional Article 3 of Free Zone Law No. 3218 requires that transactions fulfilled and papers prepared in relation to the activities carried out in these regions are exempt from stamp duty and fees until the end of the taxation period of the year, including the date of full membership to the European Union.
In this context, in the ruling of the Kayseri Tax Office, dated 23.12.2020 and numbered 11758[4]the stamp tax exemption and fee application on the Articles of Association of an unlimited liability company that would be established in a free trade zone was evaluated.
Interpreting the law narrowly, the Tax Office held that the Article of Association could not be exempted from stamp tax since the AoA was unrelated with the free zone activities.
A Kindly Reminder: Making a Declaration with Reservation Opportunity
The main issue discussed in this Newsletter article is related to the essential stamp tax regulations and the Turkish Revenue Administration’s recent tax rulings. In addition to those issues, we would like to remind taxpayers that they can apply to the institution of declaration with reservation especially regarding taxation issues which are inconsistent in practice and/or if the taxpayers do not accept the approach of the Turkish Revenue Administration.
Specifically, a stamp tax amount can be paid by declaring a reservation — especially in cases where taxpayers disagree with the Turkish Revenue Administration’s approach. Subsequently, a taxpayer may file a lawsuit in the tax courts to claim a refund of the excessively and unlawfully paid stamp tax amount, with delay interest to be calculated as of the payment date.
A declaration with reservation protects taxpayers from the risk of tax assessment with a tax loss penalty and delay interest. In addition, the declaration provides an opportunity for restitution in cases concluded on behalf of taxpayers. In this respect, a declaration with reservation is a safe method which does not require additional costs other than court expenses.
Conclusion
Stamp tax is a complex area of law that is full of potential pitfalls for unwary taxpayers. This being the case, it is essential that tax law be taken into consideration during the negotiation of commercial agreements. Agreements prepared without considering stamp tax effects may result in high costs that may exceed the value of the main transaction.
In order to conduct a legally healthy stamp tax analysis, the following items should be examined: (i) Analysis and determination of the transactions subject to the agreement, (ii) determination of whether the agreement and its annexes include a specific and/or calculable amount or not, (iii) analysis of tax rulings that may result in hesitation during the implementation of a stamp tax exemption, (iv) analysis of relevant Council of State decisions.
Apart from this, we would like to note that that making a declaration with reservation may be an option in cases where the taxpayer disagrees with the Revenue Administration.
(Authored by Canan Doksat and first published by Erdem & Erdem on October 2021)
[1] https://www.gib.gov.tr/node/150783/pdf
For another similar ruling: https://www.gib.gov.tr/node/140609/pdf
[2] https://www.gib.gov.tr/node/152719/pdf