Under the Income Tax Law and Corporate Tax Law in Turkey, tax liability begins when a taxpayer becomes liable for taxes. Therefore, it is mandatory for each taxpayer to register with the relevant tax office. Registration is essential for the proper submission of tax returns and compliance with other tax obligations.

Turkey uses a unified tax numbering system, meaning one tax number is sufficient for corporate tax, value-added tax (VAT), and other taxes. For companies, taxpayer status begins upon formation and registration with the Chamber of Commerce and Industry. This registration is automatically reported to the relevant tax office, which then assigns a tax number to the company. The tax office also sends officers to verify the company’s address (note that P.O. box addresses are not permitted), and the company’s tax number becomes active only after this verification process is completed.

For individuals, those residing in Turkey with a Turkish ID or residence number are automatically considered tax subjects. Foreign individuals can obtain a potential tax number by visiting a tax office and submitting their passports. Individuals wishing to engage in business activities (e.g., tradesmen, artisans, self-employed) can also obtain a tax number for commercial purposes by visiting the tax offices or through the Interactive Tax Office (an online service). The verification process by tax officers also applies to personal business formations.

In Turkey, the tax system primarily operates on a self-assessment basis. Taxpayers are responsible for calculating their own tax liabilities and filing their tax returns accordingly. The self-assessment system means that the taxpayer’s calculation of their tax obligations generally stands unless the tax authority decides to audit or review the return. While the tax authority (Revenue Administration) may conduct audits or request additional information to verify the accuracy of the tax return, there is no automatic issuance of a tax assessment unless discrepancies are found.

A taxpayer may amend their return at any time after it has been filed. However, this process is subject to specific rules and time limits. The statute of limitations generally governs the timeframe for making amendments, but it does not necessarily prevent amendments after this period has expired.

Right to File an Additional Declaration: If a taxpayer discovers an error in their filed return, they may submit an additional declaration to correct the mistake or fill in any missing information related to taxation.

Time Limitations: If the taxpayer corrects their return within the original filing period and within 15 days thereafter, no tax loss penalty is imposed. However, if the correction is made more than 15 days after the filing period, a tax loss penalty may be imposed. In such cases, the underpaid tax, late payment interest, and the tax loss penalty are collected together.

Tax authorities have several methods to challenge the amount of tax a taxpayer has paid, particularly under a self-assessment system:

Tax Audits: The tax authority can conduct audits to review and verify the accuracy of the taxpayer’s financial statements and records. This process involves examining the taxpayer’s reported income, deductions, and credits to ensure compliance with tax laws.

Tax Inspections: These involve a more in-depth examination of the taxpayer’s compliance with tax regulations. Inspections are typically more detailed than regular audits and may focus on specific transactions or areas of concern.

Reassessments: If discrepancies are identified during an audit or inspection, the tax authority can issue a reassessment. This involves adjusting the taxpayer’s declared tax liability based on the findings. Reassessments may result in additional taxes owed, along with interest and penalties.

Cross-Checks with Third Parties: The tax authority may perform cross-checks with third parties, such as banks, suppliers, or business partners, to identify inconsistencies in the taxpayer’s records. This method helps verify the accuracy of reported income and expenses.

Requests for Additional Information: The tax authority may also request additional information or documentation from the taxpayer to clarify certain transactions. Failure to provide this information can lead to further scrutiny or penalties.

The tax office may initiate a tax audit to verify the accuracy of a taxpayer’s declarations. If the audit reveals that the taxpayer has made an incomplete or incorrect declaration, the tax office may recalculate the tax due and issue an additional assessment. Alongside this reassessment, tax loss penalties and default interest may be imposed on the under-assessed tax.

Tax audits and assessments must be carried out within the 5-year statute of limitations for the relevant tax period. This period begins at the end of the calendar year in which the tax liability arises, as stipulated by Article 114 of the Tax Procedure Law (TPL).

According to Article 26 of the Tax Procedure Law, the taxpayer has the right to object to the assessment within 30 days following the notification of the assessment. The objection must be made in writing to the relevant tax office, which will then review the submitted documents and grounds for the objection. The tax office may either accept or reject the objection. If the objection is rejected, the taxpayer may file a case with the tax court within 30 days from the date of notification of the rejection. The tax court will then evaluate the case and issue a binding decision.

According to Article 359 of the Tax Procedure Law (TPL), tax fraud involves the illegal preparation, use, falsification, or destruction of books, records, invoices, or other documents that are required to be kept or issued in accordance with tax laws. It also includes committing accounting fraud within these documents and records. In practice, the most common form of tax fraud is the crime of issuing or using fake invoices to obtain unlawful tax deductions.

In Turkey, tax fraud is considered a serious crime, and the procedures related to it are stringent. When there is suspicion of tax fraud, the tax office initiates a tax inspection to assess the situation. If tax fraud is detected during the inspection, tax loss penalties and/or evasion penalties are imposed, depending on the nature of the fraud. However, tax offices or related tax audit and inspection authorities do not have the authority to prosecute. Instead, they forward their findings to the relevant Chief Public Prosecutor’s Office.

The investigation and prosecution of tax fraud offenses are conducted under the general provisions of the Criminal Procedure Law No. 5271. Tax fraud is not an offense that can be resolved through reconciliation. There is no complaint period for these offenses, and the statute of limitations is 8 years. The Public Prosecutor’s Office may file a criminal case for tax fraud. While the criminal court of first instance generally has jurisdiction over tax offenses, if the offense involves more serious crimes, such as forgery of official documents, the case may be transferred to the high criminal court.

To initiate criminal proceedings for tax offenses, two types of reports are prepared by the tax office: the tax technical report and the tax offense report. The penalty for tax fraud committed in the manner specified in Articles 359/a-1 and a-2 of the Tax Procedure Law (TPL) is imprisonment ranging from 18 months to 5 years. Examples of these offenses include account and accounting fraud, illegal bookkeeping (e.g., double-entry bookkeeping), creating fake accounts for fictitious or unrelated transactions, falsifying books, documents, and records, or using falsified documents.

Under Article 359-b of the Tax Procedure Law, the penalty for offenses involving the alteration or destruction of books and documents or the issuance and use of false documents is imprisonment from 3 to 8 years. Additionally, individuals convicted of tax fraud may face further sanctions, such as deprivation of financial rights, loss of public rights, and suspension or restriction of their commercial activities.

In Turkey, tax authorities do not operate on a fixed audit cycle for every taxpayer. An audit can be initiated at any time within the statute of limitations for tax assessment, which generally spans five years. The Turkish Revenue Administration (TRA) uses a risk-based assessment system to select taxpayers for audits. Although there is no publicly disclosed percentage or frequency, taxpayers with higher risk profiles—such as those with significant income, complex business structures, or irregularities in their tax returns—are more likely to be audited.

In addition to risk-based audits, the TRA also conducts random audits as part of its compliance efforts. The TRA does not need to provide a specific justification to commence an audit; it has broad authority to audit any taxpayer’s return at its discretion. While the TRA does not require specific reasons to initiate an audit, its approach is generally guided by risk assessment. Consequently, maintaining accurate and consistent records is crucial for minimizing the likelihood of being audited.

The tax authorities in Turkey have the right to audit taxpayers to ensure they fulfill their tax obligations correctly, identify instances of tax fraud or misreporting, and take necessary corrective measures. The framework for tax audits is outlined in Articles 134 to 141 of the Tax Procedure Law (TPL). In this context, the tax authorities must adhere to certain basic standards to conduct the audit process fairly, transparently, and legally.

Objectivity and Transparency: During a tax audit, the taxpayer’s declarations and records are examined objectively. The audit must be conducted impartially, with decisions made based on evidence without external influence.

Compliance with Legislation: The general principles of conducting tax audits, as well as the powers and responsibilities of tax audit officers, are defined by legislation. Tax authorities are therefore required to conduct audits in accordance with the legal framework established by the law.

Examination and Research: A tax audit involves a thorough examination and research process, where the taxpayer’s declarations, financial records, and transactions are scrutinized in detail.

Legal Procedure: Any tax fraud or errors detected during an audit are addressed through legal proceedings. Taxpayers also have the right to appeal the results of the audit using the legal mechanisms provided by the law.

The Revenue Administration (Gelir Idaresi Baskanligi) and the Tax Inspection Board (Vergi Denetim Kurulu) periodically publish guidelines and reports on audit practices. These documents provide general information on how audits are conducted and help ensure that taxpayers are informed about the audit process.

According to Article 148 of the Turkish Tax Procedure Law (TPL), public administrations, institutions, taxpayers, and other individuals or entities that have dealings with taxpayers are required to provide information requested by the Ministry of Finance or authorized tax auditors. However, these individuals cannot be forcibly brought to the tax office to provide this information, although non-compliance is considered a prosecutable crime.

Natural and legal persons from whom information is requested cannot refuse to provide the information by citing confidentiality provisions in special laws, except for specific cases protected by law. For instance, the confidentiality of communications under the Post, Telegraph, and Telephone Administration is upheld, and medical professionals, such as doctors, dentists, midwives, and health officials, cannot be compelled to disclose patient information. Similarly, lawyers and attorneys are not required to reveal information related to the cases or duties they have been entrusted with.

As for emails, while there is no explicit provision in the Tax Procedure Law that specifically mentions emails, the broad language used in Article 148 could allow for the inclusion of electronic communications if deemed necessary for an investigation. However, the collection of such information would need to comply with other legal frameworks, such as data protection and privacy laws.

Regarding the right of appeal, if the tax authority’s request for information is seen as excessive or unjustified, the affected party may appeal to the administrative courts. The appeal process would typically focus on whether the information request exceeds the authority’s legal powers or violates other legal protections.

According to Article 148 of the Turkish Tax Procedure Law (TPL), third parties—both natural and legal persons—who have a relationship with taxpayers are obligated to provide information requested by the Ministry of Finance or authorized tax auditors. The request for information can be made either in writing or verbally. If the information is requested verbally and not provided immediately, the respondent is given a specified period to submit the information. However, individuals cannot be compelled to visit the tax office to provide this information.

Natural and legal persons from whom information is requested cannot refuse to provide it by citing confidentiality provisions in specific laws, except for certain legally protected situations. Article 149 of the Tax Procedure Law further stipulates that public administrations, institutions, and natural and legal persons are required to provide information requested by the relevant ministries and tax offices at specified intervals and continuously, as it relates to taxation.

Regarding the right of appeal, while the law imposes an obligation to provide the requested information, any dispute over the legitimacy of the request could be brought before the administrative courts. The appeal would typically examine whether the request exceeds the legal authority of the tax office or violates other legal protections, such as privacy rights.

In Turkish tax law, several alternative dispute resolution (ADR) mechanisms allow taxpayers to resolve tax disputes outside of traditional litigation. These procedures are as follows:

• Reconciliation (Tax Procedure Law, Additional Article 1 et seq.): This involves negotiations between the tax administration and the taxpayer to resolve taxes assessed through extraordinary procedures and associated penalties. The process is initiated by submitting a petition to the Tax Administration Reconciliation Commission within 30 days of the penalty notification. If negotiations are successful, the tax or penalty amount may be reduced, and the commission’s reconciliation report is binding.
• Reduction in Penalties (Article 376 of the Tax Procedure Law): Taxpayers can reduce penalties by paying a discounted amount under specific legal conditions. This mechanism offers a “pay and resolve” solution, allowing taxpayers to avoid court proceedings. The taxpayer is entitled to the discount upon meeting the required conditions.
• Invitation to Explain (Article 370 of the Tax Procedure Law): The tax authorities may invite taxpayers to explain actions that could potentially lead to tax loss, based on preliminary assessments. Taxpayers must respond within 30 days, and the Commission assesses the explanation within 45 days. If the explanation is accepted, no tax inspection is initiated. If the explanation is rejected, the taxpayer can challenge the decision by filing an annulment lawsuit in tax court.
• Regret and Reclamation (Article 371 of the Tax Procedure Law): This allows taxpayers to voluntarily rectify undeclared taxes, thus avoiding penalties and prosecution for tax evasion. The taxpayer must notify the tax office of the rectified actions, settle the taxes due with interest, and is then eligible for a penalty waiver. However, this option is not applicable to certain taxes and requires prompt notification and payment.
• Ombudsman (Articles 116–124 of the Tax Procedure Law): The Ombudsman Institution provides a pathway for taxpayers facing unfair or unlawful actions to seek correction without resorting to judicial remedies. Taxpayers must first exhaust administrative remedies before applying to the Ombudsman. The Ombudsman is required to finalize applications within six months. While the Ombudsman’s decisions are not final and binding like court decisions, they can help resolve disputes amicably.

A taxpayer has several remedies available if they are concerned about how they are being treated during an audit or the speed at which it is being conducted:

Filing a Complaint: The taxpayer can file a written complaint directly with the relevant tax office regarding any issues they have with the tax office or its personnel. This is the first step to addressing concerns about the treatment received.

Reporting to the Revenue Administration: The taxpayer may also submit their complaint to the Revenue Administration. The RA has the authority to investigate such complaints and, if necessary, initiate a formal investigation.

Lodging a Complaint with the Ombudsman: The taxpayer can lodge a complaint with the Ombudsman concerning the behavior of the tax office or audit personnel, or the method by which the audit is being conducted. The Ombudsman serves as an intermediary to address grievances related to public administration.

Judicial Remedies: If the taxpayer suffers significant harm due to unfair practices by the tax administration or audit staff, they may seek compensation through judicial remedies. The taxpayer can file a lawsuit for the cancellation of administrative actions or claim damages.

Delays in Issuing the Tax Inspection Report: If the tax inspection report is not issued within the legally required time, the delay must be reported in writing to the tax offices by the authorized inspectors, along with the reasons for the delay. Disciplinary measures may be applied to the inspector responsible for the delay. If the taxpayer is dissatisfied with the reasons provided for the delay, they may file a lawsuit challenging the extension of the audit, potentially requesting a stay of execution and the discontinuation of the audit until the lawsuit is resolved.

Yes, a taxpayer has the right to appeal a tax assessment if they disagree with it. The Turkish tax system provides several avenues for challenging a tax assessment, allowing the taxpayer to seek a review or correction of the assessment. The taxpayer can file an objection with the relevant tax office within 30 days of receiving the assessment notice, as stipulated by Article 27 of the Tax Procedure Law (TPL). If the objection is rejected or if the taxpayer is not satisfied with the outcome, they have the right to take the matter to the tax court within 30 days from the date of the decision.

Taxes and penalties assessed based on an audit report must first be notified to the taxpayer. Once notified, the taxpayer has 30 days to object to the taxes and penalties; otherwise, they become final, even if unjustified. The taxpayer may seek reconciliation with the relevant examination unit, the Ministry of Treasury and Finance, or the Revenue Office, or they may file a lawsuit with the tax courts.

Under Article 7 of the Law No. 2577 on Administrative Procedure (LAJP), the taxpayer has 30 days from the day following the notification of the taxes and penalties to file a lawsuit with the tax courts, unless a different period is specified by special laws. If a lawsuit is filed, the collection of the disputed taxes and penalties is suspended until the conclusion of the lawsuit.

If the taxpayer is dissatisfied with the decision of the tax court, they can appeal to the regional administrative court (a higher court than the tax court of first instance) within 30 days of receiving the decision. Some decisions of the regional administrative court can be further appealed to the Council of State (Danistay), the highest administrative court, within 30 days of the court’s decision. The Council of State may uphold, overturn, or partially uphold and partially overturn the lower court’s decision.

As a final option, the taxpayer may apply to the Constitutional Court if they believe their constitutional rights have been violated. However, it is important to note that all administrative and judicial remedies provided by law must be exhausted before filing an individual application with the Constitutional Court. The application must be made within 30 days from the date on which the violation is learned.

While the principle of written proceedings is fundamental in tax cases, a hearing may be held under certain conditions if requested by the parties or if the court decides to do so ex officio. According to Article 17 of the Law on Administrative Jurisdiction Procedures (LAJP), a hearing is held upon the request of one of the parties in annulment and full remedy lawsuits filed at the Council of State, administrative and tax courts, as well as in lawsuits related to taxes, duties, fees, and similar financial liabilities exceeding TRY 270,000 for the year 2024.

As per Article 18 of the LAJP, hearings are generally held publicly. However, if the court deems it necessary to protect morality or public safety, part or all of the hearing may be conducted in private. Despite this provision, there is no system in place that allows public access to the decisions of local courts. Only attorneys, judges, and prosecutors have the right to visit courthouses to examine the files and decisions of local courts.

The decisions of higher courts, such as the Council of State (Danistay), are sometimes published and may be accessible through legal databases or official publications, but this is not the case for all decisions. Access to specific case information or documents by third parties typically requires legal standing or a direct interest in the case.

In tax proceedings in Turkey, the examination is primarily based on the written procedure. The principle of a written procedure is fundamental, meaning that most of the proceedings are conducted through the submission of written documents, evidence, and arguments. However, the law does allow for the possibility of holding a hearing in certain circumstances. A hearing may be conducted if requested by one of the parties involved in the case, or if the court itself decides that a hearing is necessary, either for clarification or for other reasons within the court’s discretion.

In Turkish tax legislation, there is no formal discovery process comparable to those found in common law jurisdictions like the United States. In Turkey, tax-related cases are generally handled within the administrative court system, where the courts take a more active role in investigating and gathering evidence. According to Article 20 of the Law on Administrative Judicial Procedure (LAJP), the Council of State, regional administrative courts, administrative courts, and tax courts are responsible for conducting all necessary examinations related to the cases before them. These courts have the authority to request documents and information from the parties or other relevant entities within a specified timeframe, as they deem necessary. This grants the courts broad powers to carry out any investigations required for the resolution of the case.

In principle, witnesses are not typically heard in tax cases as they are in criminal and civil cases. Witness statements are rarely accepted as evidence in tax proceedings. Article 20 of the Law on Administrative Judicial Procedures (LAJP) grants the administrative judiciary and the Council of State the authority to hear cases and carry out all necessary examinations and investigations. However, for a witness statement to be considered as evidence in a tax case, the witness must be directly related to the taxable event. Not all witness statements are accepted as evidence; the witness must have a direct economic relationship with the taxable event. An ordinary relationship or indirect connection is insufficient for a witness statement to be deemed valid evidence.

When a taxpayer disputes a tax assessment issued by the tax authorities, the burden of proof generally falls on the taxpayer to demonstrate that the assessment is incorrect. The taxpayer must provide sufficient documentation, evidence, and arguments to convince the tax court that the assessment is unfounded or excessive. This includes presenting financial records, contracts, receipts, and other relevant evidence.

However, it is important to note that while the burden of proof primarily rests with the taxpayer, the tax authorities are also obligated to justify their assessments with proper documentation and reasoning. The tax authorities must show that their assessment is based on accurate and lawful calculations. If the taxpayer successfully challenges the assessment, the burden may shift back to the tax authorities to substantiate their claims further.

According to Article 20/5 of the Law on Administrative Judicial Procedure (LAJP): “In the Council of State, regional administrative, administrative, and tax courts, cases shall be examined according to the date of their submission, considering the priority or urgency specified in this Law and other laws, as well as the priority cases determined by the Council of Presidents for the Council of State and by the High Council of Judges and Prosecutors for other courts, as announced in the Official Gazette. Cases must be concluded in the order in which they are finalized and within six months at the latest from the date of submission.”

However, the six-month period begins after the submission of petitions from both the plaintiff and the defendant, and the completion of the petition exchange process. In practice, it may take longer than six months for an appeal to conclude, depending on the court’s workload.

Article 20/A of the LAJP sets forth a “summary procedure” for specific disputes, which mandates a shorter time frame for concluding appeals. These disputes include:

• Tender procedures, excluding decisions prohibiting bidding.
• Urgent expropriation transactions.
• Decisions of the High Council of Privatization.
• Sales, allocation, and leasing transactions according to the Tourism Incentive Law No. 2634.
• Decisions taken because of environmental impact assessments under the Environmental Law No. 2872, except for administrative sanction decisions.
• Presidential decisions taken under the Law on Transformation of Areas Under Disaster Risk No. 6306.

For the above-mentioned cases, the appeal process must be concluded within two months.

In practice, the duration for appeals in administrative cases generally ranges from 1 to 2 years at the administrative court level, 1 to 2 years at the regional administrative court level, and 1 to 2 years at the Council of State level. However, administrative cases typically conclude more quickly than civil or private law cases.

According to Article 27/4 of the Law on Administrative Judicial Procedure (LAJP), the filing of a lawsuit arising from tax disputes before the tax courts automatically suspends the collection of the taxes, duties, fees, and similar financial obligations, including their increases and penalties, that are the subject of the litigation. This means that the taxpayer is not required to pay the assessed taxes and penalties while the appeal is pending.

However, Article 112 of the Tax Procedure Law (TPL) stipulates that if the taxpayer loses the case, default interest will be applied to the unpaid portion of the taxes from the normal due date until the date the court decision is served. Although the collection is generally suspended during litigation, the taxpayer has the option to pay the disputed taxes and penalties partially or entirely during the lawsuit if they choose to do so.

While the general rule is that collection stops automatically when a lawsuit is filed before a tax court, there are exceptions. Article 52 of the LAJP states that filing an appeal or cassation does not automatically stop the execution of the decisions made by judges, courts, or the Council of State. However, the suspension of execution may be granted by the Council of State (if examining the cassation) or by the regional administrative court (if examining the appeal), often in return for a security deposit. Decisions regarding requests for suspension of execution during cassation and appeal are final.

A taxpayer may appeal an action or decision taken by the tax authorities in person. For legal entities (such as companies), only persons authorized to represent the company may file an appeal on its behalf.

Additionally, Article 35 of the Legal Profession Law No. 1136 stipulates that only attorneys registered with a bar association are authorized to provide legal opinions, file lawsuits, defend the rights of individuals or legal entities before courts, arbitrators, or other judicial bodies, follow up on judicial proceedings, and prepare all related documents. The law does allow individuals to represent themselves, meaning that anyone who has the capacity to file a lawsuit may draft the necessary documents, file the lawsuit personally, and manage their own case.

In accordance with the relevant legislation, only lawyers registered with the bar association or the individual representing themselves may appeal or follow judicial proceedings before the courts. No other individuals or entities, apart from these authorised persons, can conduct or appear in the appeal on behalf of the taxpayer.

Yes, Turkey has a “loser pays” system for legal costs. Article 31 of the Law on Administrative Judicial Procedures (LAJP) specifies that where the LAJP does not provide guidance, such as on trial expenses, the provisions of the Code of Civil Procedure will apply. According to Article 326 of the Civil Procedure Law, unless otherwise specified by law, the losing party is responsible for covering the trial costs, including the winner’s legal and professional costs.

If both parties are partially successful, the court will apportion the trial expenses according to the degree to which each party is justified. Thus, under Article 326 of the Civil Procedure Law, the “loser” in an appeal is typically required to pay the legal and professional costs of the winning party.

Alternative dispute resolution methods, such as voluntary mediation or binding arbitration, are generally not used in tax disputes in Turkey. Tax disputes are considered matters of public order, and decisions regarding the determination and collection of tax liabilities are not left to the discretion of the parties involved. Under Turkish tax law, the resolution of tax disputes is typically handled through administrative appeal procedures and judicial remedies, such as tax courts.

However, there are two specific alternative dispute resolution mechanisms available within the Turkish tax system: pre-assessment reconciliation and post-assessment reconciliation. These reconciliation processes involve an agreement between the taxpayer and the tax administration on the amount of taxes and penalties, but they differ from voluntary mediation or binding arbitration because they are subject to strict legal rules and are not entirely based on the parties’ free will.

Pre-assessment Reconciliation: This option is available to taxpayers who have undergone a tax audit but have not yet received a tax assessment or tax loss penalty. Taxpayers may request reconciliation at any time from the start of the audit until the final report is issued. If an agreement is reached, a minute is prepared, which is final and cannot be contested through a lawsuit. Article 17 of the Reconciliation Regulation states that reconciliation minutes issued by reconciliation commissions are final and must be immediately executed by the tax offices. No legal action or complaint may be filed regarding the matters agreed upon in the minutes. Pre-assessment reconciliation applies to taxes and tax loss penalties assessed based on the tax audit, as well as irregularity and special irregularity penalties exceeding 23,000 Turkish Liras (except for penalties related to tax fraud under Article 359 of the Tax Procedure Law).

Post-assessment Reconciliation: This mechanism covers all taxes, duties, and fees assessed by tax offices on behalf of the taxpayer, including tax loss penalties, irregularity penalties, and special irregularity penalties exceeding 23,000 Turkish Liras as of 1/1/2024. However, it does not apply to penalties related to tax fraud or participation offenses. To benefit from post-assessment reconciliation, the taxpayer must first be notified of the tax/penalty notice issued by the tax office. The taxpayer must then request reconciliation within 30 days from the date of notification of the tax/penalty notice.

While these reconciliation processes provide alternative avenues for resolving tax disputes, they are not as flexible as voluntary mediation or binding arbitration and are governed by strict legal regulations.

Yes, there is a right of onward appeal in the Turkish legal system under certain conditions. Before a case reaches the highest appellate court, which is the Council of State (Danıştay), it may first be appealed to the Regional Administrative Courts.

Article 45 of the Law on Administrative Judicial Procedure (LAJP) regulates the right of appeal, stating that “An appeal may be filed against the decisions of administrative and tax courts, even if a different remedy is provided for in other laws, to the regional administrative court in the judicial circuit where the court is located, within 30 days from the notification of the decision.”

The levels of onward appeal are as follows:

• First Instance Court (Administrative or Tax Court): The initial decision is made here. If the taxpayer or the tax authority disagrees with the decision, they can appeal.
• Regional Administrative Court: The first level of appeal is to the Regional Administrative Court. This court reviews the decision of the first instance court. The decision of the Regional Administrative Court is typically final for many cases. However, under certain circumstances, its decisions can be further appealed.
• Council of State (Danıştay): The highest appellate court in administrative and tax cases. Some decisions of the Regional Administrative Court can be appealed to the Council of State within 30 days of notification. The Council of State can uphold, overturn, or partially modify the decision.

Under Turkish tax legislation, several penalties can be imposed when additional tax is assessed. The main penalties include:

• Tax Loss Penalty (Vergi Ziyai Cezasi): This penalty is applied when there is an under-declaration or fraudulent activity in tax declarations or payments. The penalty is designed to compensate for the tax loss and is generally calculated as a percentage of the under-declared tax. The penalty ranges from 50% to 200% of the underpaid tax, depending on the severity of the violation. For instance, if the underpayment is due to fraud, the penalty is usually at the higher end of this range (200%).
• Special Irregularity Penalty (Ozel Usulsuzluk Cezasi): This penalty is imposed for specific violations of tax laws, such as late filing of tax returns, providing false information, or failing to issue invoices. The amount varies based on the nature and severity of the violation. For example, the penalty for not issuing an invoice can range from 1,000 TL to 50,000 TL per violation.
• Corporate Tax Penalty: This penalty is applied in cases of misrepresentation or underpayment in corporate tax declarations. Like the tax loss penalty, it is calculated as a percentage of the underpaid tax, with the rate depending on the nature of the violation.
• Delay Interest and Penalty (Gecikme Faizi ve Cezasi): If tax debts are not paid on time, delay interest is imposed. The interest is calculated daily based on the amount of unpaid tax, and the rate is determined by the Turkish Ministry of Treasury and Finance. The interest is applied from the due date of the tax until the date of payment.

In addition to these penalties, interest is charged on the unpaid tax amount, which is intended to compensate the state for the time value of the delayed tax payment. The interest rate is periodically set by the Ministry of Treasury and Finance and reflects prevailing market conditions.

Several factors can contribute to the reduction or mitigation of tax penalties in Turkey:

• Voluntary Disclosure and Cooperation: A sincere admission of error and active cooperation with the tax authorities can lead to a reduction in penalties. Taxpayers who voluntarily disclose errors before an audit begins may benefit from lower penalties under the “Regret and Reclamation” provisions of Article 371 of the Tax Procedure Law (TPL).
• Payment of Tax Debt: Paying the full amount of the tax debt promptly, along with any applicable interest, can also lead to a reduction in penalties. Article 376 of the Tax Procedure Law provides for a reduction in penalties if the taxpayer agrees to pay the assessed tax and the penalty within a specified period.
• First-Time Offenders: First-time taxpayers or those who commit an offense for the first time may be eligible for lighter penalties, especially if the violation is not serious and does not involve fraud.
• Nature of the Mistake: If the error is unintentional or due to a minor oversight, the penalty may be reduced. Tax authorities may differentiate between deliberate fraud and inadvertent mistakes, imposing lighter penalties for the latter.
• Contribution to Public Good: Although not explicitly stated in the law, a taxpayer’s contribution to the public good, such as fulfilling corporate social responsibility obligations, may be considered when deciding on penalty mitigation.
• Prompt Correction: Correcting errors promptly and making necessary adjustments in tax filings can also help mitigate penalties.

In Turkey, the tax authorities are increasingly focused on certain areas where they frequently raise objections and initiate challenges. These areas typically align with the objectives of preventing tax loss and curbing tax irregularities. Some of the key areas where tax authorities are more inclined to bring challenges include:

• Transfer Pricing: Tax authorities are particularly vigilant about preventing base erosion and profit shifting (BEPS) through transfer pricing practices. This scrutiny often targets international companies and transactions between related parties, where prices may be manipulated to shift profits to low-tax jurisdictions.
• Tax Exemptions: Incorrect or unjustified claims for tax exemptions are frequently analyzed by the tax authorities. Taxpayers attempting to take advantage of certain tax benefits without proper justification may find their claims rejected or subject to appeal.
• Reduced Rates and Refund Claims: Value-Added Tax (VAT) refund requests and claims for reduced tax rates are areas of close examination by the tax authorities. These claims are scrutinized to ensure compliance with tax laws and regulations.
• Tax Deductibility of Costs and Expenses: The tax authorities may challenge the deductibility of certain business expenses, particularly those that appear to be luxury or personal in nature but are claimed as company expenses. This includes scrutinizing whether the expenses are genuinely related to business activities.
• Tax Fraud and Irregularity Inspections: Tax irregularities and fraud, such as issuing or using fraudulent invoices, are regularly inspected by the tax authorities. These areas are of particular focus, and serious tax offenses often result in both objections and criminal sanctions.

Taxpayers in Turkey face several challenges when dealing with tax authority challenges, particularly in the following areas:

• Frequent Changes in Tax Legislation: Turkish tax laws are highly dynamic and often subject to frequent changes. This makes it difficult for taxpayers to stay updated and fully compliant with new regulations. The constant need to adapt to these changes can be overwhelming, especially for small and medium-sized enterprises (SMEs) with limited resources for legal and tax advice.
• Digitalization of the Tax System: The ongoing efforts to digitalize the tax system in Turkey, including the implementation of e-invoice (e-Fatura) and e-ledger (e-Defter) systems, have introduced technical and compliance challenges. Many taxpayers, particularly those unfamiliar with digital tools, experience difficulties in transitioning to these new platforms. Technical issues, lack of guidance, and the complexity of these systems add to the challenges.
• Uncertainty Around Tax Deductions and Incentives: Taxpayers often face uncertainties regarding how tax deductions and incentives are implemented. This is particularly challenging for small businesses that may lack detailed knowledge of available tax incentives and supports. Without clear and consistent guidance, taxpayers may struggle to fully benefit from these advantages.
• Communication with Tax Authorities: Effective communication with tax authorities remains a significant challenge. Taxpayers often find it difficult to receive timely and accurate responses to their inquiries, which can hinder their ability to manage tax obligations effectively. Improving the responsiveness and transparency of tax authority services would help alleviate these issues.

In the next twelve months, several key areas are likely to be the focus of tax challenges and disputes in Turkey:

• Transfer Pricing: Transfer pricing will continue to be a critical issue, especially for multinational companies. The Turkish tax authorities are likely to scrutinize the pricing of goods, services, and intellectual property transferred between related entities to ensure that they are consistent with the arm’s length principle. Disputes may arise regarding the documentation requirements and the proper transfer pricing methods applied.
• Digital Services Tax: The implementation and enforcement of the digital services tax on revenues from digital services provided by multinational tech firms could lead to disputes. The complexity of tracking and taxing digital revenues, especially from non-resident companies, is likely to generate controversy over the scope and applicability of this tax.
• Value-Added Tax (VAT) Compliance: With the growth of e-commerce and online transactions, VAT compliance is expected to be a hot topic. The Turkish tax authorities are likely to focus on ensuring that e-commerce businesses correctly apply VAT, leading to potential disputes over VAT liability, documentation, and reporting requirements.
• Tax Evasion and Fraud: Combatting tax evasion and fraud will remain a priority for the Turkish tax authorities. The use of fake invoices, undeclared income, and other forms of tax evasion are likely to be met with increased scrutiny, leading to more investigations and disputes.
• Withholding Tax on Cross-Border Payments: Disputes may arise regarding the correct application of withholding tax on cross-border payments, particularly in relation to double taxation treaties. Issues such as determining the correct withholding tax rates and the interpretation of treaty provisions could become contentious.
• Tax Amnesty and Reconciliation Programs: As Turkey continues to offer tax amnesty and reconciliation programs, disputes may occur regarding eligibility and the conditions for benefiting from such programs. The interpretation of the terms and conditions of these programs could lead to disagreements between taxpayers and the tax authorities.
• Economic Substance Requirements: As Turkey aligns with international tax standards, the economic substance of transactions or entities will come under greater scrutiny. Tax authorities may challenge whether certain transactions or entities have sufficient substance to justify their tax treatment, leading to potential disputes.

These areas represent significant points of friction between taxpayers and tax authorities, driven by both domestic tax policy changes and alignment with international tax standards. As such, they are likely to generate considerable controversy soon.