Rescission Of Time Limitation In Investment Allowance By The Constitutional Court

March 2010

Investment allowance is legalized as an incentive of abatement of the 40% income tax which is earned by the depreciable economic funds which are bought or manufactured to be used in operations by tax payers whose agricultural or commercial earnings are detected on balance sheet basis. But this tax rebate was repealed, beginning from 01 January 2006 by the Law No.5479.

It qualified for the investment allowance for income generated in 2006, 2007 and 2008 under Temporary Article No.69 which was added to the Revenue Code for tax payers who made invested but could not benefit from the tax rebate.

The limitation on the investment allowance meant revoking the anticipated rights of the tax payers, who were making investments relying on the investment allowance and who were looking for a return on their large scale investments.
This situation was against the “Rule of Law” and also “Certainty and Predictability of the Law”, “Respect for the Acquired Rights” with the “Non-retroactivity of the Law”. The new legal arrangement was also contrary to “Equality before the Law” and “Tax Justice”.

The legal arrangement, which provides for a transition period, was subject to a constitutional objection, and its cancellation was requested. The Constitutional Court, decided to revoke the clause on October 15, 2009. The decision entered into force by being published in the Official Gazette.

Even though the decision of cancellation referred to the earlier situation, new difficulties about tax calculations arose.

In accordance with Article of 153/5 of the Constitution, the Constitutional Court’s decisions are non-retroactive. But if the enforcement of a court’s decision would be contrary to justice and reason, there is a basis in jurisprudence and in some of the Supreme Court decisions for the court decision to have retroactive effect.
For example, in the cases which have not been the subjects of constitutional challenges, there is no agreement about the enforcement of the Constitutional Court’s decision about cancellation. According to the general opinion, the Constitutional Court’s decision about cancellation should be enforced and must be retroactive.

The Council of State is also of this opinion according to their settled decisions. For instance, a decision of the Court states that; “If the Constitutional Court’s decision about cancellation of a law or executive order is known, it is contrary to the “Supremacy of the Constitution Rule” and “Rule of Law” to bring the cancelled or unconstitutional law into the action.”

Accordingly, if the tax payers who could not benefit from the investment allowance because of the law amendment file a suit in Tax Court or with the Council of State, the Constitutional Court’s decision must be taken into consideration, and the tax payers should be able to sue for reimbursement of the over-paid tax payments.

It could also be argued that the retroactivity of the Constitutional Court’s decision about cancellation could be a punishment or result in an inequality for the tax payers who did not sue for reimbursement of their over-paid tax payments because they did not want to start a lawsuit against the Government.

If the Council of State’s settled opinion in this respect is applied, the tax payers who did not file a lawsuit cannot recover their excess tax payments. The best resolution that could be offered to those tax payers is using the set off or tax refund proceedings.