Force Majeure in terms of Turkish Tax Legislation and Coronavirus Effect on Tax Practices
The coronavirus (Covid-19) epidemic, which first appeared in Wuhan, China, has been declared a global epidemic by the World Health Organization.
It is unquestionable that the world economy will be affected, as well as the health problems that will arise when considering the spread rate and effects of the virus; there is no doubt that the epidemic will affect taxpayers and tax officials. In this context, this newsletter article covers the basic principles of the “force majeure” concept within the scope of the Turkish tax legislation, and summarizes regulations made by the Turkish Tax Administration based on the coronavirus effects.
The Concept of Force Majeure In Terms of Turkish Tax Legislation
The essential duties of taxpayers are regulated in Article 153 and subsequent articles of Tax Procedural Code No. 213 (“TPC”) as follows:
- Notification (Start-up Notice, etc.)
- Document editing (Invoice issuance, etc.)
- Protection and submission obligation
- Submission of tax declarations
Under Article 13 of the TPC, the situations that may qualify as force majeure (only in terms of tax legislation and tax applications), and which may prevent taxpayers to fulfill their tax duties, are exemplified, as follows:
- Severe accident, serious illness and detention preventing the fulfillment of any tax duties;
- Disasters, such as fire, earthquake, and flooding that will prevent the performance of tax duties;
- Compulsory situations that occur beyond of the will of a party; and
- Due to reasons beyond the will of the party, the disposal of notebooks and documents.
Force majeure situations are not limited to the above-mentioned in terms of tax legislation. The word, "like," as noted in Article 113 of the TPC clearly demonstrates this. Therefore, situations similar to those above-mentioned that will prevent taxpayers and tax responsible from performing their tax duties may be considered as force majeure in terms of tax applications.
Tax Procedural Code General Communiqué Serial No. 518 (“TPL General Communiqué No. 518”), published in the Official Gazette dated 24th March 2020 and No. 31078 (repeated), includes important regulations in relation to the taxpayers who will benefit from the “force majeure” status in terms of tax applications. However, the Turkish Tax Administration has not declared the coronavirus as a 'general force majeure.' Therefore, the situation of each taxpayer should be evaluated separately and attentively.
Current and Possible Tax Effects of Coronavirus
According to Article 19 of the TPC, tax receivables will arise upon the occurrence of a taxable event. The existence of force majeure does not prevent the emergence of tax receivables since there is no special provision in the TPL regarding this issue.
According to Article 373 of the TPL, tax penalties shall not be imposed in the event of force majeure. However, in order not to be fined for a force majeure, the force majeure must be acknowledged, and must be proven and certified. On the other hand, there must be a causal link between force majeure (in terms of tax law) and tax misdemeanor for the application of this provision. The word "penalty" stated under Article 373 of the TPC refers to tax loss, irregularity, and special irregularity penalties.
Fulfilment Periods related to Tax Duties
As per Article 15 of the TPC, the time periods envisaged for tax duties will not process until the date upon which the force majeure will dissipates. However, the force majeure must be known or proven by the concerned parties.
On the other hand, even if it is stated in the related article of the TPC that the deadline of limitation will be extended, no regulation regarding the penalty of limitation is made. Therefore, it must be accepted that the force majeure will not halt the penalty expiry period in terms of tax legislation. The same is applicable for penalties for the crime of smuggling.
Additionally, under Article 17 of the TPC, there is an arrangement regarding the time limit in the event of force majeure:
“…Those who are unable to fulfill their tax duties due to their difficulties can be granted a suitable deadline by the Ministry of Finance, not exceeding one month of the legal period, and one month if the legal period is less than one month. In order for this deadline to be granted, the conditions listed below must be met:
- The deadline extension must be requested in writing before the deadline ends;
- The reason shown in the claim should be deemed worthy of acceptance by the authority to issue a deadline; and
- If a deadline extension is granted, the tax should not be compromised.
The Ministry of Finance may transfer its mandate, completely or partially, as well as to apply for regions, provinces, districts or sectors, as well as business lines or taxpayer groups, without seeking written conditions.”
Finally, under Article 111 of the TPC, it is stated that the Ministry of Finance is authorized to extend the payment terms of taxes accrued upon declarations for a maximum of one year from the date of the maturity, in accordance with Article 15/3 of the TPL. It is stated that this authority may be used by determining different periods in terms of the region, province, district, locality, and those who suffer from the disaster, and the degree of damage of the disaster or tax types. The days that are determined in this manner replace the maturity date of the tax receivable.
The Coronavirus is expected to affect “trade receivables” on the balance sheets prepared by legal entities taxpayers, in particular.[i] Therefore, another issue that may arise due to the Coronavirus are “doubtful receivables” issues that may arise when collection problems are observed.
The following regulation is included in Article 323 of the TPL:
“… On the condition that it is related to obtaining and maintaining commercial and agricultural income:
- Receivables during the execution phase;
- Small receivables that are not worth protesting, or the case and execution proceedings that have not been paid by the debtor more than once despite having been requested, are deemed as a doubtful receivables.
According to the saving value of the valuation day for the doubtful receivables written, above, a provision can be made in liabilities… ”
Due to the Coronavirus epidemic which has had great effect all over the world, taxpayers may not be able to collect their receivables on their due dates. When this occurs, it may be considered to allocate a provision for doubtful receivables in terms of receivables already made subject to litigation or enforcement proceedings, in accordance with Article 323 of the TPL. Evaluation should be made according to the characteristics of each established event.
Tax Measures Introduced during the Coronavirus Outbreak by the Turkish Tax Administration
As of the writing of this article, in terms of tax legislation, detailed regulations have been made regarding the application of force majeure, by both publishing communiqués and circulars within the scope of the TPL and Presidential Decisions.
Firstly, the 'Economic Stability Shield' package that aims to take control of the impact on the Turkish economy due to the Coronavirus epidemic was announced to be put into effect by the President during a meeting held on March 18, 2020. Subsequently, many announcements regarding tax applications have been published on the website of the Revenue Administration.
However, the most important development in this process is TPL General Communiqué No. 518, as we have stated above, where the force majeure situation was announced. With the Communiqué, taxpayers who will benefit from the force majeure provisions have been identified, and it has been regulated that the taxpayers in question will be accepted within the scope of force majeure for the period between 1 April 2020 and 30 June 2020.
As of the writing of this article, the regulations made within the scope of the Turkish tax legislation may be summarized as follows. In TPC General Communiqué No. 518, the following taxpayers are acknowledged to be affected by the force majeure in terms of tax applications:
Taxpayers Directly Affected by the Epidemic
The activity fields of taxpayers that are directly affected by the epidemic, and included in the scope of force majeure, are determined in the related announcement as follows:
- Retail Trade and Shopping Centers
- Iron and Steel Industry
- Logistics and Transportation
- Cinemas and Theaters
- Food and Beverage Services
- Textile and Garment Activities
- Events and Organizations
- Health Services
- Furniture Manufacturing
- Mining and Quarrying
- Car Rentals
- Printing and Publishing
- Building Construction Services
- Industrial Kitchen Manufacturing
Lawyers, financial advisors, architects, engineers, and doctors, who maintain their books on balance sheets, and business basis and income taxpayers who earn self-employment income, are accepted within the scope of force majeure status in terms of tax applications.
Taxpayers whose Activity is Temporarily Discontinued
Taxpayers in this category, and who are considered to be within the scope of force majeure status in terms of tax applications, are workplaces such as swimming pools, Turkish baths, hot springs, sports, games, wedding halls, barbers and hairdressers. For the above mentioned three groups of taxpayers, the submission periods of the (i) withholding, (ii) Value Added Tax (VAT), (iii) Form Ba-Bs, (iv) electronic ledger charts, and the payment period of the taxes that accrue based on these documents, are postponed depending on the time period to which the mentioned financial documents pertain to.
Citizens of 65 Years and Older or With Chronic Illness
Taxpayers who are within the scope of curfew due to 65 years of age or older, or who have chronic illnesses, have been accepted in the force majeure event as between 22 March 2020 and the date when the curfew will end (including these dates). The payment period of the declarations, and taxes accrued for this period, have been extended until the end of the 15th day following the day the curfew is lifted.
We would like to emphasize that the force majeure statement declared by the Revenue Administration includes only some sectors; it does not cover all taxpayers. Also, these regulations can only be applied for tax applications.
Finally, through Law No. 7226 on the Amendment of Some Laws, published in the Official Gazette dated 26th March 2020 and No. 31080 (repeated), the enforcement date of the accommodation tax has been postponed to 01.01.2021.
In the event of force majeure conditions specified in Article 13 of the TPL, the liability of taxpayers is delayed during the force majeure period. It is recommended that taxpayers follow attentively the statements and Communiqués announced by the Turkish Tax Administration in terms of the application of the force majeure clauses specified under the tax legislation
[i] Gedik, Aslı: Koronavirüs Bilançoma Bulaştı, Dünya Gazetesi, https://www.dunya.com/kose-yazisi/koronavirus-bilancoma-bulasti/464772 (Access date: 16.03.2020).
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Periods for submission of annual income tax returns and the payment period of the first installment are extended until 30th April 2020 through the Tax Procedure Law Circular No.125 (“Circular”), published on the website of the Revenue Administration on 17th March 2020.
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Cheque Submission Periods were Postponed