April 2023

Tax fraud is a criminal offense punishable by imprisonment for only the most severe actions that are listed in Article 359 of the Turkish Tax Procedure Law No. 213 ("TPL") such as issuing fake or misleading invoices, concealing legal books and records. Please refer to our answer to Question 7 for the full list of fraudulent acts determined in the TPL.

The investigation and prosecution of tax fraud offence is carried out based on the general provisions of the Turkish Criminal Procedural Code ("TCPL").

If a tax loss is caused by the acts written in Article 359 of TPL, it would trigger criminal proceedings. Under the TPL, if a tax loss arises from the fraudulent acts in Article 359, the tax loss penalty will be three times of the original tax amount that should have been paid.

Voluntary tax adjustment would prevent criminal proceedings if it falls under repentance (self-disclosure) provisions under Article 371 of TPL, as explained under Question 9.

If the tax adjustment does meet the conditions for repentance and the tax loss is caused by the acts written in Article 359 of TPL, then tax adjustment can trigger criminal proceedings.

Article 359 of the TPL, does not include any statement to conclude that the tax fraud offences can be committed by negligence, so it is not possible to commit these crimes by negligence and criminal intention is sought. Therefore, as per Turkish Criminal Code ("TCC") rules, presence of intent is necessary for the perpetrator to be held responsible for tax fraud. In order for an act to be counted as "done with the criminal intention", the act constituting the fraud must be performed knowingly and deliberately by the perpetrator.

Filing of an amended tax return and full payment of applicable tax would prevent criminal proceedings if it falls under repentance provisions under Article 371 of TPL, as explained below under Question 9. Otherwise, if a tax loss is caused by the acts written in Article 359 of TPL, then amended tax return can trigger the initiation of criminal proceedings.

Article 367 of the TPL stipulates a special penal procedure for tax fraud offenses. As per this article, tax inspectors who identified that frauds listed in Article 359 of the TPL (which is the main article regulates the tax fraud) have been committed during their audit, are obliged to report the situation to the Chief Public Prosecutor's Office with the opinion of the relevant Report Evaluation Commission.

In addition, Chief Public Prosecutor's Office, which has somehow (i.e., a report, complaint, through press or by other means) gathered the information that a tax fraud set forth in Article 359 of the TPL might have been committed, must immediately notify the relevant tax office and requests an audit on this issue.

Upon this audit request, the relevant tax authority prepares an opinion letter as per Article 367/2 of the TPL. This opinion letter is considered a "prosecution condition" under the TCPL for tax fraud crimes. In line with this prosecution condition, the Public Prosecutor and security forces do not have the authority to conduct direct investigation for tax frauds; therefore, they are bound to wait for tax authority's opinion letter to be submitted to their party. If this condition is not fulfilled, tax fraud offense cannot be prosecuted as per Article 223 of the TCPL.

If the tax authority deems it necessary to file a lawsuit within the scope of their audit, it conveys the opinion letter together with the evidences obtained as a result of the audit (minutes, tax examination reports etc.) to the Public Prosecutor's Office. If the public prosecutor deems the evidence sufficient, it initiates a criminal lawsuit; in case of insufficient evidence, it gives a non-prosecution decision.

There is no special clause regulating the statute of limitation regarding the tax offences included in the TPL. So, the statute of limitations regulated in the Turkish Criminal Code ("TCC") (i.e., the general rules for criminal proceedings) are applied for tax offences too.

There is two types of Statute of Limitations included in the TCC.

1. Statute of Limitation to File a Lawsuit: As per Article 66 of the TCC, if the penalty to be imposed in terms of tax fraud offence is one of the crimes punishable by imprisonment not exceeding 5 years then the statute of limitations for the case is 8 years from the date of the crime. If it exceeds 5 years then the statute of limitations for the case is 15.
2. Therefore, if the case is not filed or the prosecution is not terminated within the period of 8 years or 15 years after a tax fraud has been committed, then the statute of limitation to file a lawsuit will prevail.
3. Statute of Limitation to Execute the Punishment: As per Article 68 of the TCC, if the penalty to be imposed in terms of tax fraud offence is one of the crimes punishable by imprisonment which does not exceed the five years of imprisonment or a judicial fine, this penalty cannot be executed after 10 years from the date of finalization of the penal decision. If the tax fraud offence is one of the crimes punishable by imprisonment exceeds five years of imprisonment this penalty cannot be executed after 20 years from the date of finalization of the penal decision.

It starts at the date of crime as per Article 66, therefore, it will be necessary to determine the statute of limitation period by making separate evaluations for each fraudulent act.

As per Article 359 of the TPL, length of sentence depends on the act leads to the tax fraud. Below we summarized the four types of sentence required for the each type of action.

As detailed in Question 14, if a tax fraud is committed within the company, the criminal liability arising from fraudulent acts stipulated in Article 359 shall not be imposed on the company, but only on those who actually commit these acts (i.e. individuals).The company itself would only be subject to tax loss penalty (along with the original taxes and interest).

Having said that, having a compliance or risk mitigation program in place would have no effect on criminal liability per se from the Turkish Authority's view. However, such a program could be used as a supportive tool in the face of possible criticism.

Yes. In Article 359 of the TPL, which regulates tax fraud crime, it is stated that the provisions of repentance (self-disclosure) can also be used for tax fraud crimes by referring to Article 371 (i.e. main article regulates the repentance provision).

It is important to detect whether the action caused the tax fraud also requires a tax loss penalty or not to set out the conditions to avail of repentance provisions. Accordingly;

a) Tax Fraud Crimes Involving The Possibility Of Tax Loss and Conditions To Benefit from Repentance Procedure

Tax fraud acts involving the possibility of tax loss are included under Question 8 of 1-2 Headings of this document. Accordingly, taxpayers who committed one of those crimes;

• have to report the unlawful act to the tax administration, Chief Prosecutors' Office or law enforcement by themselves,
• and there has to be no prior report about their act done by others, there should be no started tax audit on the relevant subject (i.e., tax audit minute about a an audit should have not been signed before the reporting and, there should not be a case referred to the evaluation commission.
• to submit the tax return regarding the subject causing the tax loss within 15 days after the reporting obligation.
• to pay the accrued tax within the specified time period (on the exact paying date if the deadline has not been passed, and within fifteen days after the submission of tax return if the deadline has passed)

b) Tax Fraud Crimes Not Involving The Possibility Of Tax Loss and Conditions To Benefit from Repentance Procedure

Taxpayers who committed one of those crimes;

• have to report the unlawful act to the tax administration, Chief Prosecutors' Office or law enforcement by themselves,
• the application should be made through a repentance petition,

and there has to be no prior report about their act done by others, there should be no criminal investigation, there should be no started tax audit on the relevant subject (i.e. tax audit minute about a an audit should have not been signed before the reporting.

As per Article 359 of the TPL, if the tax fraud is committed via one of those acts that requires a tax loss penalty, half of the penalty is waived if the all of the related tax, default interest and late fee, and half of the fines and the corresponding late fee is paid during the investigation phase. In addition, one third of the penalty is waived if those payments are made during the prosecution phase.

In addition, according to the latest amendments in the TPL, for those who have been convicted and whose file is in the execution phase, half of the penalty is also waived if the all of the related tax, default interest and late fee, and half of the fines and the corresponding late fee is paid until April 15,2023.

In order to benefit from the penalty reduction stated in the paragraphs above, it is obligatory not to file a lawsuit in the tax court, to waive the lawsuit if filed, not to resort to legal remedies or to abandon them if applied.

Yes, the prosecution has to be terminated within eight years or 15 years from the date the tax fraud. Otherwise, statute of limitations will prevail.

The initiation of the criminal proceedings and/or the application of the criminal penalties on those who commit tax fraud does not prevent the application of the tax loss penalties along with the tax assessments of unpaid taxes and interest.

No. Tax fraud crimes have been excluded from the settlement procedure.

If a tax fraud is committed within the company, the imprisonment penalties arising from fraudulent acts stipulated in Article 359 shall be imposed on those who commit these acts in real life (i.e., individuals). This article complies with the principle of "personality of crimes" included in the TCC. Accordingly, an employee or company's legal representative can be prosecuted for a tax fraud crime within the scope of their criminal liability in the specific case.

However, if there were a tax loss within the company due to such fraudulent acts included in Article 359, the company itself would be subject to the three-times of the tax loss penalty (along with the original taxes and interest).

Meanwhile, those who act as an accomplice in the performance of the fraudulent acts specified under Article 359 of the TPL will be sentenced to imprisonment penalty within the scope of their criminal liability under the TCC (i.e., aiding/abetting). According to Article 360 of the TPL, in situations where those who participate in tax fraud do not perform the fraudulent acts with the intent of obtaining material benefits, a reduced imprisonment penalty comprising one-half of their criminal liability will be applied. If the fraudulent acts result in tax loss, a tax loss penalty equal to the unpaid tax amount is also imposed on those who participate in tax fraud as accomplice.

As in principle, those who commit acts of crimes are the ones face the criminal liability. So yes, foreign employees/directors can also be prosecuted.

As mentioned above, if there were a tax loss within the company due to fraudulent acts included in Article 359, the company itself would be subject to the three-times of the tax loss penalty (and tax assessments of unpaid taxes and interest). Indeed, Article 333 of the TPL, which defines the responsibility of legal persons, clearly states "tax penalties resulting from acts contrary to the Tax Law which arose from the administration and liquidation of the legal person, are imposed on behalf of these legal entities." This is a general statement covering all the tax penalties.

However, according to Article 10 of the TPL, if a company's outstanding tax debts and penalties cannot be collected from the company itself, the Tax Authority may hold the legal representative liable for the company's such debts. Company's legal representatives can refrain from this obligation if they prove that they duly fulfilled their duties. The legal representative would have a right to resort back to the company for the taxes and penalties paid to the Turkish Tax Authority on behalf of the company.

According to the data stated in the FY2021 Annual Report of the Tax Audit Board ("Annual Report"), the tax assessment amounts requested in the tax audits related to tax fraud offence between FYs 2017-2021 are shown in the table below (in TRY):

Although the data shown in the data table above cannot figure out the increase in the criminal prosecutions, it absolutely shows that the tax audits conducted on the tax fraud offences have increased over the years.

In regard to the types of the offences, it can be said that the most common tax fraud offenses are the use of fake or misleading document and concealing legal books and records. According to the Annual Report, as a result of the risk analysis studies conducted by the Tax Audit Board, a total of 19,334 taxpayers were sentenced to the tax audit and 5,123 taxpayers were subjected to analysis in terms of issuing fake or misleading documents.