The Turkish Constitutional Court has struck down a provision of the Turkish Tax Procedure Code (TPC) that had inequitably delayed the start date for the accrual of interest on refunds of taxes levied excessively or groundlessly.
Former paragraph 4 of article 112 of the TPC established a three-month deadline for tax authorities to respond to taxpayers’ applications for refunds of taxes levied excessively or groundlessly. If the taxes were not refunded within that time period, interest would accrue from the expiration of the deadline until the tax refund was made. If the tax refund was made within the three-month period, no interest would accrue.
The constitutional challenge to paragraph 4 was based on the fact that interest begins to accrue immediately when the tax administration is the creditor and the taxpayer owes the tax; there is no three-month delay.
Under Turkish law, if a court finds that a law or decree is unconstitutional or the court is convinced of the seriousness of an appellant’s claim on constitutional grounds, the court must postpone any further action in the case until it has been reviewed by the Constitutional Court.
Based on that established procedure, the Aydin District Administrative Court, acting on an appellant’s challenge to the constitutionality of paragraph 4 of TPC article 112, adjourned the proceedings and referred the matter to the Constitutional Court, requesting the suspension of paragraph 4 on the ground that it unfairly deprived taxpayers of the interest income for a longer period of time, thereby reducing the amount of interest they received. The court noted that:
- if the tax administration is the creditor, delay interest at the rate of 1.4 percent applies immediately from the normal due date (paragraph 3, article 112); whereas
- if the taxpayer is the creditor, delay interest at the rate of 1 percent applies from the end of the three-month period after the application by the taxpayer (paragraph 4, article 112).
After examining the case, the Constitutional Court decided to annul paragraph 4 on the basis that it is contrary to articles 21 and 352 of the Turkish Constitution.
The Constitutional Court said a taxpayer’s “claim right is under the scope of the right of possession which is a fundamental right,” and that the delayed payment of the interest under paragraph 4 violated that right of possession. The taxpayer was deprived of the use of a certain amount of money for a period of time because of the excessive or groundless levy of taxes, and the value of that money — and accordingly, the value of that possession — depreciated during that period, it added.
The Constitutional Court based its decision in part on article 13 of the Additional Protocol to the European Convention on Human Rights and on the decision of the European Court of Human Rights in Eko-Elda Avee v. Greece (No. 10162/02, Mar. 9, 2006).
Because paragraph 4 of article 112 was annulled by the Constitutional Court, taxpayers seeking refunds of excessively or groundlessly levied tax will be entitled to the same treatment as the tax authorities, meaning that interest will accrue from the date when the taxes are levied (excessively or groundlessly).
When filing an application for a tax refund, taxpayers must specifically ask the court to charge interest from the date when the taxes were levied.
The decision of the Constitutional Court will become effective on May 14, 2012, and is not retroactive, meaning that paragraph 4 is considered valid until the Constitutional Court’s decision takes effect. According to article 153 of the constitution, the legislative and executive branches have no power to modify or postpone decisions rendered by the Constitutional Court.
Despite the aforementioned terms of the decision, it is possible that a taxpayer still could ask that the interest accrue from the date when the taxes are levied (excessively or groundlessly) on the ground that the unlawfulness of the provision has been confirmed through the decision of the Constitutional Court.
Yusuf Penezoglu, partner, tax controversy,
Ernst & Young, Istanbul
FOOTNOTES
1 “The Republic of Turkey is a democratic, secular and social state governed by the rule of law; bearing in mind the concepts of public peace, national solidarity and justice; respecting human rights; loyal to the nationalism of Ataürk, and based on the fundamental tenets set forth in the Preamble.”
2 “Everyone has the right to own and inherit property. These rights may be limited by law only in view of public interest. The exercise of the right to own property shall not be in contravention of the public interest.”
3 “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
END OF FOOTNOTES