Tax and Customs Law in Türkiye: Tax Audits, Settlement and Tax Litigation

In tax and customs disputes, the most important factor in the legal position is often time. Whether to request settlement or file an action against a tax and penalty notice, on what grounds to challenge a payment order, or to whom an objection against a customs penalty should be made all depend on short and often preclusive time limits. The main legislation is Tax Procedure Law No. 213 (VUK), Law No. 6183 on the Collection Procedure of Public Receivables, Administrative Procedure Law No. 2577 (İYUK) and Customs Law No. 4458.

Tax audits

The purpose of a tax audit is to investigate, establish and ensure the accuracy of the taxes payable (VUK Art. 134). Audits are carried out by tax inspectors and authorised officials within tax office directorates (Art. 135). The taxpayer must produce its books and records within the period requested; failure to do so may be a ground for an ex officio assessment and may also lead to separate sanctions. The report drawn up at the start of the audit should be read carefully, as it defines the scope and period of the audit.

It is important that the taxpayer's explanations and objections during the audit are recorded in the minutes. The reports issued at the end of the audit form the basis of the assessment and penalty; to the extent that the findings in the report can be rebutted with documents, a strong basis is created for the later settlement and litigation stages. Allegations of fictitious invoices or invoices misleading as to their content should be assessed separately, as they have both a tax and a criminal dimension.

Tax penalties

A tax loss penalty is imposed where tax is not assessed on time or is under-assessed because the taxpayer failed to fulfil, or incompletely fulfilled, its tax obligations on time (VUK Art. 344). The penalty is, as a rule, equal to the amount of tax lost; where the tax loss was caused by acts of tax evasion, it is applied at three times that amount. Irregularity and special irregularity penalties (Arts. 352–353) are imposed for failure to comply with the formal and procedural provisions of the tax laws.

There are ways to reduce penalty amounts. After a penalised assessment, if a certain portion of the tax and penalty is paid within the time limit for filing an action, without requesting settlement or filing an action, the reduction in VUK Art. 376 may be available. Which route is more advantageous should be decided according to the strength of the legal basis of the dispute.

Invitation to explain and voluntary disclosure

Where there are indications that tax loss has been caused, the administration may invite the taxpayer to explain before a tip-off is received or an audit begins (VUK Art. 370). Responding to the invitation within the period with a sufficient explanation, or remedying the deficiencies, results in a significant reduction in the penalty. Voluntary disclosure (pişmanlık, Art. 371) means that no tax loss penalty is imposed if the taxpayer reports the unlawful situation of its own accord before it is detected by the administration and pays the tax, together with a voluntary disclosure surcharge calculated at the rate of late payment interest, within the period provided in the Law. As both mechanisms are subject to time limits, the date on which the relevant notice is given is important.

Settlement

The VUK provides two separate settlement routes: pre-assessment and post-assessment settlement. Pre-assessment settlement may be requested at the end of the audit and before the assessment. Post-assessment settlement is requested within thirty days of notification of the tax and penalty notice (VUK Additional Art. 1 et seq.). A settlement request stops the time limit for filing an action from running. If settlement is reached, no action may be filed for the tax and penalties settled; if settlement is not reached, the time limit for filing an action is calculated taking into account the remaining period and the additional period provided in the Law.

Tax litigation and payment orders

Under İYUK Art. 7, the time limit for filing an action before the tax courts is thirty days, starting from the day after notification of the tax notice. Filing an action, as a rule, suspends collection of the tax and penalties in dispute. Regional appeal and appeal to the Council of State are available against tax court decisions.

For public receivables not paid when due, a payment order is issued under Law No. 6183. An action may be filed against the payment order before the tax court within fifteen days of notification (Law No. 6183, Art. 58). In this action, only limited objections may be raised, such as that the debt does not exist, has been partly paid or is time-barred; objections to the substance of the tax debt are, as a rule, not examined in a payment order action. As a surcharge of ten percent of the debt is collected if the action is unsuccessful, the grounds for this action should be framed carefully.

Customs law

Customs disputes usually arise over the tariff classification of goods (GTİP), customs value and origin. A different assessment of these elements leads to an additional customs duty assessment and related administrative fines. Law No. 4458 regulates penalties linked to duty differences (Art. 234) and irregularity penalties (Art. 241) separately. Failure to fulfil undertakings under conditional exemption regimes, such as inward processing, is also a frequent cause of disputes.

Before filing an action against customs procedures and administrative fines, the administrative objection route must be exhausted. Under Article 242 of Law No. 4458, the person concerned may object to the authority immediately above the authority that issued the decision within fifteen days of notification of the decision. The objection is decided within thirty days; if it is rejected or not answered within the period, the route to the administrative courts opens. Filing an action directly without using the objection route may lead to the action being dismissed on procedural grounds. Acts of smuggling are also the subject of separate criminal investigation under Anti-Smuggling Law No. 5607.

Advice before a dispute arises

A significant proportion of tax disputes arise from structures that were not set up correctly before the transaction. Transfer pricing rules in transactions between group companies, the tax consequences of company mergers and transfers, withholding tax on payments abroad and the application of double taxation treaties are important in this respect. Requesting an advance ruling (özelge) from the Revenue Administration on uncertain matters allows the practice to be shaped according to the administration's view.

Our work in this area

We assist taxpayers during tax audits, prepare responses to invitations to explain and voluntary disclosures, and conduct settlement negotiations and tax litigation. In customs matters, alongside objection and litigation procedures, we carry out compliance assessments for importing and exporting businesses. Investigations into tax offences are covered on the White-Collar Crime page, and the tax aspects of corporate transactions on the Mergers and Acquisitions page. For manufacturing and foreign trade companies, see Industry and Manufacturing; for litigation generally, Dispute Resolution.

Main topics

Tax audits and assessment procedures (VUK Arts. 134–141)
Tax loss, irregularity and special irregularity penalties
Invitation to explain, voluntary disclosure and settlement
Actions before the tax courts and appeals
Actions against payment orders (Law No. 6183, Art. 58)
Customs duties, valuation, tariff classification and origin disputes
Objections to customs administrative fines (Law No. 4458, Art. 242)

Frequently asked questions

Within what period must I file an action against a tax and penalty notice?

The time limit for filing an action before the tax court is thirty days from the day after notification of the notice. If settlement is requested within this period, the time limit for filing an action stops running.

Should I request settlement or file an action?

This depends on the legal basis of the dispute. If the basis for the assessment is weak, an action may be preferable; if reducing the penalty and a quick resolution matter most, settlement may come to the fore. The decision should take into account that no action can later be filed for the part that has been settled.

What is the time limit for challenging a payment order?

Under Article 58 of Law No. 6183, an action may be filed before the tax court within fifteen days of notification of the payment order.

Can I file an action directly against a customs penalty?

No. Under Article 242 of Law No. 4458, an objection must first be made to the authority immediately above the authority that issued the decision within fifteen days of notification of the decision. If the objection is rejected or not answered, the route to court opens.

What rights do I have during a tax audit?

You are expected to produce your books and records; in return, you may ask for your explanations to be recorded in the minutes, request pre-assessment settlement and use legal remedies against the results of the audit.

Legislation and sources

The information on this page is general and does not constitute legal advice. As legislation may change, the current rules must be assessed separately for your particular situation.