| Melike ÖZYİĞİT, Lawyer | Osman BEYKOZ, Summer Intern (Law School Student) |
ABSTRACT
The binding effect of special rulings, which constitute written responses provided by the Revenue Administration to questions posed by taxpayers on matters regarding which they harbour doubts, and the circumstances taxpayers may encounter following a change of opinion by the Revenue Administration, are of significant importance in terms of fiscal certainty and predictability. In the event of a change of opinion in special rulings, the first paragraph of Article 369 of the Tax Procedure Law No. 213 (“TPL”) stipulates that no tax penalty shall be imposed and no default interest shall be applied following such change of opinion. However, as there is no explicit provision in the law regarding whether additional tax assessment may be carried out when the situation following a change of opinion necessitates additional taxation, numerous divergent opinions exist on this matter. This article examines the legal nature of special rulings, their binding effect vis-à-vis the administration, and the circumstances that may arise in the event of a change of opinion.
Keywords: Special Ruling, Binding Effect of Special Rulings, Change of Precedent, Tax Audit, Report Evaluation Commission, Certainty, Predictability, Revenue Administration
INTRODUCTION
The ability to conduct the relationship between the taxpayer and the tax administration in a healthy and predictable manner in tax law is directly related to ensuring the legal security of the taxpayer. In this context, the special ruling institution defined within the framework of Article 413 of the TPL constitutes an explanatory instrument to which taxpayers may resort for the purpose of resolving their doubts concerning taxation. This mechanism, which enables taxpayers to request opinions from the administration specific to their own tax situations, serves to strengthen the principles of clarity, predictability, and reliance on the administration in the taxation process. The legal nature of special rulings and the degree of their binding effect are of considerable importance, particularly with regard to consequences that may arise in the event that the tax administration subsequently changes its opinion or it is understood that its previous explanation was incorrect. Whether changes in precedent that emerge subsequently will produce consequences detrimental to the taxpayer when the taxpayer has acted in accordance with the special ruling issued by the administration; particularly concerning additional tax assessment, tax penalties, and default interest, remains subject to debate. For this reason, the question of whether special rulings constitute merely explanatory texts or whether they bind the administration or the taxpayer in certain circumstances has become one of the fundamental issues of tax law. In this framework, the legal nature of special rulings, their binding effect with respect to the taxpayer and the administration, and the legal consequences arising following a change of opinion continue to be debated. The question of whether additional tax assessment may be carried out for the portion remaining deficient following a change of precedent remains subject to debate. In this study, in light of these debates, the binding aspect of the special ruling system and the effects of changes in precedent will be examined, and other matters of particular significance constitute the subject matter of this article.
I. THE CONCEPT OF SPECIAL RULINGS
Special rulings constitute written requests for explanation from the Revenue Administration by taxpayers on matters that are ambiguous and regarding which they harbour doubts, pursuant to Article 413 of the TPL. In the continuation of the same article, it is stated that the Revenue Administration may respond to matters for which explanation is requested through circulars rather than special rulings. It must be stated at the outset that the principal difference between circulars and special rulings is that circulars respond to questions asked by taxpayers on the same subject by publishing a single explanation. In the special ruling system, however, the taxpayer themselves receives the response. Special rulings encourage taxpayers toward tax compliance; they resolve their doubts by requesting explanations from the relevant units on matters regarding which they remain uncertain. In this manner, taxpayers are able to submit declarations in a healthier manner.
II. THE SPECIAL RULING REQUEST PROCESS
a. Parties Entitled to Request Special Rulings
According to the Regulation on the Response to Information Requests of Taxpayers (“Regulation”), taxpayers, tax responsible persons, or following the death of taxpayers or responsible persons, their heirs, legally authorised legal representatives or agents may submit special ruling requests. The status of the taxpayer, whether they are a limited or full taxpayer, whether they possess citizenship or not, whether they are a natural person or a legal person, makes no difference with respect to the ability to request a special ruling¹. However, professional institutions and organisations such as chambers cannot request special rulings concerning their members. The reason for this is the principle that everyone may only request a special ruling for their own tax situation. Should taxpayers find the response provided to them insufficient, they may submit an information request on the same subject again²; however, the exception to this situation is that in cases where the tax laws are sufficiently clear as to leave no room for doubt, the Revenue Administration may reject the relevant request on the grounds of unnecessary workload.
b. Authorities to Which Special Rulings May Be Requested
In the fourth paragraph of Article 413 of the TPL, it is stated as follows: “In the event that an information request is submitted concerning a matter that bears completely identical nature in terms of subject, scope, and relevant legislation with circulars or special rulings established in the aforementioned commission, special rulings may also be issued by the provincial organisation of the Revenue Administration, provided that they conform to the circulars or special rulings established by the commission.” As will be understood from the aforementioned provision, if no special ruling has previously been issued on a subject, a special ruling shall be requested from the Revenue Administration. If a special ruling has previously been issued on the same subject, the response to the special ruling request may also be provided by the provincial organisation of the Revenue Administration. Thanks to the aforementioned regulation, a centralised structure is established in the special ruling system and transparency is ensured.
c. Procedural Rules to Be Observed in Special Ruling Requests
The application must be completed in accordance with the special ruling request form available on the website of the Revenue Administration. Special ruling requests may be submitted via e-mail, physical application, and interactive application through the special ruling request system. Certain limitations exist in special ruling requests, and these limitations are specified in Article 8 of the “Regulation on the Response to Information Requests of Taxpayers”: • Requests concerning the tax situations of others, • Requests on matters subject to litigation, • Requests currently related to tax audits, • Requests containing abstract information, • Requests concerning matters for which authority is granted to the Ministry of Finance, • Requests submitted after carrying out tax application, • Requests within the scope of the Law on Acquisition of Information fall outside the legal nature of special rulings.
d. Publication of Special Rulings
Based on the expression “may publish” added to the second paragraph of Article 413 of the TPL through the Law No. 6009 on Amendment of the Income Tax Law and Certain Laws and Decrees Having Force of Law, dated 23.07.2010 and numbered 6009 (“Law No. 6009”), certain special rulings provided to taxpayers are published anonymously in order to guide taxpayers in similar situations, reduce the multiplicity of existing applications, and render the special ruling system transparent. However, not every special ruling bears an obligation to be published in the special ruling system.
III. LEGAL NATURE AND BINDING EFFECT OF SPECIAL RULINGS
a. Legal Nature of Special Rulings
Special rulings, which are in the nature of the administration’s opinion, serve an important function in tax law with respect to the elimination of uncertainties and contain the administration’s interpretation³. Special rulings, which constitute explanations concerning the conduct of tax-related transactions, are not binding for taxpayers as they do not constitute definitive and mandatorily enforceable transactions. As a rule, special rulings constitute auxiliary sources of tax law of an explanatory nature⁴. The Council of State has also stated in its precedents that special rulings constitute auxiliary sources, do not possess executive nature, do not bind taxpayers, and for these reasons cannot be subject to annulment actions⁵.
b. Binding Effect of Special Rulings on the Administration
Another important point with respect to special rulings is their significance for audit personnel and report evaluation commissions. From the expressions in paragraph 5 of the first paragraph of Article 140 of the TPL, stating that “those conducting tax audits cannot prepare tax audit reports contrary to communiqués, decrees, regulations, general communiqués and circulars concerning tax laws; however, if they conclude that these regulations are contrary to tax laws, they shall notify the Revenue Administration through a report they will prepare,” one should not reach the conclusion that tax audit personnel are not bound by special rulings. Because in paragraph 6 of the first paragraph of Article 140 of the TPL, it is regulated that “the report evaluation commission shall evaluate them in terms of their conformity with tax laws and the Presidential decisions, regulations, general communiqués, circulars and special rulings related thereto,” thereby regulating that the report evaluation commission must also take into account whether they are contrary to special rulings when evaluating audit reports. In Article 18 of the Regulation on Procedures and Principles to Be Observed in Tax Audits, it is regulated that when taxpayers present a special ruling to the audit personnel during the audit regarding matters that will be subject to criticism according to tax laws, the special ruling shall be included in the audit minutes. In General Communiqué on Tax Procedure Law No. 425, it is also stated that “while report evaluation commissions evaluate reports in terms of conformity with special rulings, they shall take into account special rulings issued by the Revenue Administration concerning the matter subject to criticism and shall not be limited to the special ruling issued to the taxpayer for whom the report is prepared, if any.” The relevant special rulings must be the most current special rulings. Taking into account the matters explained above, it is evident that special rulings possess binding effect both for tax audit personnel and for report evaluation commissions.
c. Binding Effect of Special Rulings on Taxpayers
Special rulings obtained by taxpayers on relevant matters may subsequently lose their validity due to the administration’s error or change of opinion. In these situations, what consequences await taxpayers, particularly the question of whether additional tax assessment may be carried out, whether tax penalties may be imposed, and whether default interest may be calculated, is of importance. It must be stated at the outset that the matter that the administration cannot impose tax penalties and cannot calculate default interest due to change of precedent has achieved legal certainty. In the first paragraph of Article 369 of the TPL, it is stipulated that “in the event that competent authorities have provided incorrect explanation in writing to the taxpayer or a precedent concerning the manner of application of a provision has changed, no tax penalty shall be imposed and no default interest shall be calculated,” thereby establishing that no tax penalty shall be imposed on taxpayers who have acted in accordance with the special ruling they obtained in the event of a change of precedent and no default interest shall be applied. The aforementioned provision was previously regulated as “no tax penalty shall be imposed” prior to Law No. 6009. With the expression “no default interest shall be calculated” added to the first paragraph of Article 369 of the TPL through Law No. 6009, taxpayers’ payment of default interest in cases where they comply with the special ruling has been prevented. With this regulation, taxpayers’ reliance on the administration has strengthened the principles of predictability and certainty in taxation. However, regarding the question of whether additional tax assessment may be carried out in the event of a change of opinion, as there is no regulation in the law, there is no consensus of opinion. According to the opinion stating that additional tax assessment should be carried out on this matter, in the event that the special ruling issued by the administration is erroneous, if there is a tax that requires assessment on a supplementary or ex officio basis due to the transaction carried out by taxpayers according to the special ruling, it states that the additional assessment procedure shall be carried out⁶. Opinions advocating that additional tax assessment should not be carried out state that additional assessment should not be applicable since special rulings, having been published on the internet, have become public property and cannot be deemed to have entered within the taxpayer’s knowledge⁷. Another rationale of the same opinion refers to the fact that in the new version of the article, error and change of opinion have now been regulated separately, and for this reason, additional tax assessment should not be carried out in the event of a change of opinion. Ultimately, it is clear that in the event of the administration providing incorrect explanation, tax penalties and default interest cannot be applied to the taxpayer; and that a change of opinion does not constitute a state of error and is regulated as a separate state in the second paragraph of the article, therefore carrying out additional tax assessment in addition to tax penalties and default interest cannot be considered a correct application⁸. The possibility of additional assessment being carried out concerning a taxpayer who has acted in accordance with the special ruling provided to them cannot be possible within the framework of the current regulation⁹. According to the provision in the second paragraph of Article 369 of the TPL, stating that “in the event that competent authorities change their opinion and conviction by making amendments in general communiqués or circulars concerning the manner of application of a provision, the new opinion and conviction shall be valid as of the date on which the general communiqué or circular concerning the new opinion and conviction is published and cannot be applied retroactively,” it is clear that in the event of a change of precedent, the new special ruling or circular shall be applied, and that such special ruling or circular shall absolutely not have retroactive effect.
CONCLUSION
The matter of binding effect and change of precedent in special rulings is of significance. The matter that no penalty shall be imposed and no default interest shall be applied following a change of opinion has achieved certainty through the amendment of the first paragraph of Article 369 of the TPL together with Law No. 6009, which entered into force in 2010. However, the question of whether additional tax assessment may be carried out for the portion remaining deficient following a change of opinion has not achieved clarity due to the absence of an explicit provision in the law. Taking into account the second paragraph of Article 369 of the TPL, the matter of publication of special rulings on the internet, and the law’s regulation concerning penalties and default interest, it is evident that subjecting taxpayers to additional tax assessment due to declarations they have submitted in accordance with special rulings will impair reliance on the administration and the principles of predictability and certainty in taxation. For these reasons, it is necessary that the matter that no additional tax assessment shall be carried out be added to the law in a manner similar to Law No. 6009 introduced in 2010.
FOOTNOTES
¹ Çağlasın YALDIZ, “Legal Nature of Special Rulings”, Kesit Academy Journal, 2020, p.321
² Demirci, “Special Rulings in Tax Practice: Functions and Evaluation”, Tax World, Access Date: 5 March 2020 http://www.vergidunyasi.com.tr/Makaleler/3072
³ Nevzat SAYGILIOĞLU, “Interpretation in Tax Law”, Ministry of Finance and Customs, Ankara 1987, p.139
⁴ Mualla ÖNCEL – Ahmet KUMRULU – Nami ÇAĞAN, “Tax Law”, Turhan Publishing House, Ankara 2011, p. 16
⁵ ÖZTEMEL, “Legal Natures of Special Rulings: Problems Experienced in Practice-Solution Proposals”, Tax Problems Journal, p.1-10
⁶ Hasan AYKIN, “Taxpayers’ Right to Request Explanation Through Special Rulings, Legal Consequences and Certain Controversial Matters”, TBB Journal, 2016, p.38
Mualla ÖNCEL – Ahmet KUMRULU – Nami ÇAĞAN, “Tax Law”, Turhan Publishing House, Ankara 2011, p. 16
⁷ İmdat TÜRKAY, “Testing of the Special Ruling with a More Recent Special Ruling”, Access Date: 16 December 2013
⁸ Leyla ATEŞ, “Mukteza as an Indispensable Instrument of Democracy in Tax Administration”, Tribute to Prof. Dr. ÖNCEL Mualla, Vol. 1, Ankara 2008, p.631
⁹ “While all regulations in this system, which is based on centralised structure and control in terms of production and application of administrative opinions, have resulted in mechanisms binding tax administration audit personnel in every respect, when it comes to the legal effect of individual special rulings, the administration’s attempt to continue its will not to be bound by these transactions has created an exceptional and system-incompatible result… Looking at the new provisions in the special ruling formation process, it is not possible to understand why a special ruling that has been tied to an approval basis on a central commission foundation still and why does not bear fully binding nature”, See Billur YALTI, “General Overview of Changed-Unchanged Provisions in the Order of Tax Explanations, Circulars and Special Rulings”, Tribute Book to Prof. Dr. KIRBAŞ Sadık, September 2011, p.334-335