Events
The educational institutions, student dormitories, and tutoring centers belonging to the company where the applicant served as chairman of the board of directors after June 27, 2012, were closed pursuant to Article 2 of Decree-Law No. 667 on the State of Emergency; the movable property, all types of assets, receivables, and rights, as well as documents and records belonging to the closed educational institutions, student dormitories, and tutoring centers, were transferred to the Treasury without compensation. Pursuant to Paragraph (3) of Article 5 of Decree-Law No. 670 on Measures to Be Taken Within the Scope of the State of Emergency (Decree-Law No. 670), the company’s operations were terminated, its commercial registry entry was ex officio struck from the registry, and its assets, other than those that had been taken over, were deemed to have been transferred to the Treasury without compensation. Pursuant to the aforementioned regulation, the company’s legal personality was also dissolved.
The company’s transactions for the special accounting periods of July 1, 2014–June 30, 2015, and July 1, 2015–June 30, 2016, were examined in tax audit reports dated December 8, 2016. The taxes and penalties identified in these reports were assessed in the name of the petitioner, in his capacity as the legal representative, due to the termination of the company’s legal personality.
The lawsuits filed by the petitioner were partially dismissed by the Tax Courts, while in other cases, the courts ruled to annul the assessments. Appeals were dismissed on the merits and definitively by the Regional Administrative Courts.
Claims
The petitioner alleged that his right to property was violated because the taxes and penalties arising from the breach of the company’s tax obligations—which had been closed by a decree-law under state of emergency measures—were assessed in the name of the legal representative.
The Court’s Assessment
The principle of legality in taxation requires that the taxpayer be clearly defined by law. Provisions regarding the taxpayer that are not specific and foreseeable violate the principle of legality in taxation. Although Article 5(3) of Decree-Law No. 670 provides that the commercial registry entries of companies affiliated with closed institutions are automatically struck from the registry upon the termination of their operations, it contains no provision regarding in whose name taxes and penalties are to be assessed if a violation of tax obligations is determined to have occurred during the period when the companies’ legal personality continued to exist.
Furthermore, there is no provision in Article 10 of the Tax Procedure Law No. 213 that provides for the assessment of tax debt in the name of the legal representative. Therefore, it cannot be argued that Article 10 of Law No. 213 provides a legal basis for assessing the company’s tax debt in the name of the applicant.
However, even though no reference was made to it in the decisions regarding the specific case at hand, it is observed that the Council of State’s decisions also discuss paragraph (9) added to Article 17 of the Corporate Tax Law No. 5520 by Article 6 of Law No. 5904. The aforementioned paragraph stipulates that any tax assessments and penalties to be imposed regarding the period prior to liquidation for taxpayers whose legal personality has been dissolved and removed from the commercial registry shall be made in the name of any of the legal representatives. According to the interpretation of the Third Chamber of the Council of State, for an assessment to be made in the name of a legal representative under this rule, the legal entity must have been liquidated and struck from the commercial registry. Since companies struck from the commercial registry pursuant to paragraph (3) of Article 5 of Decree-Law No. 670 have not been liquidated, it is not possible to assess their tax liabilities for the pre-liquidation period in the names of their legal representatives.
In contrast, the Fourth Chamber of the Council of State states that the aforementioned paragraph may also be applied in cases where the legal entity has ceased to exist through methods other than liquidation. In this context, it accepts that the provision may also be applied to taxes and penalties arising from violations of tax obligations during the period prior to the date of termination of legal personality for companies struck off the commercial register pursuant to paragraph (3) of Article 5 of Decree-Law No. 670.
This divergence of opinion between the two chambers of the Council of State has resulted in two different practices emerging within the country. In this context, tax assessments made against individuals in areas falling under the jurisdiction of the Fourth Chamber of the Council of State pursuant to paragraph (9) of Article 17 of Law No. 5520 are deemed lawful, whereas tax assessments made against individuals in areas falling under the jurisdiction of the Third Chamber of the Council of State are being annulled.
On the other hand, it cannot be said that the aforementioned paragraph is a newly implemented legal provision. It is evident that the provision in question has been in effect for approximately ten years as of the date the judicial proceedings concerning the petitioner were finalized. A ten-year period is sufficiently long for case law regarding the interpretation of the provision in question to become established and achieve consistency. The failure to ensure consistency in the interpretation of the law during this period has resulted in differing decisions being rendered depending on the jurisdiction of the Chambers.
Indeed, the sixth paragraph added to Article 10 of Law No. 213 by Law No. 7103 put an end to these debates and provided for the assessment of taxes and penalties relating to the period prior to the termination of legal personality of companies whose legal personality had ceased for reasons other than liquidation, in the names of their legal representatives. However, since the aforementioned paragraph added to Article 10 of Law No. 213 entered into force on March 21, 2018, its application to transactions occurring prior to that date is not possible under the principle of the rule of law. Consequently, the legislature has acknowledged that there is uncertainty regarding whether assessments may be made in the name of a legal representative for the period prior to March 21, 2018, when Law No. 7103 entered into force.
The existence of two different interpretations of the same statutory provision, coupled with the inability to unify judicial precedent in a manner that would validate one of these interpretations, weakens the capacity of legal rules to guide the conduct of those subject to them and, consequently, their predictability. The lack of certainty and clarity regarding whether tax assessments can be made on behalf of a legal representative creates uncertainty as to which decision individuals should rely on when planning their future actions and transactions and directing their conduct within the framework of these plans. This situation runs counter to the principles of legal certainty and predictability and also undermines individuals’ trust in the judicial system and court decisions.
Consequently, regarding whether the pre-liquidation debts of companies whose legal personality has been terminated through procedures other than liquidation can be assessed against the legal representative, —as of the date of the case—and the failure to establish consistency in the interpretation of the relevant provision despite the passage of a significant amount of time since the entry into force of paragraph (9) of Article 17 of Law No. 5520 have undermined the principles of legal certainty and predictability. Under these circumstances, it was concluded that the interference with the right to property through taxation was not based on a law that met the criteria of certainty and predictability.
The Constitutional Court ruled that the right to property had been violated based on the reasons outlined above.