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Definition and Legal Nature of The Institution of Remorse and Rectification in Turkish Tax Law

Definition and Legal Nature of The Institution of Remorse and Rectification in Turkish Tax Law

In the taxation system, the primary objective is the collection of fiscal revenues; the existence of tax penalties serves this purpose. In fact, in some cases, to expedite the transfer of fiscal revenue to the treasury, the system might fall short, and the tax administration may prefer not to impose penalties on taxpayers. The institution of remorse and rectification has been established for such circumstances.

In Turkish Tax Law, the institution of remorse and rectification allows taxpayers, who have committed the offense of tax evasion or participated in smuggling or related offenses, to confess and rectify their unlawful actions. By fulfilling the conditions stipulated in the law, they can be exempted from penalties related to tax evasion, involvement in tax evasion, or tax losses.

Thus, given that under normal circumstances, the basis for tax assessment relies primarily on taxpayer declarations and that auditing is challenging, the institution of remorse and rectification is notably effective. Through this mechanism, taxpayers’ voluntary confession of their offenses might facilitate the collection of fiscal revenues that might otherwise be impossible to recover, promoting a stronger tax ethic within society.

Besides the benefits this institution brings to the treasury, it also has advantages for well-intentioned taxpayers:

If they feel remorse for their unlawful actions that constitute a tax offense, even before the administration becomes aware, they are given the opportunity to avoid being overwhelmed by the heavy sanctions of the law and to escape the penalties for tax evasion or smuggling offenses. As provided in the law, for taxpayers to apply to this institution, they must fulfill their obligations. These conditions will be discussed below.

Which Taxes are Covered by The Remorse and Rectification Provisions?

Not all taxes specified by the law are admissible under the institution of remorse and rectification. Accordingly, the covered taxes must meet certain conditions. The primary rule is that these taxes should be regulated in the Tax Procedures Law (TPL). As indicated in Article 170 of the TPL, where the institution of remorse and rectification is arranged, it’s valid for taxes that are levied based on declaration and on the basis of assessment. What’s meant by taxes based on declaration is that they are assessed, accrued, and collected by the tax administration based on the taxpayer’s declaration and the information contained therein.

The types of taxes that meet these conditions include:

  • Income Tax,
  • Corporate Tax,
  • Value Added Tax,
  • Special Consumption Tax,
  • Special Communication Tax,
  • Lottery and Gambling Tax,
  • Banking and Insurance Transactions Tax,
  • Inheritance and Transfer Tax,
  • Stamp Duty,
  • Municipality Revenues Based on Declaration,
  • Provisional Tax.

Which Taxes Are Not Covered by The Remorse and Rectification Provisions?

Contrary to the above, taxes not based on declaration and assessed ex officio by the administration cannot benefit from the institution of remorse and rectification. These types of taxes are:

  • Motor Vehicles Tax,
  • Environmental Cleaning Tax,
  • Customs and Monopoly Taxes.

Additionally, levies related to land registry, notary public, traffic fees, and the like are linked to their collection, and no declaration is made for them. Since their payments are generally not based on a declaration, they naturally fall outside the scope of remorse and rectification.

An exception regarding taxes not covered by the institution of remorse and rectification is the property tax. This matter has also been specifically stated at the end of the relevant article. Under normal circumstances, property tax, which is a type of tax based on declaration, is excluded to prevent ill-intentioned taxpayers and responsible parties from manipulating the value of real estate, thereby barring them from benefiting from the provisions of remorse and rectification.

Which Offenses and Penalties are Covered by The Remorse Provision?

Article 371 of the Tax Procedure Law No. 213 defines tax offenses and penalties that fall under the scope of the remorse and rectification provisions, as well as their conditions. This article includes offenses related to smuggling, complicity, encouragement, and assistance, as well as serious negligence and negligence offenses.

Therefore, to understand the offenses and penalties covered by the remorse and rectification provisions, it is more appropriate to evaluate misdemeanors and crimes separately.

Misdemeanors (Tax Evasion and Irregularities)

Considering the penalty for tax evasion under misdemeanors, it is essential that the unlawful act results in tax evasion. Normally, when a tax evasion offense is committed, a penalty should be imposed on the taxpayer. However, with the application of the remorse and rectification provisions, one can escape this penalty.

An important point here is that benefiting from remorse doesn’t remove the unlawful act. Only the penalty for tax evasion that should be imposed due to the unlawful act is waived.

Therefore, if a taxpayer doesn’t keep books or if their records or documents are inadequate, it is impossible for them to invoke remorse and escape the consequences of such or similar actions.

When evaluating penalties for irregularities, the condition of tax evasion must also be met. This is because irregularity actions that do not cause tax evasion cannot be subject to the remorse provision. As ruled in Article 336 of the TPL, if both tax evasion and an irregularity offense are committed simultaneously, and the liable person invokes remorse for tax evasion and benefits from it, even if the tax evasion is the more serious offense in terms of amount, only the penalty for irregularity will be imposed on the liable person.

In conclusion, one cannot benefit from the provisions of remorse and rectification for both irregularity and special irregularity penalties.

Tax Crimes (Smuggling)

According to Article 359/b-2 of the TPL, it is stated that smuggling provisions will not be applied to those who meet the conditions specified in the remorse provision and duly notify the relevant authorities. Donay argues that, to benefit from the remorse and rectification provisions introduced in Article 359 of the TPL, instead of seeking all the conditions of remorse and rectification, it would be sufficient for the tax-liable person or responsible party to report their illegal actions to the competent authorities.

Therefore, the tax smuggling offense in Article 359 of the TPL and the complicity offenses under Articles 37, 38, and 39 of the Turkish Penal Code (TPC), including instigation, incitement, and assistance, are also covered by the remorse provision.

Who Can Benefit From The Remorse and Rehabilitation Institution?

Primarily, taxpayers and those responsible for taxes who have committed acts contrary to the law can benefit from the remorse and rehabilitation institution. Additionally, in the event of the death of these individuals, the legal heirs who have not refused the inheritance related to the taxpayer’s obligations can also benefit from these provisions. Lastly, those who participate in and encourage smuggling activities will also benefit from this institution.

What Are The Conditions for Acceptance of The Remorse Request?

The conditions for acceptance of a remorse request are stated in the relevant law’s Article 371. Accordingly;

  • The primary condition for a taxpayer to benefit from the remorse provisions is to personally declare the illegal act without being under any administrative detection or coercion. Before making such a declaration, there should be no reports made to any official authority by any informant, and no investigation should have been initiated regarding the act or smuggling crime without informing the administration. The taxpayer must not have referred the illegal act to the evaluation committee before notifying the administration.
  • Another condition is that the declaration of remorse must be made to the relevant authority by the taxpayer or those responsible. This is mandatory; however, there is no clarity about which authorities are relevant. Generally, the authorities essential for the implementation of remorse and rehabilitation provisions, especially regarding tracking and identifying crimes and penalties, include the Ministry of Treasury and Finance, Provincial Treasury and Revenue Departments, Tax Offices, Property Directorate, tax investigation boards, Public Prosecutor’s Office, and several other official authorities.
  • Another condition is considering that the type of taxes that form the basis of the declaration constitutes the foundation of the remorse institution; it’s definitive that a taxpayer who has not declared or has declared insufficiently can correct their underreported or misreported declarations to benefit from remorse.
  • Lastly, the tax and remorse penalty must be paid within 15 days from the date the taxpayer informs and applies to the relevant authority. Otherwise, it will not be possible to benefit from the remorse provisions. It is worth noting that no remorse penalty will be calculated for taxes that have been informed but whose payment time has not expired. Paying these taxes on time without penalties will suffice.

What Are The Procedures to be Followed by The Tax Office Upon a Remorse Request?

After applying to the remorse institution, the steps that will be followed by the institution are as described in the table below:

Stages of Declarations With Remorse Requests at The Tax Administration

  • Stage 1: Submission of declarations with remorse requests to the declaration acceptance desk.
  • Stage 2: Investigation and evaluation of the factors causing remorse violations at the evaluation desk.
  • Stage 3: Resending the declaration to the declaration acceptance desk for the accrual process.
  • Stage 4: If a remorse request is made with a petition, but the declaration is not provided within 15 days, the petition should be sent to the Scanning and Control Department.
  • Stage 5: If the tax and remorse surcharge are not paid within 15 days of the declaration, the type of accrual procedure should be changed. The due date should be completed to one month, and the remorse surcharge should be converted to delay interest.

Because the remorse surcharge is automatically calculated by the system based on 15 days, any excess portion of the remorse surcharge is written off in the case of early payment.

What Are The Consequences and Benefits of The Remorse and Rehabilitation Provisions?

  • The application of remorse and rehabilitation provisions results in certain consequences for both the taxpayer and the tax administration. For the taxpayer, the outcomes include: instead of a tax evasion penalty for undeclared and unpaid taxes, only a remorse surcharge equivalent to the delay increase rate is levied, the opportunity to escape punitive assessments, savings in labor, time, and money should a dispute go to court, and protection of well-intentioned taxpayers.
  • From the perspective of the tax administration, the outcomes are solving the problem at the administrative stage, enabling urgent collection, savings in litigation and attorney fees, reducing the burden on assessment committees, and collecting a tax within 15 days from the date of declaration, which might never have been collected had it remained undeclared.

Comparison of The Remorse and Rehabilitation Institutions With Other Institutions

Comparison of The Remorse and Rehabilitation Institution With Tax Amnesty

Tax amnesty is the removal of a tax or penalty set by law through another law enacted after the tax obligation arises. Even though the result is the same for the taxpayer in both cases, the two institutions differ in terms of purpose, procedure, and continuity. Additionally, remorse provisions are limited to certain types of taxes, whereas there is no such limitation in tax amnesty.

Comparison of The Remorse and Rehabilitation Institution With The Write-Off Institution

In Turkish Tax Law, a write-off is one of the cases where tax debt and tax penalties are eliminated; in this regard, its outcome is similar to the remorse institution. For this, the taxpayer needs to apply to the tax offices for the cancellation of their penalty. However, unlike remorse, a write-off doesn’t involve an illegal act by the taxpayer. Instead, it pertains to a lawful act that is annulled due to compelling reasons or the statute of limitations. In the write-off institution, there will be no additional payment like in the case of remorse.

Comparison of The Remorse and Rehabilitation Institution With The Active Remorse Institution in Tax Law

The active remorse institution, as regulated by the Turkish Criminal Code (TCC), occurs after the completion of a crime and is contingent on compensating for the inflicted damage. In the Tax Procedure Law, remorse and rehabilitation are specifically regulated only for smuggling crimes and tax evasion offenses.

Accordingly, one can apply for remorse after the mentioned crime is completed. In the case of remorse in the Turkish Tax Law, instead of compensating for the damage, a remorse surcharge equivalent to the delay increase rate is paid. They share these similarities in their characteristics.

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