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Presidential Decree on Carrying out Certain Transactions on Turkish Currency

Presidential Decree on Carrying out Certain Transactions on Turkish Currency

Turkish Lira will be based on transaction values and amounts of sale agreements, purchase, lease, financial leasing, service, and produce work.

In the Official Gazette published on the date of September 13, 2018, it was legislated by introducing paragraph “g” to Article 4 of the Decision numbered 32 regarding Protection of Value of Turkish currency that payment obligations arising from certain types of agreements, especially lease contracts, shall not be based on or indexed to foreign currencies.

g) Transaction value and other payment obligations outlined in agreements with subjects of sales and purchases of movables and immovables including vehicles, leasing of movables and immovables including financial leasing, labour agreements, service agreements, and contracts to produce a work by and between the persons residing in Turkey; shall not be based on or indexed to foreign currencies.

A provisional article has also been enacted to the Decision numbered 32 as in the following:

Provisional Article 8Within 30 days as of the effective date of paragraph (g) in Article 4 of this Decision, amounts determined in the agreements recited in the paragraph concerned, and agreements in force concluded before shall be adjusted by their parties to Turkish currency, except for cases to be specified by the Ministry.

It should be noted with emphasis that, contrary to public perception, this amendment applies to lease agreements and agreements concerning financial leasing, all kinds of services and works.

What Does The New Provision Bring About?

Prominent aspects of the said amendment may be explained as follows:

  • Transactions, whereby the limitations are applicable, shall be the transactions to be concluded between persons residing in Turkey. Even if one of the parties’ residences is in Turkey, works and transactions will not be limited, provided that the counterparty has their residence abroad. The term “persons residing in Turkey” should be interpreted as real persons, legal entities and public entities.
  • Since the Decree entered into force on September 13, 2018, upon its announcement, it shall be impossible to conclude an agreement based on or indexed to foreign currency and required to designate contract value and other payment obligations in Turkish Liras.
  • Concerning existing agreements that are yet to be performed, a transition period of 30 days has been granted. It has been provided that parties shall negotiate and redetermine conversion of the amounts decided on foreign currencies to Turkish Liras. However, the Decree has not ascertained any exchange rate upon which such conversion will be based. In practice, some decrees are announced to implement this kind of decision whereby details for application are regulated. In this case, the announcement of such a Decree should be expected. Should no provision on the exchange rate be introduced, and no agreement of parties be reached, disputes shall be indispensable to be filed.
  • This conversion shall also be implemented not only to contract value (fee, rent etc.) but also to deposits, securities, penalties, compensations etc.
  • Several agreements will be excluded from this limitation. The Ministry is vested in regulating which agreements may contain foreign currencies. The Ministry may exercise this power by issuing regulatory acts or decisions applicable to specific persons. In other words, the Ministry may issue a regulatory decree. For example, it has recited the conditions for negotiated tendering procedures or direct purchases in articles 21 and 22 as the exceptions to tendering procedure; it may regulate circumstances for adopting foreign currency in a decree to be published. Along with this option, it may grant exemptions by taking special cases into account. In the latter scenario, persons concerned shall obtain an exemption certificate through an application lodged before the Ministry.
  • In the presidential decree, it has been stated: “payment obligations cannot be designated on, or indexed to foreign currencies.” Thus, this limitation will not affect the agreements indexed to gold or other precious metals.

How Are Lawsuits and Execution Proceedings Affected?

The decree does not provide broad information about this issue. However, notable aspects of the regulation introduced may be summarised as follows:

  • In dispute settlement, some debates may arise with respect to the provisions which may be deployed. In our view, Article 138 of the Turkish Code of Obligations and legislation related to contract adaptation may apply hereto. The main issue for evaluating adaptation conditions is an unpredictable situation for existing agreements. However, the excessive difficulty will not be regarded at this point, given that the Decree provides an adaptation for agreements. In settlement of disputes, the equity principle will be considered case by a case basis in the light of market conditions and the substantial situation of the parties.
  • Foreign currencies will not be regarded in execution proceedings filed before September 13, 2018, concerning leasing agreements, producing work and services. These formerly-filed proceedings will not be affected. With respect to new execution proceedings, objections to foreign currency debt may be raised. The role attributed to agreements in Article 68 of the Bankruptcy and Enforcement Code will become out of the question.
  • In terms of ongoing disputes filed before September 13, 2018, different analyses should be made for the period between the filing date and the date of the Decree and a period of the agreement after the Decree. From the point of view of courts’ interruption to agreements, i.e. on a permanent determination of contract value, they will decide by considering the new legislation. Except for compromise by the parties, ongoing cases will not be dismissed or decided not to be heard due to lack of legal interest. However, the court can rule concerning new legislation only with the parties’ request.

What is The Consequence of Incompliance With The Decree?

Sanctions shall be imposed upon those acting in breach of the Decree. Despite the Decree, persons determining transaction values and indexes on foreign currencies in agreements the Decree will be levied with administrative fines from ₺3.000 up to ₺25.000 as per the first paragraph of article three of the Law numbered 1567.

This fine should be imposed per agreement. However, in some cases, it is observed that administrative fines are levied for each event. For instance, it may be enforced that fines for each month are issued in monthly rents. In the face of such cases, it is required to object to these fines by filing an annulment case.

What is The solution? May Mediation be an Alternative?

Last but not least, instead of resorting to courts, conflicts arising from adjusting transaction values can be settled by mediation, especially for the cases with parties who are willing to settle the disputes amicably. Settlements made through mediations are exempted from stamp tax. Furthermore, the minutes recorded will be treated as an official document and stronger evidence.

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