DECISION BY THE COUNCIL OF STATE PLENARY SESSION OF THE LAW CHAMBERS

Esteemed Fortune readers,

In this article, I will evaluate the effects of the decision by the Council of State's Plenary Session of the Law Chambers regarding the acquisition of one more year through a practice by tax auditors in which they refer the accounting periods, which are about to be subject to lapse of time, to valuation committees with a view to stopping the lapse of time.

As is known, starting from the beginning of the year following the calendar year in which the tax receivables accrued, those taxes that are neither levied nor notified within five years are subject to lapse of time. However, the lapse of time is stopped when the tax office applies to the valuation committee for the assessment of tax base. Furthermore, the lapse of time, which is stopped from the day that succeeds the submission of the decision by the valuation committee to the tax office, resumes, and the non-lapsing period cannot be more than one year in any case whatsoever. However, in an attempt to prevent prolonged audits from being eligible for lapse of time, some auditors apply to the valuation committee for the assessment of the tax base in the audited period just before the end of the period and continue with their audits during the extended period before submitting their audit reports to the valuation committee for the assessment of the tax base.

Based on the audit reports in question, valuation committees assess the tax base and stop the lapse of time, ensuring that the ongoing tax audits as well as the assessment are completed through this method.

Taxpayers, on the other hand, filed lawsuits, claiming that referrals to valuation committees had lacked grounds and tax audits had been continued during the assessment of the tax base by the valuation committee in order to extend the lapse of time. In return, the judiciary generally decided in favor of the taxpayer in such cases and cancelled the assessments made on the basis of the valuation committee decision.

However, the Council of State's Plenary Session of the Law Chambers issued the decision E.2018/702 and K.2018/921 of Nov 14, 2018, which is completely against the approach we are talking about. In a court case filed, the 7th Tax Court of Istanbul cancelled taxation on the grounds that it was not possible to make an assessment pursuant to the decision by valuation committees, which were tasked with valuing tax base and wealth as well as appraisal and lacked the authority to reject a value added tax relief. However, the 4th Chamber of the Council of State overturned the decision of the 7th Tax Court, indicating that valuation committees had any and all powers for audits, that they could perform audits themselves, and that they were not bound by any legal barriers preventing them from assessing tax base in consideration of audits performed by persons or institutions having the power to run such audits. The 7th Tax Court of Istanbul insisted on its initial decision on the same legal reasons and grounds, while the Council of State's Plenary Session of the Law Chambers decided to overturn the said decision of insistence. Therefore, this decision by the Council of State's Plenary Session of the Law Chambers paved the way tax auditors to refer for assessment just before the end of the lapse of time and thus effectively extend the five-year lapse-of-time period to six years.

In its decision, the Council of State's Plenary Session of the Law Chambers cited the powers of the valuation committees and based its decision on these powers. However, the issue is not whether the valuation committees are authorized to perform the assessment based on the report of auditors, but rather that the referral to assessment per se is related to the abuse of a right vested by the law.

We hope that the judiciary will reconsider this opinion and rather make decisions to render the five-year lapse of time in the Tax Procedure Code enforceable.