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Before discussing tax liability responsibility in companies in Turkey, it is essential to have a clear understanding of the concept of tax. Tax is a monetary obligation that the state imposes on individuals and institutions without compensation, using its sovereign authority, to finance public services and expenditures. This obligation is defined as a bilateral debt relationship between the state and the taxpayer. On one side of this relationship is the state, and on the other side is the taxpayer. In companies, tax liability responsibility belongs to the legal entity, which is the taxpayer.
Taxpayer: According to the Tax Procedure Law, a taxpayer is a natural or legal person on whom a tax obligation is imposed in accordance with tax laws. For a person to be considered a taxpayer, two conditions must be met:
Tax Responsible Person: The tax responsible person is the one who, in terms of paying the tax, is the party accountable to the creditor tax office. The individual referred to as the tax responsible person is not responsible for their own tax debt but rather for the tax debt of the principal taxpayer.
Scope of Tax Responsibility: According to the Tax Procedure Law, tax responsibility is examined under three main headings:
Article 10 – In cases where legal entities, minors, and restricted persons, as well as entities without legal personality such as foundations and communities, are taxpayers or tax responsible parties, the obligations incumbent on them are fulfilled by their legal representatives, the administrators of entities without legal personality, or their representatives, if any.
The taxes and related receivables that cannot be fully or partially collected from the assets of the taxpayers or tax responsible parties due to the failure of those mentioned above to fulfill their obligations shall be collected from the assets of those who failed to fulfill these legal duties. This provision also applies to the representatives of taxpayers who are not present in Turkey.
The tax liability of legal representatives in companies is regulated under both the Tax Procedure Law (VUK) and the Law on the Collection Procedure of Public Receivables (AATUHK) within the scope of Company Law in Turkey.
Article 10 of the VUK specifically contains provisions regarding tax claims, penalties, and tax-related receivables. On the other hand, Article 35 of the AATUHK introduces general regulations concerning all public receivables. Due to the existence of these two separate norms, there have been different views in practice regarding which provision should apply to the tax liability of legal representatives in companies.
Since Article 10 of the Tax Procedure Law is a special provision related only to tax receivables, it takes precedence over Article 35 of the AATUHK, which is a general provision. According to general legal principles, a special provision prevails over a general one. Therefore, in tax disputes, the liability of legal representatives for tax debts should be evaluated according to Article 10 of the VUK.
However, in practice, it has been observed that collections are pursued based on Article 35 in order to ensure the state’s collection, which contradicts the hierarchy of norms and the principles of the rule of law. Applying the general provision instead of the special one creates legal uncertainty and expands the tax liability of the legal representatives in Turkey.
The tax liability responsibility in companies in Turkey and obligations related to other public debts in joint-stock companies are fulfilled by the company’s legal representatives and board members. If these obligations are not fulfilled, the taxes and other public receivables that the state cannot collect may be personally demanded from the legal representatives.
Tax liability in Joint-Stock Companies is fulfilled through legal representatives. If the company’s tax and other related receivables cannot be fully or partially collected from the company’s assets, the tax debt liability of the company is collected from the legal representatives’ personal assets. This rule also applies to the representatives of foreign companies operating in Turkey. Legal representatives can seek recourse from the company for the public debts they have paid.
Unpaid insurance premiums to the Social Security Institution (SGK), general health insurance premiums, unemployment insurance premiums, administrative fines, late fees, and other receivables are jointly and severally the responsibility of the company’s board members, senior executives, and legal representatives. The debts that cannot be collected from the company’s assets are collected from these individuals’ personal assets.
If different individuals were the legal representative, board member, or senior executive at the time the public receivable arose and became due, these individuals will be held jointly liable for public debts. Board members are responsible for the public debts that arose during their term of office and are not liable for debts that arise after they leave office.
Even if a company has entered liquidation or has been dissolved, the legal representative’s tax liability for public debts arising before the liquidation date does not disappear.
Board members of a joint-stock company are responsible for all public debts incurred during their tenure at the company. This responsibility does not continue after they leave office. However, they are personally liable for debts arising during their tenure.
Shareholders of joint-stock companies who are also board members are responsible for the company’s public debts, regardless of their shareholding ratio. However, this liability only arises from their board membership. Shareholders who are not board members and have no administrative role or representation authority in the company are not liable for public debts.
In summary, if public debts are not paid in joint-stock companies, the responsibility of tax liability in Joint-Stock Companies primarily falls on legal representatives, board members, and senior executives. These individuals are personally responsible for paying public debts with their assets and can seek recourse from the company for the amounts they have paid.
In joint-stock companies, the authority to manage and represent the company is exercised by the board of directors under Article 365 of the Turkish Commercial Code (TCC) No. 6102. The board of directors is the highest body with the authority to manage and represent the company. According to Article 367/1 of the TCC, these powers can be partially or fully transferred to one or more board members or third parties by including a provision in the company’s articles of association or by issuing an internal directive. However, in cases where no such transfer is made, the board members hold the title of legal representatives and are held accountable for the company’s public debts.
According to Article 35 of the Law on the Collection Procedure of Public Receivables No. 6183, if the tax debts of a joint-stock company cannot be collected from the company, they can be personally collected from the legal representatives. Legal representatives and managers are considered liable for tax debts under the provisions of the TCC, as they are authorized to manage the company and incur obligations on behalf of the company. Court rulings from the Supreme Court and the Council of State indicate that the person held liable for the company’s tax debts must be authorized to represent and bind the company. In this context, unless the board members transfer their authority to managing members or managing directors under TCC Article 370/2, they retain their liability.
When it comes to tax debts, Article 10 of the Tax Procedure Law (VUK) applies. According to Article 10, the person responsible for tax debts in a company is the one holding the title of legal representative. However, rulings from the Supreme Court and the Council of State emphasize that granting someone a certain signing authority is not sufficient to hold them accountable as a legal representative. For instance, in a ruling by the General Assembly of Tax Chambers of the Council of State, a person with second-degree signing authority was not considered a legal representative. These rulings show that the tax liability under the VUK is aligned with the provisions on liability in the Law No. 6183.
In conclusion, board members in joint-stock companies hold the status of legal representatives and can be held liable for public debts. However, the extent of their liability depends on whether they have transferred their authority and the internal distribution of responsibilities within the company.
Tax liability and collection in limited companies are among the most problematic areas concerning public receivables. One of the key features of limited companies is that the partners are not personally liable for the company’s debts with their private assets. Therefore, the limited company, as a legal entity, is generally held liable for its debts. However, legal issues arise in practice concerning the collection of tax debts.
The lack of clear provisions in the legislation regarding the order and individuals to be pursued for the collection of tax debts leads to problems. During collection, the following issues remain unclear:
Individuals Liable for Tax Debts: Individuals who may be pursued for the collection of tax debts in limited companies, within the framework of tax liability, are regulated by different legislation:
The Council of State has exhibited different approaches regarding which individuals to pursue in the collection of tax debts and in what order. This uncertainty was addressed in the Council of State’s Unification of Judgments Assembly decision dated 20.06.2019. The Assembly ruled that collection does not need to follow a specific order. This decision has provided more flexibility to tax offices in collection efforts.
General Managers and senior executives of limited companies are responsible for the company’s public debts. This responsibility applies to the debts incurred during the period they held office. Even if a manager’s term ends, liability of general managers for tax debts from their tenure continues.
Article 35 of Law No. 6183:
Once the inability to collect the debt from the company is established, the tax authorities may pursue the personal assets of the shareholders and general managers.
The liability of shareholders and managing directors for tax debts is based on the proportion of their capital shares under commercial law in Turkey. However, this contradicts the founding principle of limited companies, which generally protects shareholders from being personally liable for the company’s debts. To safeguard the collection of public receivables, Article 35 of Law No. 6183 imposes such liability.
This liability is considered “strict liability” because shareholders and managers are held responsible for the debts without any personal fault or misconduct, solely based on their ownership shares. However, depending on the amount of the debt, this responsibility can effectively become unlimited, and their personal assets may be used to cover the debt beyond the proportion of their shares.
Managers and senior executives remain liable for public debts incurred during their tenure even after their term ends. The termination of their managerial role does not remove their responsibility for tax debts from the period they served. In other words, managers continue to be liable for public debts and tax liabilities related to the time they were in office.
As emphasized by the Council of State, if public debts cannot be collected from the legal entity (the company), the personal assets of the managers and shareholders may be pursued. Although there are no strict rules regarding the order of collection, the legislature aims to enhance the efficiency of collecting public receivables.
In conclusion, in limited companies, shareholders and managers bear significant liability for public debts. General Managers are responsible for debts incurred during their term, while shareholders are liable according to their shareholding percentages. This liability can become effectively unlimited, especially when the debt amount exceeds the capital share, allowing the tax authorities to target the personal assets of shareholders and managers.
When attempting to collect tax debts in limited companies, priority is first given to the legal entity. However, if the company’s assets are insufficient, the shareholders and legal representatives may be held personally liable under Article 35 of Law No. 6183 and Article 10 of the Tax Procedure Law (VUK), leading to ongoing legal debates regarding their responsibilities.
In limited companies, the transfer of partnership shares significantly affects the liability for tax debts. According to Article 35/2 of Law No. 6183 on the Collection of Public Receivables (AATUHK) and Article 10 of the Tax Procedure Law (VUK), both the transferring and receiving partners can be held liable for the company’s public debts incurred before the transfer.
Under Article 35/2 of AATUHK, both the party transferring the shares (the transferor) and the party acquiring the shares (the transferee) are jointly and severally liable for public debts incurred prior to the transfer, proportional to their shareholding. This means that even though the transferor has transferred their shares, they remain liable for tax debts that arose before the transfer.
This provision clarifies that share transfers do not absolve the transferor of liability for tax debts related to earlier periods.
Not only the shareholders but also the company managers are liable for the company’s tax debts. A shareholder who serves as a company manager bears both strict liability and fault-based liability under Article 35/2 of AATUHK and Article 10 of VUK.
Thus, a manager who transfers their shares is still liable for tax debts incurred both before and during their tenure.
After the share transfer, the transferee (new shareholder) becomes responsible for any tax debts that arise following the transfer date. This liability also extends to company managers who assume the role after the transfer. The new shareholder and manager will both be held accountable under AATUHK Article 35/2 and VUK Article 10 for their respective roles.
In conclusion, both the transferor and transferee can be held liable for tax liability responsibility in companies in Turkey, with responsibility shared between them for debts incurred before the transfer. Managers, regardless of whether they hold shares or not, face additional fault-based liability for tax debts that arise due to their actions or negligence. This dual framework of strict and fault-based liability ensures that the state can collect tax debts effectively from all parties involved.
There is no difference in the liability of the directors for public debts in joint-stock and limited companies. Directors are jointly and severally liable with the company for its public debts.
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