Category: Turkiye

  • Registering With Data Controllers’ Registry and Its Exemptions

    Pursuant to the Turkish Data Protection Law which aims to provide data security, it has set some rights and obligations to specific subjects. Those subjects fall into three categories: data subject, data processor and data controller. Data subject expresses a real person whose data is processed; data controller is defined as the real or legal person that determines the objectives and tools of processing of the personal data, and is responsible for the establishment and management of a data recording system; data processor is defined as the real or legal entity that processes the personal data, with the authority bestowed by the data controller, and in the name of the data controller. Data Protection Law sets forth essential responsibilities for data controllers, as follows:

    • Obligation to inform – Data safety obligations 
    • Data Controllers’ Registry (“Registry”) 
    • Data inventory
    • Appointing either a contact person or an authorised representative based on whether the data controller is based inside or outside of Turkey to be able to reply applications made by data subjects 
    • To ensure applying decisions of the Personal Data Protection Board (“Board”) 

    This memo aims to purport the responsibility of registering with Data Controllers’ Registry and its exemptions. 

    Data controllers are obliged to register with the Registry through an online information system called “VERBIS”. On the other hand, exemptions from registering with the Data Controller Registry have published under Board’s ruling on Official Gazzette in 2018. 

    Pursuant to the Personal Data Protection Law, a fine ranging from 20,000 and 1,000,000 Turkish Liras is applied for failures to comply with registering with Registry obligation. The amount of fines are determined objectively by the Board due to importance of violation and data controller’s category. 

    Data controllers are required to comply with their registration obligations according to the following schedule, depending on their categorization: 

    1. For data controllers whose number of yearly employees exceeds fifty or whose annual financial balance sum exceeds twenty-five million Turkish Liras; 01.10.2018 – 30.09.2019 
    2. For data controllers who are resident or established abroad; 01.10.2018 – 30.09.2019 
    3. For data controllers whose number of yearly employees is less than fifty and whose annual financial balance sum does not exceed twenty-five million Turkish Liras, but whose main business activity concerns the processing of special categories of personal data; 01.01.2019 – 31.02.2020 
    4. For data controllers who are public entities or public institutions; 01.04.2019 – 30.06.2020 

    According to the Board’s decisions in 2018, the following data controllers are exempt from the obligation to register: (i) real persons and legal entities that process personal data by nonautomatic means, on the condition that such data are part of a data-filing system, (ii) notaries operating under the Notary Law No. 1512, (iii) associations founded under the Law No. 5253 on Associations, foundations established per the Law No. 5737 on Foundations, and trade unions established under the Law No. 6356 on Trade Unions and Collective Bargaining Agreements, who only process the personal data of their own employees, enrollees, members and donors, in accordance with the applicable legislation and its purposes and within the scope of their field of activity, (iv) political parties founded in accordance with the Law No. 2820 on Political Parties, (v) attorneys who are working under the Attorneyship Law No. 1136, and (vi) certified public accountants and sworn-in public accountants operating under the Law No. 3568 on Public Accountancy and Auditing, (vii) data controllers employing less than 50 employees and with less than 25 million Turkish Liras annual balance sheet total (unless the data controller’s main business activity is processing sensitive personal data).

    By Nazlı Sezer, Attorney Sezer & Utkaner Law Firm

  • Turkish Competition Authority to Shape the Future of Multi-Play Services in Telecommunication Industry [TTNET]

    On 21 December 2018, Turkish Competition Authority (“TCA”) published its decision regarding the investigation conducted against TTNET A.Ş. (“TTNET”), the leading internet service provider in Turkey, which is vertically integrated with the incumbent wholesale broadband access provider, Turk Telekom. The decision comprises of TCA’s assessment as to whether TTNET had abused its dominant position, in violation of article 6 of the Law No. 4054 on Protection of Competition (“Competition Law”), via certain types of bundled sales of fixed broadband internet and pay TV services.

    Bundled package of TTNET called the “New Year Campaign with Tivibu” (“Campaign”), which was at the focal point of the investigation had been provided within the period of January-July 2016. TTNET offered broadband internet and pay TV services through the Campaign and the Campaign was basically a marketing strategy whereby two separate offers that were already being offered to the customers separately was merged under a single offer.

    Characterization of the Campaign from the Competition Law Perspective

    The decision signifies that the most challenging aspect for the TCA was the characterization of TTNET’s conduct in terms of competition law. As per the TCA’s Guidelines on the Assessment of Exclusionary Abusive Conduct by Dominant Undertakings (“Guidelines”), in order for a joint offer of more than one product to be deemed as a “package rebate”, the price of the bundle shall be lower than the sum of the stand-alone prices of the individual products forming the bundle: 

    “In package rebates known as multi-product rebate or mixed packaging, the products may be offered for sale separately, however when they are bought separately the total price of the products adds up to more than the package price.”

    However, the Campaign in question was not a conventional form of a packaged rebate, whereby a discount is offered for the bundled purchase of two separate services, simply because TTNET did not actually offer a discount for the Campaign (i.e. the price of the Campaign was equal to the sum of the stand-alone prices of the two services offered as a bundle). 

    It should further be emphasized that the Campaign constituted a “soft bundle”, as both the broadband internet and pay TV service in the Campaign was also available in the market on a stand-alone basis. Moreover, the customers who purchased the Campaign provided separate commitments for the broadband internet and pay TV services in the Campaign and the validity of these commitments were not dependent on each other in any way. 

    Thus, it was clear that the Campaign was merely a marketing strategy rather than a package rebates from a strictly economical perspective. 

    Yet, the TCA indicated that even though the Campaign did not meet the “formal requirements” of a package rebate (or soft bundling) in terms of competition law, a detailed analysis should be carried out in order to evaluate the effects of the Campaign on the customer behaviours and the level of competition in the relevant markets. 

    As a result of its assessments the TCA decided that the Campaign shall be deemed as a bundled discount that might cause competition law-related concerns, when it is considered within the scope of the following aspects:

    • Behavioural economics
    • TTNET’s de-facto practices
    • Complementary and close substitutional character of the services comprising the bundle

    Below, the TCA’s analysis regarding these aspects is explained in greater detail.

    Remarks of TCA in relation with Behavioural Economics

    Regarding the behavioural economics, the TCA put emphasis on “framing effect” and “status quo bias”.  The TCA explained that, the Campaign is designed to create a perception that the “soft bundle” offered to the customers generates a greater advantage/discount than the option to purchase the services in the bundle separately and thus, creates a framing effect that renders one of the two options with equal expected returns, predominantly preferable vis-à-vis the other option via the style of presentation. The TCA further indicated that the methods used in the announcement of the campaign, namely commercial videos and announcements took place in the internet, were more likely to create a perception on the consumers that the internet and TV services are only provided together. 

    As for the status quo bias, which can be defined as the tendency to preserve the current position or previously given decisions, the TCA expressed that once consumers have opted for the Campaign, they are more likely to ignore new options and maintain the status quo. Therefore, according to the TCA, once the will of consumers are shaped to purchase the broadband and pay TV services together (i.e. once the Campaign is purchased) by means of the framing effect, the fact that the individual services in the Campaign may be cancelled separately would become negligible due to the status quo bias. 

    Last, the TCA drew attention that on the contrary to the remarks made by TTNET, certain advertising material had suggested that the price of the Campaign was considerably lower than the stand-alone prices for the services in the bundle. The TCA expressed that, such practices reveals that the Campaign is designed to lead customers to purchase broadband and pay TV services as a bundle and more importantly to make them believe that the sum of the stand-alone prices of the services comprising the “soft-bundle” are actually higher than the Campaign prices. 

    Remarks of the TCA in relation with TTNET’s De-facto Practices

    The TCA focused on the behaviours displayed by the sales team of TTNET, during the period when the Campaign was active. The TCA expressed that, the sales team did not promote a bundled version of the services with pay TV, when phone calls were made with the customers in relation with the broadband internet services, however the findings demonstrated that the employees were encouraged to offer a bundled option, when customers are contacted vis-à-vis, in a TTNET customer centre or when the services are installed on the premises of the customer. 

    On the flip side, the TCA determined that TTNET employees were actively offering bundled sales of pay TV and broadband internet services with the Campaign conditions, while promoting pay TV services through all types of communications made with the customers. The TCA set forth that TTNET might have chosen to refrain from offering bundled sales through its operations of broadband services, since it is deemed to be in dominant position in the mentioned market. The TCA further expressed that foregoing marketing strategies of TTNET do not differ in essence, since they aim to promote broadband and pay TV services to the customers as a bundle. 

    Remarks of the TCA in relation with Character of the Services Comprising the Bundle

    The TCA set forth that the broadband internet services and pay TV services are deemed to be complementary and that TTNET built its sales strategy upon this fact. Within this context, the TCA first examined the churn rates of the customers who purchase the services for broadband internet on a stand-alone basis and who purchase internet and pay TV services as a bundle. The churn rates of the customers that prefer bundled services were revealed to be lower when compared to the customers that prefer stand-alone services. The TCA expressed that the difference in the churn rates of bundled and stand-alone products signifies the close complementary relation between pay TV and broadband services and refutes the argument that joint promotion of those products could not be deemed as bundled sale. 

    The TCA further examined the number of TTNET subscribers purchasing stand-alone internet services, stand-alone pay TV services and bundles between January 2015 and June 2017 and concluded that the rate of increase in the number of subscribers of bundles surpassed the rate of increase in the number subscribers of each stand-alone service in the period where the Campaign was active.

    In light of the foregoing, the TCA expressed that pay TV and broadband internet services are complementary and that there is an increasing trend to purchase these two services as a bundle from the same supplier.  

    Cost/Revenue Analysis and Effects-Based Approach

    After determining that the Campaign should be deemed as a bundle that might give rise to concerns related with competition law, the TCA moved on with a cost/revenue analysis in order to determine whether the prices of the Campaign were below-cost. The economic assessments showed that the prices of broadband internet services were above-cost, whereas the prices for pay TV services were below-cost. 

    The TCA expressed that the analysis of prices and costs may be either be made via:

    • considering the costs and the price of the bundled product as a whole, pursuant to the approach adopted in the TCA’s previous decisions or
    • based on the as-efficient competitor test, through which the total discount provided for the bundle is attributed to one of the products comprising bundle.

    In light of the foregoing, the TCA concluded that if:

    • the first method is used, the maximum profit generated from the services included in the Campaign could not compensate for the overall costs and,
    • the second method is used, the competitors could not economically replicate the rebate scheme that had been applied by TTNET. 

    After concluding that the Campaign did lead to below-cost pricing, the TCA proceeded with an effects-based analysis per the article 25 of the Guidelines, which sets forth that an assessment on exclusionary conduct shall be based on an examination concerning the actual or potential anti-competitive foreclosure stemming from such conduct. 

    Within the scope of its effects-based analysis the TCA determined that approximately 20.000 new subscribers have purchased the Campaign. When this number was compared with the average number of new subscribers of TTNET’s competitors, the TCA stressed that the campaign did not foreclose the market for broadband internet services. In support of the foregoing, the TCA also indicated that TTNET’s market share on the market for retail fixed broadband internet services decreased over the period of 2015-2017. 

    The TCA further compared TTNET’s and its competitors’ performance in the market for pay TV services by assessing the number of subscribers and the number of new subscribers. The TCA also took into consideration TTNET’s competitors’ ability to respond to the Campaign with plausible commercial strategies and decided that TTNET’s competitors that provide OTT services were able to replicate TTNET’s bundled offers in the relevant period. Lastly, the TCA considered the design of the Campaign as a factor that mitigates the foreclosure effect. This was due to the fact that it allows the customers to cancel their subscriptions for the individual services in the bundle independently.

    CONCLUSION

    In light of the assessments made throughout the investigation, the TCA determined that the Campaign did not lead to market foreclosure and that TTNET’s conduct may not be deemed as abuse of dominance. Although the decision, which is not final yet (i.e. the decision does not preclude any action to appeal), does not entail an administrative fine, it includes significant remarks that may help stakeholders of the Turkish telecommunication industry to make reliable predictions regarding the future of the industry and that of the multi-play services in a period where convergence is re-shaping the industry. 

    Even though TTNET’s bundled sales (multi-play services) were not deemed to be anti-competitive, the TCA made it clear that the convergence of different services in the telecommunications industry causes concerns related with inter-network and intra-network competition and that the way in which multi-play services are provided is of crucial importance. While emphasizing that inter-network and intra-network competition would help multi-play services improve, the TCA points out that current status of both are not at desired levels. 

    Aiming to ensure competition at both levels, the TCA decided to issue an opinion addressed to the Information and Communications Technologies Authority (“ICTA”), indicating that a regulation would support the competitiveness of the market, while referring to draft rules on multicast access services, which fell off the agenda without coming into effect, after being opened to public consultation by ICTA. According to the TCA the relevant regulation should include the following:

    • conditions on provision of IPTV multicast access services,
    • detailed rules aiming to ensure access of competing operators to IPTV multicast access services in an efficient way, in relation with the following:

    – topology and network management, 

    – application and allocation processes 

    – commitments on service level

    • rules in relation with pricing of IPTV multicast access services on wholesale level. 

    It should be reminded that this opinion does not bind ICTA in any way but that ICTA may take steps in that direction if it considers that the TCA’s concerns are valid.

    By Barıs Yuksel, Senior Associate, Fırat Egrilmez, Associate, Ozlem Basıboyuk, Associate, Actecon

  • Garden Leave under Turkish Labor Law

    The concept of garden leave is not a familiar concept to Turkish labor law as the legislation does not regulate this concept explicitly. The employers however in practice might have the need to make use of this concept for various reasons. Below we first introduce the concept of garden leave in general and then examine this concept under Turkish labor law.

    1. The Concept of Garden Leave

    The garden leave is a debated matter under labor law. By rule employment agreements executed between the employer and the employee can be terminated with a notice given to the other party. On the other hand there are certain distinct situations where the employee spends the notice away from work, though by rule employee is supposed to be working during notice period. So the concept of the garden leave pertains to notice period practices. 

    The garden leave refers to the period during which employees spend their notice period away from the workplace, despite the employment relationship still being alive (i.e. there is no resignation or dismissal or mutual separation). During that period employees are not required to be present and working in the workplace, but still remain on the payroll. So instead of working in an active way, the employees remain passive and only receive salary for that period. 

    The concept of garden leave is developed further to the need that arises in certain situations for keeping employees away from workplace due to a myriad of reasons. For instance the employer resorts to garden leave when there is a legitimate concern that the employee who has been or has given notice might disrupt the peace in the workplace. In the same vein employer might have doubts about receiving due performance from the employee who has been or has given notice and therefore prefers to just keep that employee away from work stream. 

    Garden leave is frequently exercised as a part of internal investigations as well. Indeed the subject of the investigation could be put on garden leave during the course of the investigation with a view to ensure that the investigation proceeds in an effective and undisrupted way. In such cases the main concern is that the subject of the investigation could get in the way of the investigators or even endeavors to destroy evidence of wrongdoing. 

    So in general garden leave is a precaution that is taken to eliminate various undesired possibilities that might realize if employee is allowed in the workplace and allowed to keep working. 

    2. The Notion of Garden Leave under Turkish Labor Law

    Below we examine the notion of garden leave under Turkish labor law. We will start with examining the notion of garden leave in terms of present Turkish labor law legislation and then elaborate on practices that can be adopted as alternatives to garden leave under Turkish law. Lastly, we will explain the possible consequences of imposing garden leave under Turkish law.

    2.1. In Terms of Present Legislation

    The concept of garden leave is not regulated under Turkish Labor Law No. 4857 and under any other labor law legislation. In other words, Turkish labor law does not grant an explicit right on the employers to exercise garden leave. Therefore, suspending the employee by granting garden leave would mean creating a whole new labor law practice that cannot be deduced from any labor law regulations even by making far-fetched interpretations.

    That being said, there is no explicit rule under Turkish law that prohibits use of the notion of garden leave if both parties, i.e. the employer and the employee, agree on this notion. This agreement can be executed as part of the employment agreement or a separate agreement. However, for evidentiary purposes, such agreement must be in writing; otherwise, it would be difficult to prove existence of the agreement on garden leave in a possible dispute. 

    Consequently, although Turkish law does not explicitly regulate the notion of garden leave, it does not explicitly restrict its use if both parties agree on it. 

    2.2. Practices as an Alternative to Garden Leave under Turkish Law

    As explained above, Turkish law does not explicitly restrict use of the concept of garden leave if both parties agree on it. Therefore, it is possible to provide a provision in the employment agreement or execute a stand-alone agreement regarding the garden leave. In certain cases the company directives positively regulates the concept of garden leave and this could entitle the employer to use the concept of garden leave in certain cases.

    That being said, there is an alternative practice that can be used, instead of garden leave under Turkish law. If the concept of garden leave is not regulated under the company directives and/or the employee’s employment agreement, but the employer still wishes to cut the employee’s ties with the company for a certain period of time, the employer could consider offering the employee to grant paid leave during this process without deducting these “used leave days” from the employee’s annual paid leave entitlements. It must be noted that the employee’s consent to such practice is a must. Because without the consent, it could be seen as executing “garden leave” under the guise of “granting leave”, which could, as explained below, expose the employer to unilateral termination of the employee along with compensation claims connected thereto.

    2.3. Consequences of Imposing Garden Leave under Turkish Law

    There might be severe consequences of imposing garden leave on an employee despite the concept of garden leave not being regulated in the company directives and the employment agreement under Turkish law. 

    Considering the Turkish labor courts’ tendency to favor the employee vis-à-vis the employer, due to Turkish labor law’s motto to protect the weak, imposing garden leave on an employee could be labeled as an unfair and unwarranted treatment and also as violation of the employee’s constitutional freedom of work due to having no legal ground in the legislation and case law, as explained above. This could give way to the interpretation that the employer de facto terminated employment under the guise of garden leave. 

    Besides that such a practice of the employer could justify “for cause unilateral termination” of the relevant employee due to being “scapegoated” with no concrete proof, especially in cases where this practice is done due to an ongoing internal investigation. This could bring a non-pecuniary compensation claim based on the distress suffered. Therefore it is advisable for the employers not to take the risk of facing these chain reactions.

    3. Conclusion

    As explained above, although Turkish law does not explicitly regulate the notion of garden leave, it does not explicitly restrict its use if both parties agree on it. Moreover, the company directives may provide certain provisions regarding the concept of garden leave. But if the company directives and employment agreement does not regulate the concept of garden leave at all, the employer could consider offering the employee to grant paid leave during this process without deducting these “used leave days” from the employee’s annual paid leave entitlements, provided that the employee has consented so. Imposition of garden leave on an employee has severe consequences under Turkish law such as unilateral termination of the employment agreement by the employee and claims for compensation of non-pecuniary damages, etc.

    First published by Mondaq on March 6, 2019

    By Gonenc Gurkaynak, Partner and Tolga Uluay, Partner and A. Bahadır Erkan, Associate  ELIG Gürkaynak Attorneys-at-Law

  • Mandatory Mediation for Intellectual Property Disputes in Turkey as a Pre-Trial Dispute Resolution Method

    Protection of intellectual property rights and preventing infringements arisen against them has gained importance at the global world in recent years and both domestic and multinational companies’ awareness rate is increasing continuously regarding this matter. But this results in an increase at court workload especially regarding IP related disputes causing slowdown at legal system in countries which has a developing industry like Turkey.

    In order to overcome this situation in Turkey; an amendment made to the 5th article of Turkish Commercial Code numbered 6102 with Code of Commencement of Execution Proceedings in Monetary Receivables Arising from Subscription Agreements numbered 7155 which was published in the Official Gazette numbered 30630 on 19th December 2018 regulating mediation as a compulsory requirement before filing lawsuits for claims regarding commercial receivables in which compensation for damages or payment of a certain amount is sought. Within this scope; pursuant to Turkish Commercial Code and relevant domestic intellectual property legislations, mediation regulated as a compulsory requirement for filing lawsuits for claims regarding commercial receivables in which compensation for damages or payment of a certain amount is sought for Turkish and foreign natural people and companies. Intellectual property related claims which do not have any commercial aspect are regulated as exception of this obligation and mediation is not a compulsory requirement for these claims before filing a lawsuit.

    Main purpose of this regulation coming into force in 1st January 2019 is parties to resolve the dispute without filing any lawsuit regarding the dispute with mediator in 6+2 weeks at latest causing a decrease at workload of commercial courts alongside with saving time and money for applicant parties. Additionally, since the mediation meetings and evidences will be confidential for third parties, this new system also aims to resolve the disputes more effectively with preserving commercial reputation of both domestic and multinational companies.

    But effectiveness of these mediation meetings is also highly important and should be discussed. Intellectual property rights sector is a dynamic sector requiring keeping up with changing and updating domestic and international legislations and developments alongside with general law knowledge. Mediators should also be experienced in this sector and capable of correctly understanding claims of parties and settlement grounds. For this reason, this new system is not able to perform its expected performance. On the 20th day of mandatory mediation applied to commercial lawsuits, Department of Mediation published an assessment memo dated January 20, 2019 stating that the number of application for mediation has arisen to 3547 but mediators hold first session between parties without preliminary preparation, do not ask open-ended questions, do not come with a final settlement proposal when parties fail to reach an agreement, are not able to use 6+2 weeks duration effectively. It has been seen that mandatory mediation is not effective as an alternative dispute resolution method due to mediators lacking necessary knowledge in order to perform this task.

    In the light of abovementioned matters; even though it has been regulated by lawmaker that mandatory mediation is a compulsory requirement before filing lawsuits regarding intellectual property disputes, due to imperfections at system and mediators who are not able to serve actively during mediation process due to lacking necessary knowledge; mandatory mediation system for intellectual property disputes is not meeting with the initial expectations at the moment but it is thought that system might be beneficial at decreasing workload of courts and saving precious time of Parties in near future if more experienced mediators are appointed to the cases.

    By Demet Yılmaz Utkaner, Attorney and Kaya Kayaogu, Attorney Sezer & Utkaner Law Firm

  • A&O Advises on Massive Ojer Telekomunikasyon Financial Restructuring

    A&O Advises on Massive Ojer Telekomunikasyon Financial Restructuring

    Allen & Overy and Gedik & Eraksoy have advised a Coordinating Committee on the financial restructuring of Ojer Telekomunikasyon A.S. through a lender-led transaction. Clifford Chance advised OTAS on the deal. 

    The Coordinating Committee consisted of Akbank T.A.S., Turkiye Garanti Bankasi A.S., Turkiye Is Bankasi A.S. and Deutsche Bank AG, London Brach. A&O also advised security agent Citibank and facility agent Global Loan Agency Services Limited in connection with the restructuring, which was completed on December 21, 2018.

    As a result of the financial restructuring of the existing credit facilities and hedging arrangements of OTAS, creditors took control of OTAS’ 55% stake in Turk Telekomunikasyon A.S.

    The transaction value is USD 5.1 billion, making it, according to A&O, the largest restructuring in Turkish history. 

    The A&O team was led by Istanbul-Partner Hakki Gedik and Johannesburg-based Partners Kathleen Wong and Michael Duncan. 

  • Baker McKenzie and Allen & Overy Advise on Turk Telekom Eurobond

    Baker McKenzie and Allen & Overy Advise on Turk Telekom Eurobond

    Baker McKenzie and the Esin Attorney Partnership, a member firm of Baker McKenzie International, have advised Turkish telecoms operator Turk Telekomunikasyon A.S. on its Rule 144A offering of USD 500 million 6.875 percent Notes due 2025. Allen & Overy advised joint bookrunners Bank of America Merrill Lynch, Citigroup, ING, MUFG and Societe Generale Corporate & Investment Banking.

    Baker McKenzie reports that the offering is “the first Turkish corporate Eurobond in almost 12 months and the first since the Turkish lira currency devaluation impacted Turkey in 2018.”

    According to Esin Attorney Partnership Partner Muhsin Keskin, who led the firm’s team on the deal, “this deal reopens the Eurobond market for Turkish corporates and shows that they can access the market — while at the same time it clearly re-sets the whole Turkish corporate bond market in several ways. We are optimistic that other leading corporates will follow the example of Turk Telekom and once again approach international investors with confidence and optimism.” 

    London-based Baker McKenzie Partner Rob Mathews commented: “The inclusion of a subset of customized covenants is a growing trend as traditional Eurobond corporates try to reach a wider investor base or address specific investor concerns.” 

    In addition to Keskin, the Esin Attorney Partnership team included Associates Berk Cin, Erdi Yildirim, Ilyas Gezer, Baha Erol, Sena Uralcin, Yarkin Sanli, Gokce Onder, Can Sozer, Aybuke Gundel, Sinan Diniz, Ceren Seymenoglu, Dilsad Saglam, Fatih Yekeler, and Yigit Acar. The Baker McKenzie  team in London was led by Partners Megan Schellinger, Michael Doran, and Rob Mathews, supported by Senior Associate James Tanner.

    The Allen & Overy team in Turkey consisted of Partner Hakki Gedik, Counsel Umut Gurgey, and Associate Burak Ozsoy, and the team in London included Partners Jonathan Melton and Sachin Dave and Associates Alexander Wicks, Vikas Katyal, and Baxter Schooley.

  • Tax Liability of Non-Resident Electronic Service Suppliers?

    Pursuant to an amendment to the Turkish Value Added Tax Law at the beginning of 2018, non-resident electronic service suppliers are now liable for Value Added Tax on services provided electronically to Turkish individuals who are not VAT taxpayers.

    As a result of this move by the Turkish tax authorities, digital businesses with a global reach are obliged to apply, collect, and remit VAT on their supplies to individual Turkish customers. The main objective of this new legislation is to secure VAT income from services provided in Turkey by non-resident e-service providers through the Internet.

    Targets of the New Law

    E-service providers who do not have a registered address or business headquarters in Turkey and who provide e-services through the Internet or an electronic network to Turkish individuals who are not VAT taxpayers are the main target of this legislation.

    This regulation only applies to Business to Consumer (B2C) transactions, and not Business to Business (B2B). This means that making even the merest supply necessitates registration. 

    B2B e-services still fall under the scope of VAT through the reverse charge method, but registration is not required for non-resident e-service providers. Having said that, the lack of a B2B validation system adds real-time complexity when attempting to distinguish between private customers and businesses.

    VAT Rate

    The VAT rate for e-services provided through the Internet depends on the type of service. In Turkey, the standard VAT rate is 18%, while reduced rates are 1% (e.g. for newspapers and magazines and basic foodstuffs) and 8% (e.g., for e-books, pharmaceuticals, and medical products). 

    Scope of E-Services

    Although the final version of the new legislation does not specify the services that fall under the scope of the amended VAT rules, the list below, which was included in the draft communique of the law, may be helpful in understanding what the Ministry of Finance means by e-services: (i) the supply of a website or webpage, domain name, web hosting, or other services related to a website or webpage; (ii) Remote maintenance of computer software and equipment and remote system management and online data storage services; (iii) the sale of software and all digitalized products including accessing, downloading, and updating (including products such as antivirus programs, ad blocker programs, device drivers, and filters relating to websites and firewalls); (iv) the supply of images, texts, and information as well as the preparation of databases and similar services; (v) the supply of remote teaching; (vi) radio and TV broadcasting services; (vi) other services supplied via the Internet or other electronic networks that are of a similar nature to the above-mentioned services. Of course, the fact that a catalogue of specific e-services which trigger VAT obligations is missing from the law will cause uncertainty and complexity for affected non-resident e-service providers.

    Role of Intermediaries

    In cases where an e-service provider who provides e-services is unknown or not explicitly stated, VAT liability is shifted and the intermediaries who are authorized to request payment from or set the general terms and conditions of the service or who are liable for supplying these services will be liable for the declaration and payment of the VAT.  

    Registration and Declaration Procedure

    In order to be able to fulfill the VAT requirement, non-resident e-service providers are required to initially register themselves as “special taxpayers” by filling out the relevant form designed for the non-resident e-service providers, which is available on the Revenue Administration’s website. The acceptance and the approval of this form will qualify as “Special VAT Registration for Electronic Service Providers” for non-resident e-service providers. VAT arising from e-services being provided to Turkish individuals who are not VAT taxpayers will then be declared electronically by the non-resident e-service providers. VAT returns need not be filed for reporting periods in which no transactions occur. 

    VAT Deduction          

    Non-resident taxpayers who use e-services are allowed to deduct VAT from VAT payable if services and goods are obtained from those who are liable for VAT in Turkey and VAT is shown on the invoices and similar documents, provided that VAT is related to the declared services under the special VAT liability of non-resident taxpayers for e-services.

    Bookkeeping Requirements

    Foreign enterprises registered under this mechanism are not under any obligation to keep VAT records. However, they are required to keep documentation of the input VAT they incur and deduct from their VAT liability.

    By Done Yalcin, Managing Partner, and Taylan Baykut, Tax Counsel, CMS Turkey

    This Article was originally published in Issue 5.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Paksoy Launches Information Technologies Practice

    Paksoy Launches Information Technologies Practice

    Turkey’s Paksoy Law Firm has launched a new Information Technologies practice.

    According to Paksoy, “the practice will be built around the firm’s experience in various related areas, and primarily organized under the following topics:  Information Technologies and Internet Law; Data Privacy, Data Protection and Cybersecurity; and Emerging Technologies.” The firm reports that its practice “will also draw upon the expertise of the firm’s Intellectual Property and TMT groups, and contribute to the Compliance & Investigations practice in the field of whistleblowing. 

  • Esin Attorney Partnership Advises Secom on Establishment of JV with the Calik Group

    Esin Attorney Partnership Advises Secom on Establishment of JV with the Calik Group

    The Esin Attorney Partnership, a member firm of Baker & McKenzie International, has advised Secom Co., Ltd. in connection with the establishment of a joint venture, Emlak Girisim Danismanligi Anonim Sirketi, with the Calik Group. 

    Secom Co. is a security company in Japan that was founded in 1962 and operated under the name Nippon Keibi Hosho until 1983. It has operations in Japan, United Kingdom, Australia, New Zealand, South Korea, Taiwan, China, Thailand, Vietnam, Malaysia, Singapore, Indonesia, and Myanmar. Turkey’s Calik Holding operates in the energy, construction, mining, textile, finance, and telecom sectors since the 1980s. 

    The Esin Attorney Partnership team was led by M&A Partner Caner Elmas, who described the transaction as “a testament to the strong relationship between Turkey and Japan, as well as Japan’s interest in the Turkish market’s potential.” Elmas was assisted by Esin Attorney Partnership Associate Binnaz Topaloglu. 

  • Paksoy and White & Case Advise on Sale of Majority Stake in Ulusoy Elektrik

    Paksoy and White & Case Advise on Sale of Majority Stake in Ulusoy Elektrik

    Paksoy has advised the Ulusoy family on the sale of the majority stake in Ulusoy Elektrik to Eaton Capital Unlimited Company. White & Case and GKC Partners advised Eaton Capital on the acquisition.

    On January 31, 2019, Sait Ulusoy, Akgul Ulusoy, Kubilay Hakki Ulusoy, and Enis Ulusoy signed a share purchase agreement involving 82.2% of Ulusoy Elektrik Imalat Taahhut ve Tic. A.S., a Turkish medium voltage switchgear and transformer manufacturer that is listed on Borsa Istanbul. 

    The completion of the transaction is subject to clearance from Turkey’s Competition Board.

    Paksoy’s team led by Partner Elvan Aziz and included Counsels Nazli Bezirci and Okkes Sahan and Associate Miray Cura. 

    The White & Case team consisted of Partner Asli Basgoz, Association Partners Emre Ozsar and Derin Altan, Counsel Sezin Elcin Cengiz, and Associates Eylul Topanoglu, Asli Gulum, Eren Ayanlar, Gokcen Durgut, Ege Gulec, and Irem Kurkcu. The team in Jakarta involved Association Partner Kristo Molina and Associate Adzkia Fatah.