Protecting the Right to Property: How Will the Turkish Constitutional Court React to the Spate of Taxation Measures?
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Artun Mimar
Istanbul Bar Association
Following the disastrous earthquake that occurred last February in the east of Turkey, and then throughout the summer, the Turkish government has been adopting a spate of taxation measures, including an additional corporate tax. The measures have been adopted on the grounds of remedying the public expenditure resulting from the damage caused by the February earthquake and the economic crisis that Turkey has been going through. Other taxation measures are expected to follow.
The demand for the cancellation of said additional corporate tax legislation for violating the right to property and certain constitutional principles is now pending before the Turkish Constitutional Court (TCC). The existing case law of the TCC, however, seems to effectively give the government a blank cheque to adopt taxation measures without any restraint in the face of extraordinary events.
The Problems with the Additional Corporate Tax Legislation
Following the earthquake of 6 February 2023, the government introduced an additional tax of 10% for corporate taxpayers payable on the deductions and exemptions claimed on 2022 annual corporate tax returns.
The critics of this additional corporate tax measure claimed that it violated the principle of the nonretroactivity of tax legislation (as it affected an increase in the payable 2022 annual corporate tax, the amount of which had become definitive by the end of 2022), the principle of equality (as it affected only those corporate taxpayers that had claimed deductions and exemptions on 2022 annual corporate tax returns) and that it interfered with the right to property in a disproportionate manner (as it was payable even though the affected corporate taxpayers did not make profits but made losses in 2022). They applied to the TCC for the cancellation of said legislation.
Additional Taxation as “Extraordinary” Taxation
Additional taxation is conceptualized by Turkish scholars and the TCC as a one-off measure responding to an extraordinary event in the form of increasing by one the number of times a certain type of tax is normally paid in the year when the extraordinary event occurred. For example, annual corporate tax is normally paid once a year, but with the introduction of an additional corporate taxation measure, an additional annual corporate tax is levied on taxpayers.
One remarkable feature of these “extraordinary” taxation measures is that they are adopted in the face of extraordinary events, but without the government declaring a state of emergency. As explained below, however, even though these taxation measures are adopted during the state of normalcy, their being “extraordinary” seems to have prompted the TCC to create a special regime for these measures, according to which the restrictions of the state of normalcy would not apply.
The Restrictions of the State of Normalcy
Talking about constitutional rights and principles, constitutional scholar Laurent B. Frantz once pointed out that two of the meanings of the word “absolute” were; in the first sense, being “unlimited in scope” and, in the second sense, being “unconditionally obligatory within its proper scope, whatever that may be.” To give examples of these meanings, the prohibition of torture, as formulated in Article 3 of the European Convention of Human Rights (ECHR) and as applied by the European Court of Human Rights (ECtHR), would be an absolute principle in the first sense as it is unlimited in scope. On the other hand, the right to liberty and security, as formulated in Article 5/1 of the ECHR and as applied by the ECtHR, would be an absolute principle in the second sense because people enjoy the said right unconditionally within its proper scope, although there are some clearly delineated cases of arrest and detention which fall outside its scope.
Taking a look at the TCC’s case law, one sees that the principle of the nonretroactivity of tax legislation, the principle of equality and the right to property are not considered as absolute in either of the senses mentioned above. In each concrete case that falls within their scope, the application of these non-absolute rights and principles may be undermined by the application of competing principles of public interest. However, it is not enough in “normal” tax cases to only invoke “public interest” to overcome their application. According to the TTC’s “normal” case law, measures may deviate from the principle of the nonreactivity of tax legislation if they serve the public interest and if they do not disproportionately affect the principle of legal certainty. Measures may deviate from the principle of equality if there is a legitimate aim to do so and the difference in treatment strikes a fair balance between the protection of the interests of the community and respect for the rights and freedoms of the individual. Measures may also interfere with the right to property for the protection of public interest but only in a proportionate manner.
The Case Law of the TCC Regarding Extraordinary Taxation Measures
The constitutionality of extraordinary taxation measures has been evaluated by the TCC before. For example, in a 2001 decision, rendered following the earthquake of 1999, the TCC stated the following:
With the additional income and corporate tax legislation, taxpayers are envisaged with an additional obligation regarding their 1998 income, in addition to the tax they pay in accordance with the Income Tax Law No. 193 and the Corporate Tax Law No. 5422. However, as stated in the general motive of the legislation, it is clear that the public interest was taken into account in imposing additional taxes for reasons necessitated by social and economic conditions, such as eliminating economic losses due to earthquakes and ensuring social solidarity.
For the reasons explained above, the legislation in question is not contrary to the Constitution. The cancellation request must be denied.
More importantly, in the most recent 2007 decision on extraordinary taxation measures, the TCC put forth the general principle that;
In the face of unexpected natural disasters, war and mobilization, political, economic and social crises that might shake society to its foundations, it is possible to adopt measures deviating from the principles of taxation accepted in the area of tax law and guaranteed by the Constitution.
In the first (2001) decision, it is indicated that in extraordinary times, taxation measures that adequately serve the public interest are constitutional no matter their compatibility with the proportionality test that the TTC normally conducts. It thus appears that the TCC has created a special regime for extraordinary taxation measures, in that it is possible to adopt these measures by only invoking public interest without considering whether the measure at issue disproportionately affects other rights and principles at stake. In the second (2007) decision, the TCC, reaching a general principle for extraordinary tax measures, states that the constitutional restrictions that normally govern the adoption of tax measures may not apply to measures taken in the face of extraordinary situations. As we saw above, even though taxation principles are not considered as absolute, they still make necessary that taxation measures should not only serve the public interest but also should not be disproportionate vis-à-vis other principles protecting the right to property. Thus, in its second decision, the TCC can be taken to generalize what it had stated in the first decision: that the only test that it will apply to extraordinary taxation measures is whether they serve the public interest or not.
Concluding Remarks
Even though it was responding to the February earthquake, the corporate tax legislation was introduced in a state of normalcy and therefore the normal regime for the protection of the right to property should apply. The TCC will hopefully overturn its existing case law in this direction to better protect the right to property.
Artun Mimar is a lawyer at the Istanbul Bar Association.
Suggested Citation: Artun Mimar, ‘Protecting the Right to Property: How Will the Turkish Constitutional Court React to the Spate of Taxation Measures?’ IACL-AIDC Blog (26 September 2023) https://blog-iacl-aidc.org/2023-posts/2023/9/26/protecting-the-right-to-property-how-will-the-turkish-constitutional-court-react-to-the-spate-of-taxation-measures.
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