TAX RESPONSIBILITIES OF COMPANIES IN TURKEY

Before addressing tax liability in companies in Turkey, it is necessary to correctly explain the legal nature of the concept of tax. Tax is a monetary obligation that the state, based on its sovereign power, imposes on individuals and legal entities without consideration, for the financing of public services and public expenditures. This obligation is defined as a bilateral debt relationship established between the state (tax administration) and the taxpayer, subject to the principles of public law. In this relationship, the creditor is the state, and the debtor is the taxpayer.

In Turkey, with regard to tax debt in companies, the taxpayer is, as a rule, the legal entity itself. However, in certain cases stipulated under tax legislation, company executives or third parties may also bear liability in the fulfillment of this debt. Therefore, distinguishing between the concepts of taxpayer and tax responsible person in Turkey is of great importance.

• Who is a Taxpayer in Turkey?

According to the Turkish Tax Procedure Law, a taxpayer is a natural or legal person who is burdened with a tax debt in accordance with tax laws. For a person to be considered a taxpayer in Turkey, two fundamental conditions must be met:

1. The person must be designated as liable to pay the tax under the relevant tax laws, and
2. The taxable event must have occurred in connection with the person’s activities or circumstances.

Accordingly, in companies, the taxpayer is the legal entity itself, and the tax debt is directly collected from the company’s assets.

• Who is a Tax Responsible Person in Turkey?

A tax responsible person in Turkey is the person who, in terms of payment of tax, is held accountable before the tax administration as the creditor. The important point here is that the tax responsible person assumes this responsibility not on their own behalf, but on behalf of the actual taxpayer. In other words, the tax responsible person is a third party who is held liable for the payment of the taxpayer’s debt.

• What is the Scope of Tax Responsibility in Turkey?

Under the Turkish Tax Procedure Law, tax responsibility arises in various situations and may apply to different persons. This responsibility can be examined under three main categories:

1. Tax Liability of Legal Representatives in Turkey: In companies, members of the board of directors, managers, or legal representatives may be held personally liable with their own assets for the company’s unpaid tax debts. This regulation aims to safeguard the collection of public receivables.
2. Responsibility of Withholding Agents in Turkey: In certain taxes, such as Income Tax and Value Added Tax, withholding at source is prescribed (for example, in cases where wages are paid from abroad to employees in Turkey). In such cases, the person or entity making the payment and withholding the tax is obliged to remit the deducted tax to the tax office within the prescribed period. Those who fail to withhold or remit the tax are directly addressed as tax responsible persons.
3. Tax Liability of Heirs in Turkey: Upon the death of a taxpayer, the tax debt does not automatically extinguish. Under the Turkish tax law system, heirs are held liable for the deceased’s tax debts in proportion to the estate, provided that the inheritance is not renounced, in accordance with the provisions of Turkish inheritance law. This regulation seeks to protect public interest by preventing the extinction of tax receivables due to death.

TAX LIABILITY OF LEGAL REPRESENTATIVES OF COMPANIES IN TURKEY

In Turkey, the liability of a company’s legal representatives for the company’s tax debts is regulated under both the Tax Procedure Law (VUK) and the Law on the Collection Procedure of Public Receivables (AATUHK) within the framework of Turkish Company Law. These provisions aim to secure the collection of public receivables and to determine the responsible parties.

Article 10 of the Tax Procedure Law (VUK) provides as follows:

Legal representatives are jointly and severally liable, without limitation, for the tax debts of legal entities, provided that such debts have arisen during the period in which they held the office of legal representative.

This provision explicitly sets forth the circumstances under which legal representatives in Turkey may be held liable for the company’s tax debts.

On the other hand, Article 35 (bis) of the AATUHK provides as follows:

Legal representatives of legal entity debtors may be held jointly and severally liable, either with limited or unlimited liability, for tax and other public receivables.

This provision establishes the general liability mechanisms to which the state may resort in the collection of all public receivables.

In the Turkish legal system, the principle of lex specialis derogat legi generali (special provisions prevail over general provisions) applies. In the context of tax liability in Turkey, Article 10 of the VUK, which regulates only tax receivables, constitutes a special provision in comparison with Article 35 (bis) of the AATUHK. Therefore, in theory, the liability of a company’s legal representative for tax debts should be assessed under VUK Article 10.

However, in practice, tax offices in Turkey initiate enforcement proceedings against legal representatives based on Article 35 (bis) of the AATUHK in order to collect the company’s tax debts. This approach is contrary to the hierarchy of norms and conflicts with the principles of the rule of law, because:

1. A general provision is being applied instead of a special provision,
2. This creates legal uncertainty,
3. It broadens the scope of liability of legal representatives and restricts taxpayer rights.

For this reason, in disputes concerning the tax liability of legal representatives of companies in Turkey, it is of great importance to seek the assistance of a specialized tax lawyer in Turkey. Legal counsel plays a critical role both in ensuring the correct application of VUK Article 10 and in keeping the liability of legal representatives within the lawful limits.

• Tax Liability of Joint Stock Companies in Turkey

In Turkey, the tax liability and other obligations related to public receivables in joint stock companies are primarily fulfilled through the company’s legal representatives and members of the board of directors. In cases of neglect or non-fulfillment of these obligations, taxes and other public receivables that the state cannot collect may be claimed against the personal assets of the legal representatives in Turkey.

This regulation aims both to ensure that companies fulfill their public obligations and to determine responsible parties in the collection of public receivables. Accordingly, in joint stock companies in Turkey, legal representatives and board members become personally liable individuals if they fail to perform their duties.

a) Personal Liability of Legal Representatives for Tax Debts in Joint Stock Companies in Turkey

In Turkey, tax liability in joint stock companies is primarily fulfilled through legal representatives. When taxes and related receivables owed by the company cannot be fully or partially collected from the company’s assets, they are collected from the personal assets of the legal representatives.

This regulation also applies to liaison offices, branches of foreign companies in Turkey, thereby extending the scope of legal liability to international operations. Moreover, legal representatives have the right of recourse against the company for any public debts they have paid.

Thus, in joint stock companies in Turkey, legal representatives act not only on behalf of the company but also carry personal liability if public debts are not paid, which is critical for securing the collection of public receivables.

b) Liability for Social Security Debts in Joint Stock Companies

Unpaid social security contributions to the Social Security Institution (SGK), including insurance premiums, general health insurance contributions, unemployment insurance contributions, administrative fines, late payment penalties, and other receivables, are jointly and severally payable by the company’s board members, senior executives, and legal representatives. Tax debts that cannot be collected from the company’s assets are satisfied from the personal assets of legal representatives and senior executives. This regulation is of great importance in Turkey for securing the collection of public receivables and establishing liability.

It should be emphasized that SGK-related contributions and debts are considered public receivables under Law No. 6183 on the Procedure for the Collection of Public Receivables, and therefore senior executives have personal liability in Turkey.

In contrast, employment-related claims arising from labor contracts under Turkish Labor Law (such as severance pay, dismissal compensation, notice pay, overtime claims, annual leave remuneration, reinstatement claims, salaries, and other labor claims) do not fall within this scope. Liability for such claims rests solely with the legal entity itself. It is not possible to pursue the personal assets of legal representatives for debts arising from termination of employment contracts or wrongful termination in Turkey.

c) Joint and Several Liability for Public Receivables in Joint Stock Companies in Turkey

When the legal representative, board members, and senior executives are different individuals at the time a public receivable arises and is due, these persons are jointly and severally liable for public debts in joint stock companies in Turkey.

Accordingly, board members are only liable for public debts arising during their term of office; they bear no responsibility for debts incurred after leaving their positions.

d) Liability for Tax Debts in Liquidated Joint Stock Companies in Turkey

Even if a joint stock company in Turkey has entered or completed liquidation, the legal representative’s liability for tax debts arising from public receivables incurred prior to the commencement of liquidation continues.

This provision ensures the protection of public receivables during the liquidation process and explicitly establishes that legal representatives of joint stock companies continue to carry personal liability for debts that cannot be collected from the company’s assets.

e) Liability of Board Members for Tax Debts in Joint Stock Companies in Turkey

In Turkey, management and representation authority in joint stock companies is exercised by the board of directors pursuant to Article 365 of the Turkish Commercial Code (TCC). The board of directors is the highest body authorized to manage and represent the company and, under Article 367/1 TCC, may partially or fully delegate these powers to one or more board members or third parties through a provision in the articles of association or an internal directive.

However, if such delegation is not made, board members in Turkey hold the status of legal representatives and are liable for the company’s public debts.

Board members of joint stock companies in Turkey are personally liable for all public debts arising during their tenure. This liability does not continue after they leave office, but they are responsible with their personal assets for debts incurred during their term.

f) Liability of Shareholders for Tax Debts in Joint Stock Companies in Turkey

Shareholders who are also board members are liable for the company’s public debts in Turkey, regardless of the size of their shareholding. However, this liability arises solely from their position as board members.

On the other hand, shareholders who are not board members and hold no administrative or representation authority do not bear any liability for the company’s public debts in Turkey.

In joint stock companies in Turkey, in cases of non-payment of public debts, liability is primarily imposed on legal representatives, board members, and senior executives. These individuals are obliged to pay public debts from their personal assets in Turkey and have the right of recourse against the company for amounts paid.

g) Liability of Senior Executives and Managers for Tax Debts in Joint Stock Companies in Turkey

Pursuant to Article 35 (bis) of the Law on the Collection Procedure of Public Receivables (Law No. 6183), in joint stock companies in Turkey, tax liability can be personally enforced against senior executives if it cannot be collected from the company. In Turkey, the liability of legal representatives and managers for tax debts is evaluated based on their authority under the Turkish Commercial Code (TCC) to manage the company and incur debts.

Decisions of the Court of Cassation (Yargıtay) and the Council of State (Danıştay) emphasize that, to be held liable for tax debts in companies, a person must have authority to represent and bind the company. In this context, board members retain their liability unless they delegate their representation powers to managing members or managing directors under Article 370/2 TCC.

For tax debts, Article 10 of the Tax Procedure Law (VUK) applies. Accordingly, tax liability in companies arises for persons holding the status of legal representative.

However, jurisprudence of Yargıtay and Danıştay clarifies that merely granting a person limited signature authority is not sufficient for that person to be held liable as a legal representative in Turkey. For example, in a decision of the Council of State General Assembly of Tax Chambers, it was held that a person with second-degree and second-group signature authority cannot be considered a legal representative.

Such jurisprudence demonstrates that tax debt liability under VUK parallels the liability provisions of Law No. 6183.

Yargıtay and Danıştay require that persons liable as legal representatives for public debts must have authority to represent and bind the company. Board members and senior executives are held liable unless they delegate this authority. Nevertheless, liability may continue for debts arising during the period when authority was delegated.

Example Judicial Decision:
The Council of State General Assembly of Tax Chambers, in its decision dated 13.11.2013, held that a deputy general manager with second-degree signature authority does not hold the status of legal representative and therefore cannot be held liable for public debts. This decision highlights the need to carefully examine the period and individuals to whom public debts are attributable.

• Tax Liability in Limited Liability Companies (LLCs) in Turkey

In Turkey, the tax liability and collection of taxes in limited liability companies (LLCs) is one of the areas where legal disputes regarding public receivables frequently arise. One of the fundamental features of LLCs is that shareholders are not personally liable for company debts. Accordingly, the LLC as a legal entity is generally responsible for its own debts in Turkey.

However, in practice, various legal issues and uncertainties arise in the collection of tax debts in Turkey, particularly when the company’s assets are insufficient to cover liabilities and tax authorities seek recourse against legal representatives or shareholders.

a) From Whom and How Can Tax Debts Be Collected in Limited Liability Companies in Turkey?

The legislation governing tax collection does not provide clear rules on the order and persons against whom collection should be pursued in LLCs, leading to practical challenges. These uncertainties are particularly evident in the following areas:

• The order in which tax debts are collected in LLCs in Turkey,
• Which persons may be approached,
• Whether to apply Article 10 of the Tax Procedure Law (VUK) or Article 35 (bis) of the Law on the Collection Procedure of Public Receivables (AATUHK).

Within the framework of tax liability in LLCs in Turkey, the persons from whom tax debts may be collected are regulated under different provisions:

1. According to Article 573 of the Turkish Commercial Code (TCC), the legal entity of the LLC is primarily responsible for tax debts.
2. If the debt cannot be fully or partially collected from the legal entity in Turkey, recourse may be sought against shareholders in proportion to their capital shares under Article 35 AATUHK.
3. For tax debts that cannot be collected from the company’s assets, recourse may also be taken against the personal assets of the company’s legal representatives under Article 10 VUK and Article 35 (bis) AATUHK.

The Decision of the Council of State Joint Chambers of Case Law dated 20.06.2019 provides a practical approach to address uncertainties regarding the order and persons to be pursued for tax debt collection in companies.

The Council ruled that it is not mandatory to follow a strict order when collecting tax debts in Turkey, providing tax authorities with greater flexibility and reducing disputes regarding the priority of collection from the legal entity or its legal representatives.

b) Liability of Managers and Senior Executives for Tax Debts in Limited Liability Companies (LLCs) in Turkey

In Turkey, managers and senior executives of limited liability companies are liable for the company’s public debts. This liability applies only to debts arising during their term of office.

Accordingly, even if the tenure of managers or executives ends, their liability for public debts incurred during their period of service continues in Turkey. This provision is important for securing the collection of public receivables and clearly defining the periods of liability.

c) Liability of Shareholders for Tax Debts in Limited Liability Companies in Turkey

Shareholders of limited liability companies in Turkey are liable for public receivables that cannot be fully or partially collected from the company, in proportion to their capital shares.

The sole condition for holding shareholders liable for tax debts in Turkey is that the debt cannot be collected from the company, or it is understood that collection is not possible.

Following amendments under Law No. 5766, once it is proven that the debt cannot be collected from the company, personal assets of shareholders may be targeted. In other words, when it is apparent that the public receivable cannot be collected from the company, action may be taken against the shareholders and managers.

d) Objective and Potentially Unlimited Liability in LLCs for Tax Debts

Shareholders and managing directors in LLCs are liable for tax debts in proportion to their capital shares under Turkish Commercial Law. However, this arrangement contradicts the fundamental principle of LLCs, since shareholders are generally not personally liable for company debts.

Nevertheless, the legislator has imposed this liability under Article 35 (bis) of Law No. 6183 to ensure the collection of public receivables in Turkey.

Within this framework, the liability of LLC shareholders and managers for tax debts in Turkey is considered “objective liability” (strict liability). That is, they are held responsible for the debt proportionally to their capital shares without any fault or personal wrongdoing.

However, depending on the amount of the debt, this liability may exceed the proportion of capital shares and effectively become unlimited. While this secures the collection of public receivables, it also poses a significant risk for shareholders and managers.

e) Liability of Legal Representatives After Term of Office in Limited Liability Companies in Turkey

In Turkey, legal representatives and senior executives of limited liability companies continue to be liable for public debts arising during their term of office. Stepping down from office does not relieve a manager or executive from liability for tax debts incurred during their tenure.

Therefore, even if their managerial or executive role has ended, these individuals remain legally responsible for public debts that arose during their period of service, including tax liabilities of the company.

f) Priority in Collection of Public Debts in Turkey

As emphasized by the Council of State (Danıştay), if collection from the legal entity is not possible, the personal assets of managers, legal representatives, senior executives, and shareholders may be targeted. Although there is no strict rule on the order of collection, the legislator aims to enhance the effectiveness of public receivable collection in Turkey.

Under tax liability rules for LLCs in Turkey, shareholders and managers bear significant legal responsibility for public debts. Managers are liable for debts incurred during their term of office, while shareholders are liable in proportion to their capital shares. However, depending on the amount of the debt, this liability can become unlimited, and personal assets of shareholders may be used to satisfy public debts.

In the collection of tax debts in Turkey, collection must primarily be made from the legal entity. However, debts that cannot be recovered from the company may also be pursued against shareholders and legal representatives. The liability of legal representatives, pursuant to Article 35 (bis) AATUHK and Article 10 VUK, contains certain ambiguities, which have led to various legal disputes in practice.

g) Effect of Share Transfer on Tax Liability in Limited Liability Companies (LLCs) in Turkey

In Turkey, the transfer of a partnership share in an LLC is regulated as a legal act that directly affects liability for tax debts.

Pursuant to Article 35/2 of the Law on the Collection Procedure of Public Receivables (AATUHK) and Article 10 of the Tax Procedure Law (VUK), both the transferor and the transferee shareholders are liable for the company’s public debts from previous periods.

This regulation ensures the collection of public receivables and clearly establishes that the transfer of shares does not eliminate liability for tax debts in Turkey.

1) Liability for Pre-Transfer Tax Debts in Turkey

Under AATUHK Article 35/2, both the transferor and transferee are jointly and severally liable for public debts arising before the transfer, in proportion to their capital shares.

Accordingly, even if the transferor has completed the share transfer, they remain liable in Turkey for tax debts arising prior to the transfer date.

This provision clearly confirms that share transfers do not relieve parties of liability for prior-period tax debts and ensures the collection of public receivables.

2) Liability of the Company Manager for Tax Debts in Turkey

Persons liable for tax debts include not only the transferor shareholder but also the company manager. The manager holding shares is subject to both strict (objective) liability and fault-based liability under AATUHK Article 35/2 and VUK Article 10.

• AATUHK Article 35/2: The manager transferring shares is strictly liable in proportion to the transferred share for debts related to that share.
• VUK Article 10: As company manager, the individual bears fault-based liability for unpaid tax debts during their tenure.

This provision makes it clear that a manager transferring shares is responsible for both pre-transfer debts and any liability arising from their managerial term.

3) Liability for Post-Transfer Tax Debts in Turkey

For tax debts arising after the transfer date, the new shareholder and manager also assume responsibility. This liability continues under both AATUHK Article 35 (bis) and VUK Article 10.

Thus, the new shareholder and manager are subject to both strict (objective) and fault-based liability for debts associated with the shares they acquired. This regulation ensures the collection of public receivables for debts arising after the share transfer in Turkey.

DIFFERENCES IN LIABILITY FOR PUBLIC DEBTS IN JOINT-STOCK COMPANIES AND LIMITED COMPANIES

There is no difference in the liability of the directors for public debts in joint-stock and limited companies in Turkey. Directors are jointly and severally liable with the company for its public debts.

WHAT HAPPENS IF CORPORATE TAX DEBT IS NOT PAID IN TURKEY?

In Turkey, the failure to pay tax debts on time by limited liability companies (LLCs) and joint-stock companies exposes not only the company but also its legal representatives, managers, and shareholders to serious financial and legal liabilities. This situation is based on the principles of joint and several liability and strict liability under both AATUHK Article 35 (bis) and VUK Article 10.

1. Collection from the Company’s Assets

Tax offices primarily resort to the company’s assets for unpaid debts. In this context, the collection of the debt is carried out through the company’s bank accounts, real estate, movable property, and receivables. Real estate located in Turkey owned by foreigners is also included in this process. However, if the company’s assets are insufficient to cover the entire debt, collection is directed to the personal assets of legal representatives, managers, and shareholders.

2. Liability of Legal Representatives, Managers, and Shareholders

Unpaid tax debts give rise to joint and several liability of the responsible persons:

• Legal representatives and managers are liable for debts incurred during their tenure under fault-based liability;
• Shareholders are strictly liable according to their capital share.

This means that if the debt cannot be collected from the company, personal assets of the responsible individuals may be pursued.

3. Late Payment Penalties and Administrative Sanctions

In Turkey, if the tax debt is not paid, late interest, delay penalties, and administrative fines are added to the debt. This situation causes the debt to increase exponentially over time and makes its collection more difficult. In addition, administrative sanctions that may be imposed by the tax office can directly affect the company’s operations.

4. Legal Proceedings and Enforcement

For unpaid debts, tax offices may initiate enforcement procedures in Turkey, including:

• Freezing company bank accounts
• Seizing real estate and movable assets
• Extending collection to personal assets of legal representatives and managers if necessary

5. Tax Loss Penalty

Under VUK Articles 359 and following, if taxes are underreported or incorrectly declared, a tax loss penalty applies on the unpaid amount. This penalty affects both the company and its legal representatives/managers.

6. Criminal Proceedings

Due to tax evasion or other tax offenses, the tax authority may initiate a criminal case in Turkey. These cases are conducted before the tax courts or the high criminal courts and determine criminal liability. Legal representatives and managers bear individual criminal responsibility for tax offenses that occurred during their term of office.

Non-payment of tax debt in Turkey exposes not only the company but also its legal representatives, managers, and shareholders to significant financial and legal risks. Therefore, obtaining detailed legal counsel in Turkey regarding the company’s tax debt liability, collection mechanisms, and legal consequences is critically important to minimize potential risks.

DO LEGAL REPRESENTATIVES HAVE THE RIGHT TO OBJECT TO TAX LIABILITY IN TURKEY?

For corporations in Turkey, tax debts that cannot be collected from the company may be directed to the personal assets of legal representatives under AATUHK Article 35 (bis) and VUK Article 10.

However, this does not eliminate the legal representatives’ right to object to such liabilities.

1. Legal Basis for Objection

Legal representatives may file an objection in Turkey against payment orders issued to them. It should be emphasized that objections to payment orders directed at legal representatives are not made to the tax office. For the objection to be legally valid, a lawsuit must be filed at the relevant tax court in Turkey within 7 days from the notification of the payment order.

Applications, objections, or petitions submitted to the tax office in Turkey have no legal validity. Therefore, to preserve the right to object, it is mandatory to file a lawsuit in the tax court in Turkey.

Valid grounds for objection include:

• The debt does not exist or has already been paid
• The debt is time-barred
• The individual does not hold the position of legal representative or was not in office during the relevant period
• No negligence or fault of the legal representative or senior manager in non-payment

2. Examination of Legal Representative Status

According to Supreme Court (Yargıtay) and Council of State (Danıştay) decisions, liability requires that the person has representation and binding authority. For example, an individual with only secondary signature authority may not be considered a legal representative. Furthermore, liability arises only if non-payment involves negligence or fault; mere holding of the position is insufficient. In the event of a potential dispute, obtaining the support of a commercial law attorney in Turkey to clearly define the duties of the statutory representative would be beneficial.

3. Consequences of Objecting to Tax Liability

Objections filed by legal representatives can result in:

• Suspension of collection (if the court grants a precautionary measure)
• Exoneration, if it is proven that the debt does not pertain to the company/period or that the representative acted without fault

The right of objection protects the legal representatives’ right to defense and prevents arbitrary application of tax authority powers. In particular, the requirement of fault or negligence ensures that legal representatives are not automatically held personally liable solely by virtue of their office.