Recent Disputes Regarding Incoterms in terms of Turkish Customs Law

The Approach of Turkish Customs Authorities

In order to clarify the current approach of Turkish Customs Authorities, a brief introduction regarding the nature of Incoterms rules should be made.

Incoterms rules regulate certain aspects of contracts of sale and, in particular, the parties’ rights and obligations in terms of delivery of the goods, transfer of risk and allocation of costs, as well as insurance and documentation requirements. However, Incoterms rules are not a substitute for sales contracts.^[1]

However, in several recent inspections, the Turkish Customs Authority has claimed that parties have not correctly declared and recorded the correct shipment terms in their customs declarations.  

These inspection reports have noted that parties are using shipment terms that should only be used for delivery by sea, such as FOB, CIF, FAS, and CFR, for goods that have been shipped by land or by air.

These inspections led to the imposition of special irregularity penalties being applied on these customs declarations, as they had not been completed in accordance with the "Customs Declaration Usage Instruction" in the annex of the Customs Regulation.

Evaluation of Incoterms in terms of Customs Law

Firstly, it should be noted that while the "Customs Declaration Usage Instruction" contained in the 14th annex of the Customs Regulation has been published in the Official Gazette, the actual shipping terms mentioned above have not.

Furthermore, there is no secondary legislation indicating an obligation for taxpayers to use these codes. Additionally, the revised version of Incoterms has not been published on the official website of The Ministry of Commerce.

Apart from this, the method of delivery is an issue concerning the customs value and two types of penalties are foreseen in the Customs Law and the secondary legislation regulated accordingly. The first one is the tax difference and 3-fold penalty arising from the lack of customs value, and the second one is the irregularity penalty arising from not filling the declaration in accordance with the annexed documents.

Although the use of Incoterms used in an invoice in accordance with ICC rules may cause some commercial problems (in terms of determining responsibilities in case of a possible dispute), we believe that it will not have any effect in terms of customs legislation unless there is a violation regarding the above mentioned two issues.

Therefore, we are of the opinion that the special irregularity penalties imposed by Turkish Customs Authorities lack of legal ground.

Thus, it is known that some of the major customs consultants’ associations have made an official application to the Ministry of Commerce in order to prevent any other special irregularity penalties to be imposed based on the above-mentioned grounds.

Conclusion

As detailed above, the main purpose of Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade.

However, Turkish Customs Legislation does not include a specific provision indicating the obligation to apply the Incoterms rules during customs transactions. Thus, the "Customs Declaration Usage Instruction" stipulated in the 14th annex of the Customs Regulation does not include a specific reference to the Incoterms rules.

Therefore, we believe that the special irregularity penalties imposed in accordance with Article 241 of Customs Law lacks of legal ground. Apart from any commercial dispute that may arise, we are of the opinion that it would be beneficial for the relevant taxpayers to initiate the tax litigation procedure with the cancellation claim of the referred penalties provided that no tax loss occurs in terms of Customs Law.