NEWSLETTER-2019-metin

315 TAX LAW ding and/or corporate tax should be assessed on the referen- ced amounts. Despite the fact that the Revenue Administration’s approach is as stated above, the Turkish tax legislation does not contain any provi- sion indicating a specific taxation order for capital decreases. Additionally, there is no general communiqué or circular indi- cating a specific order of taxation for capital decrease transactions, as stated above. Therefore, the referenced legal gap, and the taxation aim of the Tax Administration regarding capital decrease transactions, causes many disputes and tax controversy issues. First Instance Tax Court Decisions During tax cases initiated with the cancellation claim of the tax assessments, including tax loss penalties, or following the declaration with reservation, in relation to capital decrease transactions (especial- ly regarding the revaluation funds formerly added to the capital), the first instance tax courts began to render their decisions in favor of the taxpayers (these decisions are dated 2017 and 2018) on the following grounds: • Turkish tax legislation does not include any specific provi- sion stating that revaluation funds should be accepted to be firstly withdrawn from the company and subject to taxation during a capital decrease transaction. • The acceptance of taxation of capital decrease transaction through only interpretation and the usage of the legal gap by the Tax Administration is contrary to the law. It should be noted that the above-summarized favorable decisions are held by first instance tax courts, and have not yet been finalized. However, we are of the opinion that the referenced decisions may con- stitute important precedents for any future claims, by taking into ac- count the emphasis made to the legality of the tax principle regulated under Article 73 of the Turkish Constitution.