351 LABOR LAW • The decision of 1st Tax Law Chamber of the Ankara Regional Administrative Court dated 22.01.2020 and numbered 2019/1152 E. 2020/62 K. and the decision of 1st Tax Law Chamber of the Istanbul Regional Administrative Court dated 07.05.2018 and numbered 2018/762 E. 2018/1320 K. both state that payment in lieu of notice is not in return for a service; instead it constitutes a penal clause for the purpose of complying with the term of an agreement. Consequently, the courts concluded that the notice payment does not satisfy one of the conditions listed in Article 61 of the ITL which is “being in return of service.” Furthermore, they explained that the name under which the non-wage payment is made does not matter in terms of taxation, and thus it is a taxation fault to make an income tax withholding over the notice payment. • The 2nd Tax Law Chamber of the Istanbul Regional Administrative Court, in its decision numbered 2019/1250 E., emphasized that the salary paid to an employee in return of service needs to be broadly interpreted and deemed as salary by considering the fact that the employee will still continue to work under the employer in cases where the notice period is complied with. Justification of the Decision and Legal Assessment The contradiction between the decisions subject to the request is related to whether the notice payments made to a terminated employee under mutual rescission agreements signed before 27.03.2018 (in other words the effective date of Law No. 7103) are considered salary or not. Therefore, the Council of State Board of Tax Law Chambers analyzes Law No. 7162 and Law No. 7103 with their non-amended versions. The results of the Council’s legal assessment are as follows: • Expanding the application of provisions of exceptions and exemption clauses in the field of taxation would be contrary to principle of legality. Under the ITL, all income that satisfies the conditions of a salary and which is not exempted from taxation should be taxed.
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