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Turkey: Constitutionality of the Turkish withholding tax rules: new decision, old school approaches and still a lack of legality


Ezgi Türkmen

The latest decision of the Turkish Constitutional Court (No 2015/122 dated December 30 2015) on withholding tax has reopened an old discussion on the limits of the Council of Ministers' delegation of authority to the Department of Finance.

The decision, which merely restates the well-established reasoning of the Constitutional Court on the matter, is far from revolutionary.

In its decision, the Constitutional Court examined the procedural rule contained in the last paragraph of Article 94 of the Income Tax Act (ITA), which reads as follows: 'The Department of Finance may hold liable from the payment of the tax the persons who are parties or intermediaries to operations submitted to tax' (unofficial translation by the author). On this point, it must be underlined that Article 94 of the ITA identifies persons liable to collect income tax by means of withholding a certain percentage of the income concerned, income types that are submitted to such a collection system as well as the percentage of the tax concerned.

The Court unanimously held that the rule was in conformity with Articles 2 (characteristics of the Republic) and 73 (tax obligations) of the Constitution of the Republic of Turkey (the Constitution). The Court also stated that Article 35 (proprietary rights) was not relevant for the purposes of the case at hand.

The decision was rendered following a request made on November 19 2014 by the First Instance Tax Court of Ankara (Number 1) on contention of unconstitutionality of a regulation contained in the Ordinance No 275 of the Department of Finance. The regulation in question relates to the tax liability of family doctors, who can be briefly defined as medical practitioners practicing preventive treatments along with first degree diagnosis, treatment and rehabilitation services. As per the regulation concerned, family doctors, who are not listed in Article 94 (1) of the ITA among persons liable to withhold tax, are under the obligation to withhold tax on: the payments made to employees rendering services related to medical practice, such as housekeeping, secretarial services and driving services; payments made in exchange for services effectuated on a self-employed basis; rent payments relating to workplace and payments made to artisans who are entitled to benefit from tax exemption in exchange for goods and services. The percentage of the withholding tax shall be determined in accordance with the relevant provisions of Article 94 of the ITA.

Article 94 (1) of the ITA enumerates persons liable to withhold tax in an exhaustive manner. Public institutions are one of the persons liable to collect tax as per the article concerned. 'Family medical practices' by means of which family doctors provide their services are qualified as public institutions under the Act on Family Medical Practice. Accordingly, it is possible to state that the regulation contained in Ordinance No 275 of the Department of Finance has a merely explanatory character. In any case, the competence granted to the Department of Finance in the last paragraph of Article 94 of the ITA exclusively relates to determine persons liable to collect tax to the extent necessary and within the limits already set in the article. In this respect, and given the Constitutional Court's general tendency to interpret the competence of the Department of Finance to enact rules binding on taxpayers in a rather extensive manner, the new decision rendered by the Court is in line with the Court's well established case law.

Liability to collect tax is one of the main components of tax obligations. Thereupon, the scope of such liability should be determined by the relevant Act(s). Any issues relating to the interpretation of the Act, should be clarified via the same legislative procedure. The main purpose of Article 73 of the Constitution (which provides that 'taxes and other similar duties should be enacted, amended and abrogated by statue'), is to prevent arbitrary measures (as per decision No E. 1994/46 of December 14 1995; dissident opinion). For a tax obligation to be enacted by statute, all its main components should be determined by the relevant legislative procedure (as per the same opinion).

For this reason, clarification of the terms used in Article 94 (1) (like 'other institutions') should be made by statute, either by enumerating the persons liable to collect tax in an extensive and exhaustive manner or by setting clear and detailed criteria to be used in determining such persons. According to Article 91 of the Constitution, this can only be achieved via an Act or a statutory decree enacted by the Council of Ministers. Subsequently, it is possible to state that leaving the determination of persons liable to tax at the sole discretion of the Department of Finance seems to violate the principle of legality contained in Article 73 of the Constitution.

This recent decision rendered by the Constitutional Court has demonstrated that the Constitutional Court does not tend to alter its well-established case law on the matter. Therefore, it is possible to conclude that the respect of the principle of legality on this matter will not be ameliorated in the near future.

Ezgi Türkmen (

PwC Turkey

Tel: +90 212 326 6868


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