General Information About Tax Penalties
Today, individuals, institutions, and various organizations are obligated to pay taxes. The primary purpose of this obligation is to finance public expenditures. Taxes are especially critical for enabling government officials to serve effectively. Taxes collected by the state accumulate in the state treasury and are spent across the country when needed.
For the proper functioning of a country’s economic system, it is essential that taxes are paid on time. Governments need a regular flow of income, that is, tax revenue, to ensure long-term sustainability. However, there are individuals who may not want to pay taxes, forget to pay them, or have difficulty paying them. In such cases, tax loss may occur.
Individuals must fulfill their tax obligations; failure to pay taxes is considered a legal offense. Tax offenses are generally divided into four main categories: general irregularity, special irregularity, tax evasion, and tax loss. In this article, prepared by our expert legal team, we will particularly focus on tax loss offenses and the tax litigation process in detail.
What is Tax Loss? What Causes Tax Loss?
According to the Tax Procedure Law, if taxes are paid incorrectly or late, this is considered tax loss, and the responsibility is assigned to the taxpayer.
Tax loss can be simply defined as the loss of tax revenue. If a taxpayer makes a mistake while fulfilling their tax obligations, is delayed in payment, or encounters other issues, tax loss may occur. Furthermore, attempts to evade taxes can also be evaluated under this scope.
For a tax loss situation to occur, the tax must either not be paid on time or be paid incorrectly.
How Much is the Tax Penalty? What are the Tax Penalty Rates?
In cases of tax loss, a penalty equal to the amount of the lost tax is applied. If the tax loss is caused by offenses defined in Article 359 of the Tax Procedure Law, the penalty is increased to three times the amount, and those involved in these offenses will also face a penalty equal to the original amount.
For tax returns submitted after the legal deadline, except those submitted after the commencement of an audit or submission to the valuation commission, the penalty rate is set at fifty percent.
For taxes settled through reconciliation, the penalty is adjusted based on the agreed-upon tax amount.
In What Situations Can Tax Penalties Be Eliminated?
Tax liabilities are fundamental duties that a citizen must fulfill and represent a lifelong responsibility. However, in certain situations, some individuals may be exempted from tax penalties. The conditions specified in the Tax Law are as follows:
Payment
If tax penalties are paid on time, these penalties can eliminate the tax debt.
Statute of Limitations
According to the Tax Law, taxes that are not collected within 5 years are subject to the statute of limitations and are canceled.
Death
In the event of the death of a taxpayer, their tax debt is also nullified.
Mistake
According to Article 413 of the Tax Law, if a taxpayer makes a mistake, they are not penalized for this error. Even if the mistake constitutes a tax offense, the obligation to pay the penalty is removed.
Force Majeure
Article 13 of the Tax Law defines force majeure. Taxpayers who are affected by one or more of these conditions will have their tax penalties eliminated.
Reconciliation
Reconciliation between the tax office and the taxpayer, except in cases of severe crimes like tax evasion, allows taxpayers to be partially or fully exempt from penalties.
Amnesty
In the case of amnesty, depending on the scope of the amnesty, all or part of the penalties can be lifted.
Discounts
Discounts applied to tax penalties allow for a reduction in the penalty within a certain percentage, which makes it easier for taxpayers to make payments.
What is the Statute of Limitations for Tax Penalties?
According to the Tax Procedure Law, the statute of limitations for tax loss penalties is set to 5 years. However, for irregularity penalties, this period is limited to 2 years. If irregularity and tax loss occur together, the 5-year statute of limitations period generally applies. The statute of limitations for tax loss penalties begins at the start of the year following the calendar year in which the tax due date falls.
For irregularity penalties, the statute of limitations starts from the first day of the year following the year in which the irregularity occurred. The notification of such penalties to the taxpayer interrupts the statute of limitations. In this case, after the notification, the statute of limitations no longer applies.
For smuggling offenses, the statute of limitations specified in the Turkish Penal Code applies. Since the maximum penalty for smuggling crimes is 5 years, an 8-year statute of limitations period applies according to the TPC.
Why is a Tax Audit Conducted? Who is Subject to Tax Audits?
The risk status of taxpayers is determined by the Risk Analysis Center, which is part of the Tax Inspection Board, using specialized software. This process involves the systematic evaluation of all documents, information, and statistics available in the Risk Analysis Center. In this way, the risk levels of taxpayers are calculated, and those with high risk are identified.
A specific percentage (such as 3%) of the taxpayers marked as high-risk are selected to undergo tax audits. During the analysis, if anomalies such as abnormally low profit margins, excessive deductions from commercial balance sheets, or discrepancies in tax returns are detected, these taxpayers may be subjected to a tax audit.
In addition, other reasons for conducting a tax audit may include:
- Complaints or whistleblower reports,
- Detection of irregularities in audits conducted on firms involved in commercial relations,
- Requests for tax audits from public institutions.
Considering these factors, a tax audit may be conducted on a taxpayer. However, it is important to note that a tax audit can be conducted even without the aforementioned reasons.
Can a Lawsuit Be Filed to Cancel a Tax Audit?
A tax audit is an administrative process conducted under the boundaries set by the Tax Procedure Law and involves procedures such as assessment, notification, determination, and collection. This process, as an administrative action, is legally valid if it complies with requirements such as authority, form, reason, subject, and purpose. However, administrative actions must be “definitive” and “enforceable” to be subject to cancellation under legal requirements.
On the other hand, a tax audit is considered a preparatory process for assessments and penalty imposition, and it is not regarded as a final administrative act from the perspective of administrative law.
Therefore, it is not possible to file a lawsuit to cancel the tax audit process itself. However, lawsuits can be filed for the assessments and tax notifications that result from legal violations discovered during the audit process.
Is Settlement Possible for Tax Penalties?
In cases involving penalties for taxes that have been lost due to omissions, official assessments, or administrative actions (except for certain exceptions), settlement is possible. However, specific situations like smuggling are excluded from this scope. Taxpayers may request settlement in the following cases:
- Tax loss arising from insufficient understanding of the law,
- Misunderstandings arising under Article 369 of the Tax Procedure Law,
- Tax errors and other material errors as outlined in Articles 116, 117, and 118 of the Tax Procedure Law,
- Different opinions expressed by the administration or judiciary regarding the case.
For these reasons, taxpayers have the right to request a settlement during the tax audit or assessment process.
How to Apply for a Settlement of Tax Penalties?
- Application Deadline
Applications must be made within thirty days from the notification of the tax and penalty notice to the taxpayer. - Where and How to Apply
Applications can be made:- In places with a Tax Office Presidency: To the Tax Office Settlement Commission,
- In places without a Tax Office Presidency: To the Provincial Finance Directorate Settlement Commission.
Applications can be made personally, via an official representative, or by registered mail.
- Approval of the Application
Once it is confirmed that the application is made within the deadline, the taxpayer will be notified of the date, time, and location of the settlement meeting. - Notification Process
The notification will be made in writing at least fifteen days before the meeting by the commission’s secretariat. - Settlement Meeting
If a settlement is reached, the commission will record the final proposal in a report. - Acceptance of the Proposal
By the last day of the lawsuit filing period, taxpayers must submit a petition confirming their acceptance of the final proposal. - After the Settlement
If no settlement is reached, no further settlement request can be made for the same tax and penalties.
When are Settled Tax Penalties Paid?
When a settlement is reached, the payment deadlines for the tax and penalties are determined based on the following conditions:
- Notification of Settlement Minutes Before Payment Time: If the settlement minutes are delivered before the tax and penalty payment deadline, the payment must be made within the statutory payment period.
- Notification of Settlement Minutes After Payment Time: If the settlement minutes are delivered after the payment deadline, the payment must be made within one month from the delivery of the settlement minutes.
- If No Settlement is Reached: If no settlement is reached, the tax and penalties must be paid according to the relevant provisions of the Tax Procedure Law (Articles 112 and 368) and the Administrative Jurisdiction Procedure Law (Article 27, Paragraph 3 of Law No. 2577) within the legal deadline.
Objection to Tax Penalties
Tax penalties are administrative fines imposed by the tax administration when taxpayers fail to fulfill their tax obligations. On the other hand, liberty-depriving penalties and judicial fines are imposed by criminal courts, and objections to these penalties are handled according to relevant criminal law. This text, however, covers the administrative remedies available for challenging tax penalties applied as administrative fines.
An objection to tax penalties refers to the administrative routes taxpayers can take under the Tax Procedure Law (VUK) against tax loss and irregularity penalties incorrectly imposed by the tax administration. The basis for this objection process is provided by applications and regulations made to the tax administration.
In line with Article 119, Paragraph 5 and Article 122 of the VUK, taxpayers can apply to the tax administration to correct tax errors and ensure the identification of these errors. Moreover, taxpayers who have received a tax penalty notice can apply in writing to the tax office for the correction of these penalties, settlement, or reduction requests. Objections will be evaluated by the relevant tax office manager, and correction requests will be processed based on the taxpayer’s declaration. Settlement processes are handled by special commissions established within the tax administration, and requests for reductions in penalties are within the authority of the tax office manager.
How to File a Lawsuit to Cancel a Tax Penalty?
There are several legal methods available for challenging tax loss penalties. These methods determine how taxpayers can contest the penalties and the steps they should follow. The process of filing a cancellation lawsuit includes direct application, administrative correction requests, and settlement procedures. Each stage is carried out under specific timeframes and conditions, and the details of how these processes work are explained below. These explanations show the steps taxpayers should take to protect their rights when defending against tax loss penalties.
- Filing a Direct Cancellation Lawsuit Against a Tax Penalty:
A direct cancellation lawsuit can be filed against tax loss penalties within thirty days from the date the penalty notification is delivered to the taxpayer. These cases are examined and concluded by tax courts. - Filing a Cancellation Lawsuit After Objection to a Tax Penalty:
Errors in tax penalties should be corrected in accordance with the specified procedures and conditions. The correction period for tax errors is five years, starting from the beginning of the year following the calendar year in which the taxable event occurred. To correct a tax loss penalty administratively, an application must be made to the tax office within this period. The tax office manager evaluates such correction requests. When a correction request is made, the 30-day period for filing a cancellation lawsuit is extended by the time spent on the correction request. If a correction request is made, the lawsuit filing period is paused while the request is being evaluated. For example, if the taxpayer requests a correction on the 20th day of the 30-day period, and if the tax office does not respond or rejects the request, the taxpayer must file a cancellation lawsuit in the remaining 10 days at the tax court. - Filing a Cancellation Lawsuit After a Settlement Request Regarding a Tax Penalty:
A settlement request can be made within thirty days from the notification of the penalty. However, if the settlement process fails, the right to file a cancellation lawsuit arises. If the taxpayer files a cancellation lawsuit before requesting a settlement, the lawsuit will not be examined before the completion of the settlement process, and if it results in any way, it will be considered invalid. If a settlement is reached, the taxpayer cannot file a cancellation lawsuit against the settled tax loss penalty. In the case that no settlement is reached, the taxpayer or the person subject to the penalty can file a lawsuit within the general litigation period from the date the settlement failure report is delivered. If the period for filing a cancellation lawsuit has expired or less than 15 days remain during the settlement process, this period is extended to 15 days from the date of the settlement report notification.
What We Will Do for You
Tax penalties can create serious financial burdens and legal issues for businesses and individuals. Therefore, at Güneş & Güneş Law Office, our priority is to provide comprehensive support in handling tax penalties and protecting your rights with our expert lawyers who speak four languages (Turkish, English, German, and Russian) in Antalya, Istanbul, Ankara, Izmir, Mersin, Bursa, Gaziantep, and throughout Turkey.
Here’s what we can do for you:
- Detailed Analysis and Evaluation:
We will thoroughly examine your situation regarding tax penalties. By identifying the basis of the penalty, its application, and possible errors, we will assess the legality of the penalty. - Support During the Settlement Process:
When you need to request a settlement, we will be with you at every stage of the process. We will represent you effectively in negotiations with the tax office, taking the necessary steps to reduce or cancel the penalty amount. - Objection and Correction Applications:
When you wish to object to a tax penalty, we will make the necessary applications in a timely and complete manner. We will prepare the required documents for correcting tax errors and seek administrative solutions. - Legal Representation and Consultancy:
If you believe the tax penalty is unlawful, we will provide legal representation during court proceedings. In cancellation lawsuits filed in tax courts, we will build a strong defense and represent you in the best possible way. - Reduction of Penalty Amount:
We will make the necessary applications for the re-evaluation and reduction of the penalty amount. Using legal arguments and evidence, we will negotiate with the tax office to reduce the penalty. - Information and Consultancy:
We will provide the necessary information and consultancy to help you understand your tax obligations and potential penalty risks. We will inform you about changes in tax legislation to prevent issues you might face in the future.
Additionally, you can receive support from our expert financial advisors in cooperation with us.
Our goal is to minimize the difficulties you face with tax penalties and protect your legal rights in the best possible way. You can contact us for the most suitable solutions and consultancy services.
At Güneş & Güneş Law Office, we emphasize the critical importance of legal support in the management of tax penalties and cases. Tax penalties can result in severe financial consequences if taxpayers fail to fulfill their tax obligations. In such cases, receiving legal assistance ensures that the objection process for tax penalties is carried out effectively and provides a significant guarantee for protecting the taxpayers’ rights. A specialized lawyer in tax cases helps taxpayers understand the legal processes they are facing and provides guidance on determining the correct strategies and preparing documents thoroughly. Moreover, expertise and experience play a major role in achieving favorable outcomes for clients in lawsuits conducted at tax courts. For any questions and legal support related to tax penalties and cases, you can contact us.
