Resolution On Amendment Regarding The Resolution On Protection Of The Value Of Turkish Currency Numbered 32
Resolution on Amendment Regarding the Resolution on Protection of the Value of Turkish Currency Numbered 32 (“Resolution”) has been published on Official Gazette on 13.09.2018. Please find below our preliminary remarks with regards to the Resolution.
We would like to emphasize that there are a lot of unclear significant issues in relation to the implementation of the Resolution. In this respect, it will be beneficial to wait for the additional information (e.g. communiqué etc.) to be issued in relation to the resolution by the Ministry of Treasury and Finance (“Ministry”) prior to taking any action regarding such resolution. We are of the opinion that such information may be issued by the end of the next week.
- Agreements included within the scope of such Resolution:
o Purchase and sale agreements related to movable property and real estate,
o All kinds of rent and leasing agreements related to movable property and real estate (including vehicle and financial leasing),
o Employment agreements,
o Service agreements,
* It is not completely clear which agreements will be included in the scope of service agreements. As per Turkish Code of Obligations (“Code”), service agreement is defined as an agreement, in which the employee is dependent on the employer and undertakes to perform works for a definite or indefinite period and the employer undertakes to pay a salary to the employee in accordance with the period or work performed. if such definition will be used (i.e. if we interpret the definition narrowly), other service agreements (e.g. consultancy agreements) will not be considered in this scope. However, considering the reason for issuance of the Resolution, it is possible that service agreements can be interpreted broadly and all service agreements can be included in this scope.
o Agreements for work (this is defined under the Code as follows: a contract under which the contractor undertakes to create a certain specified work whereas the client undertakes to pay a price in exchange (e.g. construction agreement, contract for painting etc.) executed by and between the real/legal persons residing in Turkey are included in the scope of the Resolution unless Ministry release an exemption regarding the above. The amounts in such contracts cannot be determined in a foreign currency nor indexed to a foreign currency.
- In relation to Current Agreements:
The amounts determined in foreign currency in the current agreements included in the above scope are required to be converted into Turkish currency in 30 days following the effective date of the amendment (i.e. yesterday), except for the circumstances to be stated by the Ministry. There are 3 unclear matters regarding the current agreements:
o It is not regulated which exchange rate will be used in relation to conversion into Turkish Lira. As per the Resolution, it is stated that “… will be re-determined by the parties as Turkish currency”; therefore, it is understood that the parties will negotiate and determine the amounts by agreement in relation to such exchange rate and re-determination of the amount. However, we are of the opinion that it will be clarified in the future with additional resolutions to be taken by the Ministry in this respect.
o It is unclear which circumstances/agreements will be excluded from the scope of the Resolution by the Ministry.
o It is controversial whether the current agreements indexed to foreign currency are included in this scope. When we review the current text of the Resolution, only the conversion of the amounts, which are determined as foreign currency, related to the current agreements into Turkish Lira is made an obligation; however agreements indexed to foreign currency are not mentioned. We are of the opinion that this will be clarified in near future.
- Potential Sanctions in the event of Non-Compliance with the Resolution:
In the event of non-compliance to the Resolution, we are of the opinion that the below sanctions may be applied against the companies breaching the provisions of the Resolution (please note that it is not very clear whether below items 2 and 3 will be applicable):
o Administrative fine from TRY 3,000 up to TRY 25,000 may be applied. However, it is unclear whether such amount is determined per transaction or as a total amount per agreement.
o Provisions of the Criminal Procedure Law with regards to official report and search may be applied against the persons, of which the transactions include contradictions to the Resolution, among the persons performing transactions stipulated in the Resolution.
o The Ministry is authorized to cease the activities of such persons partially or completely, temporarily or permanently, or to bind the following transactions to warranty, to write such warranties as revenue to Treasury partially or completely or to remove the warranty in the event of justified reasons and force majeure.
* Conflict with Other Legislation:
Lastly we would like to state that there are some conflicts between other applicable laws and provisions of the Resolution (i.e. pursuant to the Code, in the agreements where the foreign currency is determined, if the payment has not been made on the payment date, the claimant can request the payment of the equivalent of the foreign currency receivable in Turkish lira on the date of the actual payment, on condition that there is no clause in the agreement regarding payment in kind or any statement which has the same meaning).
If there is such conflict between other applicable laws and provisions of the Resolution, provisions of other applicable laws shall prevail. However, since the opinion of the Ministry is not clear yet, it is not possible to provide a definite opinion regarding such conflicts at this stage.