Responsibilities of Legal Representatives After Transfer of Duties
As in every country, taxes are collected by the state in our country under different names and for different reasons. The most important duty of an individual towards the state is to pay taxes. However, while collecting taxes from the public, the state must not violate the rights and freedoms of individuals and must treat all citizens equally and fairly. It should not be forgotten that arbitrary and unlawful taxes collected from the public will deeply undermine the trust that individuals have in the state.
The subject we will address in our article is the clear violation of the principle of equality under the law and the principle of fairness in tax collection, as the person who assumes the role of legal representative is held responsible for debts incurred outside the term of office and becomes a taxpayer
I. General
Tax law, as one of the branches of law that regulates the state's use of public power to interfere with individuals' fundamental rights and freedoms, is closely related to the principle of the rule of law and, consequently, the principle of legal certainty.
The public power possessed by the state in tax law is referred to as the authority to levy taxes. This authority can be defined as ‘the legal and actual power of the state to collect taxes based on its sovereignty over its territory.’ Based on this authority, the state shares in the income of its citizens for the purpose of financing public services. Although it can be said that the state has the objective of financing public services, the interests of individuals must also be protected against the authority to levy taxes within the framework of the rule of law. The arbitrary and unlimited use of the power of taxation will result in the violation of the rights and freedoms of individuals.
The principle of legal certainty is an important concept in tax law. Indeed, thanks to this principle, taxpayers are given the opportunity to foresee the actions that the state will take through taxation and to adopt a stance accordingly. Thus, individuals will be able to make plans for the future with confidence, and arbitrariness in taxation will be prevented. The principle of legal certainty encompasses the principles of certainty in taxation, prohibition of analogy in taxation, and non-retroactivity of tax norms. Through these principles, the authority to tax is limited, and legal certainty is ensured.
One of the necessary conditions for ensuring legal security in taxation is that tax norms do not apply retroactively. The application of tax norms to past events undermines legal security. This is because individuals make economic decisions in their daily lives based on the tax norms in force.
The principle of legality of taxes is also enshrined in the Constitution and has thus become a constitutional institution. The principle of legality of taxes is regulated in Article 73 of the Constitution of the Republic of Turkey (‘Constitution’). According to this, taxes collected from the public by the administration must have a legal basis. Taxes cannot be collected from the public for matters not regulated by law.
II. Legislation
In accordance with the fifth Additional Paragraph[4] added to Article 35 of the Law on the Collection of Public Debts (“Law”)[3], if the legal representative or the person managing the entity at the time the public debt arose and was due to be paid are different individuals, these individuals are jointly and severally liable for the payment of the public debt.
Additionally, the Sixth Additional Paragraph states that the provisions of the Tax Procedure Law[5] (“VUK”) that eliminate the liability of legal representatives shall not apply.
The fifth and sixth Additional Clauses, which have entered into force, have resulted in the joint and several liability of a partner who did not even have legal representative authority at the time, in the event of the transfer of a company partnership and the non-payment of public debt. As a result of this legal regulation, a company partner who does not even have the authority of a legal representative is obliged to share the liability arising from the fault of another person and the actions or omissions of another person. Thus, legal representatives are subject to liability even if they have acted without fault, due to the principle of strict liability. This situation has clearly violated the principle of equal taxation. Requiring individuals to pay taxes that do not arise from their own responsibilities or obligations would result in consequences contrary to Article 73 of the Constitution and would infringe upon their individual rights and obligations. The aforementioned Additional Clauses have been found to be contrary to the law by the Constitutional Court and have been annulled.
III. Reasons for the Constitutional Court's Annulment of Repeated Article 35 of the Law
The 4th Chamber of the Council of State, which argued that the Additional Clauses added to Repeated Article 35 of the Law were contrary to Article 2 of the Constitution, applied to the Constitutional Court for the annulment of the Additional Clauses. The Constitutional Court evaluated the application in light of Articles 2 and 73 of the Constitution. It also emphasised the need to act fairly during tax collection and to observe the principle of the rule of law. According to Article 73 of the Constitution, everyone is obliged to pay taxes to the extent of their financial capacity to cover public expenditures. Furthermore, it was emphasised that the tax burden is the social objective of a fair and balanced fiscal policy. Indeed, these concepts constitute the principle of the rule of law as stated in Article 2 of the Constitution. Where the concepts of justice and equality are violated, the principle of the rule of law cannot be invoked.
According to Article 35 of the Law, regardless of whether the duty imposed on legal representatives has been fulfilled, the fact that they hold the title of legal representative is considered sufficient for tax liability, and the principle of strict liability is adopted. For strict liability to apply, it is sufficient that the public debt cannot be collected in full or in part from the principal debtor's assets or that it is understood that it cannot be collected. If the legal representative or the persons managing the entity are different individuals at the time the tax debt arises and is due, those individuals will be jointly and severally liable for the payment of the tax debt. At this point, the principle of the rule of law becomes important. One of the prerequisites of this principle is legal certainty, which aims to ensure the legal security of individuals. The principle of legal certainty requires that legal norms be predictable, that individuals be able to trust the state in all their actions and transactions, and that the state refrain from using methods that undermine this sense of trust in its legal regulations. Taxpayers and those responsible for taxes must know in advance how much tax they will pay and the scope and limits of their responsibilities as a prerequisite for legal certainty. In order for everyone to know the legal rules to which they are bound in advance and to be able to organise their attitudes and behaviour accordingly, it is necessary to comply with the principles of legal certainty and predictability.
Holding a person jointly and severally liable for transactions carried out during a period when they were not a legal representative would violate the principle of legal certainty. The principle of certainty, one of the fundamental principles of the rule of law, has also been rendered vulnerable to violation by the Additional Clause. This is because the matters sought to be regulated by the Additional Clause have not been regulated in a manner that is clear, precise, and understandable, as required for legal regulations to be applied without any hesitation or doubt.
The most important point to note in the Supreme Court's reasoned decision is the possibility that the legal representatives may be different persons at the time when the public debt arises or is due to be paid. According to the regulation introduced by the Additional Paragraphs, legal representatives who have fulfilled their tax and other financial obligations and responsibilities in a timely and complete manner may be held jointly and severally liable for an action that occurred during a period when they were not in office and had no opportunity to intervene. This regulation was contrary to Article 2 of the Constitution. The state has the authority to make the necessary legislative regulations to carry out public services. However, this authority must not infringe upon the fundamental rights and freedoms of individuals and must not contain elements that violate general legal principles.
In light of the principles of justice and fairness, it is contrary to the concepts of justice and fairness for an individual to be jointly liable for reasons beyond their control, due to the actions or omissions of others, in an uncertain and insecure manner. For these reasons, the Constitutional Court found the contested rule to be contrary to the principle of the rule of law.
IV. Conclusion
The Constitutional Court ruled that the fifth and sixth additional paragraphs added to Article 35 of the Law were contrary to the Constitution and annulled them. [6
Thus, in the future, legal representatives who take over duties will no longer be jointly liable for public debts arising from previous periods. Legal representatives who have fulfilled their financial obligations in full and on time will not be held jointly liable for periods when they were not in office.
Legal representatives who were required to pay the tax debts of the principal taxpayer despite having no fault of their own may request the application of the Constitutional Court's annulment decision in cases where they had filed a lawsuit or the deadline for filing a lawsuit had not yet passed prior to the Constitutional Court's annulment decision.
On the other hand, legal representatives who were required to pay taxes or penalties under the repealed provision despite having no fault may seek their right of recourse in the judicial courts against the person or persons at fault for the amounts they paid.
Av. Dr. Anıl Coşkun, LL.M
info@anil-coskun.com
All articles and content on our website are copyrighted by Attorney Anıl Coşkun. All articles are electronically signed and time-stamped for the purpose of registering copyright ownership. Any unauthorised reproduction or summarisation of articles on our website on other websites will result in legal and criminal proceedings.
Share Article