ISTANBUL - Daily News with wires
Explaining the main points of the record-breaking tax fines against Doğan Media Group, Soner Gedik, the group’s chief financial officer, says the levy has no legal basis. The levy rests upon the claim that share transfers are not exempt from value added tax, but the law clearly states the opposite, Gedik says. Meanwhile, a brokerage says the tax decision has hit investor confidence in Turkey
'The claim is that certificates cannot be counted as share, thus they are not exempt from tax. This is an extremely unjust interpretation,' Soner Gedik says. AA photo
Evaluating the record 3.755 billion Turkish Liras ($2.5 billion) tax levy imposed on Doğan Media Group, Chief Financial Officer Soner Gedik said the decision has no legal ground. Gedik’s arguments against the fine, the second against the group this year, were also supported by a prominent tax expert.
Speaking to daily Vatan, Gedik answered questions about the fine, emphasizing that transfer of shares is a practice exempt from value added tax, or VAT, and the share transfer between Doğan Media Group, or DMG, companies, created no extra revenue for the group. Gedik also estimated that in the past four years, share transfers surpassing $128 billion have been conducted in Turkey. “Nearly three-fourths of this amount was conducted as common stock transfer [as was the case in DMG],” he said. “After this [practice] against us, I guess all such sales will be regarded as cloudy. If the interpretation of the Finance Ministry official is correct, all these sales will be inspected.”
The fines rest upon subjective interpretations of tax officials, Gedik also said. “Two-thirds of the fine is related to irregularities involving VAT. The claim is that certificates cannot be counted as shares, thus they are not exempt from tax. This is an extremely unjust interpretation.”
Meanwhile, investor confidence took a hit after the government ordered DMG to pay 3.75 billion in back-taxes and fines, Tera Brokers said.
“Investor confidence took a hit following the announcement of this tax fine because it seems like many listed and unlisted companies might suffer similar tax fines down the road, based on reasons for the tax penalty and interpretation by the tax authorities,” Bloomberg quoted a Tera Brokers note to clients Wednesday.
The tax report submitted to DMG on Monday evening “unprecedentedly demands 18 percent in VAT over the transferred shares three times,” Gedik explained. “But as openly stated in the VAT Act, share transfers are exempt from VAT. Also, according to the Turkish Trade Act, there is no difference between shares and certificates.”
Replying to another claim in the tax report that share transfers within the same group should be regarded as “ordinary sales” as the management of the group does not change and thus be subject to tax, Gedik said the Corporate Tax Act has no mention of such practice. “The articles regarding fines do not discriminate between group companies and non-group companies,” he said. “Thus, such claims have no legal basis. The officials, acting upon such a baseless interpretation, have resorted to calculating corporate tax relying on the value during the share sale to Axel Springer Group in Jan. 2, 2007. But during share transfers, the value of transferred shares is calculated by courts and the registered value.”
In the past, no VAT was imposed on share transactions, in accordance with the law, Gedik said. “We will apply to the Finance Ministry for a re-evaluation of these reports and for a correction. We have full belief and confidence that the law will function in accordance with the main points we have emphasized.”
The share transfers between DMG companies was conducted as part of a restructuring effort and resulted in no extra cash for the group. “Such transfers are done to make sure companies operate more efficiently,” Gedik said. “Our transfers, which became the subject of these fines, involve no transfer of goods or services. We neither sold any goods nor received extra cash. Tax stems from revenue. There is no economic activity here and the group’s assets have not increased due to these transfers, but [now] they are demanding tax. We have spoken to many lawyers and tax experts. Not even one told us we were unfair.”
Professor Şükrü Kızılot, the head of the finance department at Ankara’s Gazi University, also said the transfer of certificates, which are regarded as “securities issued in place of shares by corporations” by law, are exempt from VAT.
“With its first objection, DMG may be able to lift part of the total levy,” said Kızılot, also a daily Hürriyet columnist. “The other part of the levy, consisting of imposed taxes, may be lifted in court.”
In another development, Abdülhamit Yıldız, a spokesman for the tax authority, said DMG applied to the tax office on Wednesday to “negotiate a settlement” for the levy. Alpay Güler, head of investor relations at DMG, confirmed the application with Bloomberg. DMG will take legal action to overturn the fine if an agreement is not reached, he said, adding that the tax office may ask for collateral on the fine.