Client Alert:

FAQ ON RESTRICTIONS ON DETERMINATION OF CONTRACT VALUES IN FOREIGN CURRENCY OR INDEXED TO A FOREIGN CURRENCY PUBLISHED

FAQ ON RESTRICTIONS ON DETERMINATION OF CONTRACT VALUES IN FOREIGN CURRENCY OR INDEXED TO A FOREIGN CURRENCY PUBLISHED

On 12.10.2018 the Ministry of Treasury and Finance ("Ministry") published a press release in relation to the agreements denominated in foreign currencies, which included explanations for the frequently asked questions (“FAQ”).

Although the FAQs encompass a variety of issues, you may find some of the highlights below.

1) Insurance contracts have been deemed to be outside the scope of the Presidential Decree and the Communiqué. This means that the contract value of insurance contracts can be denominated in foreign currencies. However, the FAQ also emphasizes that if the insurance contract is not a stand-alone contract but constitutes a payment obligation arising from a provision of an agreement whose value cannot be denominated in foreign currencies or indexed to a foreign currency, then the value of the relevant insurance agreement cannot be denominated in foreign currencies or indexed to a foreign currency, either.

2) The FAQs also state that parties cannot invoice in foreign currencies if the related contract does not fall under one of the exceptions, without prejudice to the provisions under tax legislation.

3) There is also the question of whether a contract would still be required to be converted to Turkish Liras upon the request of one of the parties, even if there is an exemption involved. The FAQs split this question into two separate cases:

  • if the exemption is granted to a party itself (such as a company with majority foreign shareholding) and this party does not wish to exercise its right to continue in foreign currency, then the contract is required to be converted to Turkish Liras. If parties cannot agree on the new contract value, the FAQs demonstrate the formula to be used when determining the new contract value (e.g. for USD contracts) :

          (Value of the contract* 3,7776[1] )*(1+ Consumer Price Index[2] )

  • if the exemption is granted to the type of the contract (such as sale of moveables), then any conversion to Turkish Lira would require both parties’ consent.

4) Penalties for breaches: the FAQ’s refer to the Law on the Protection of the Value of Turkish Currency, and provide that any breach of the Communique is subject to an administrative fine of approximately TRY 3000 to TL 25000 (from app. 6300 Turkish Liras up to 55 000 Turkish Liras for the year 2018, as per the revaluation rates). Please note that this penalty is levied separately for each party to the contract, and will be doubled in case the breach is repeated.

5) Branches, representative offices, liaison offices belonging to foreigners, or those companies with more than 50% direct or indirect shareholding are only exempted from the ban regarding their service and employment agreements.

Although the FAQs did shed some light on various questions, there are still unanswered ones such as; how the ban/exemptions will be implemented on mixed contracts and sui generis contracts. In one particular case we also noted that the FAQs referred the question to other legislative instruments:

inquirers are directed to check the tax legislation on whether there would be an exemption on stamp tax duty for redetermination of the contracts’ values in Turkish Liras.

It is also important to note that the answers to the FAQs do not constitute an official legal instrument (such as a regulation, decree, communique etc.), and that the Ministry may revise the document without notice or announcement, from time to time.

[1] The effective selling rate determined by the Central Bank of the Republic of Turkey for 02/01/2018.

[2] Total of the monthly consumer price index for the total number of months between 2.1.2018 and the date the contract was converted to TRY, that was declared by Turkish Statistical Institute

TAGS

corporate, finance, petroleum, national markers, regulation, foreign awards, e-commerce, railway, istanbul, energy, arbitration, natural resources, letter of guarantee, advance dividends, interim dividends

RECENT NEWS

We have received your submission. Thank you!