Amendment Communique (Numbered: 2018-32/52) On The Amendment Of The Communique (Numbered: 2008-32/34) On The Decision Numbered 32 On The Protection Of The Value Of Turkish Currency
The Amendment Communique (Numbered: 2018-32/52) on the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency, which is published in the Official Gazette dated 16 November 2018 ("Second Amendment Communique") has introduced new exceptions, while altering the certain exceptions brought previously, to the foreign currency restrictions applicable to the majority of contracts that are executed by and between persons residing in Turkey.
Amongst others, the major differences brought about by this Second Amendment Communique are relating to,
Yet, the Second Amendment Communique neither change the re-determination obligation concerning previously executed contracts4 nor the re-determination method to be used thereof5.
On 12 September 2018, President Erdoğan has issued the Presidential Order numbered 85 on the Amendment (the "Amendment") of the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Decision Numbered 32") -that had been issued pursuant to the Law Numbered 1567 on the Protection of the Value of Turkish Currency - which envisaged a new restriction relating to the determination of the payment obligations in or indexed to foreign currency by and among the persons residing in Turkey. The Amendment was published on theOfficial Gazettedated 13 September 2018 and numbered 30534 and entered into force on its publication date.
The Amendment has attributed the Ministry of Treasury and Finance (the "Ministry") the role of execution of the Amendment, including issuance of exemptions to the applicability of the Amendment, which it shall deem necessary. To that effect, the Ministry has published the Communique (Numbered: 2018-32/51) regarding the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Previous Amendment Communique"), which was published on the Official Gazette dated 6 October 2018 and entered into force on its publication date.
Having noticed the debates and impracticability occurred in the market, on 16 November 2018 an amendment to the Previous Amendment Communique is made by the Ministry with the Amendment Communique (Numbered: 2018-32/52) on the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency ("Second Amendment Communique").
The Second Amendment Communique, amending the rules established in the Previous Amendment Communique by re-writing, determines (i) the contracts that may be concluded in or indexed to foreign currency; (ii) the contracts that may not be concluded in or indexed to foreign currency as a rule, and the exceptions brought thereof.
Pursuant to the Second Amendment Communique, the prices and/or the payment obligations of the -following contracts / contracts on following transactions- may be agreed in or indexed to foreign currency among the persons residing in Turkey6:
Pursuant to the Second Amendment Communique, the prices and/or the payment obligations of the -following contracts / contracts on following transactions- may not be agreed in or indexed to8 foreign currency among the persons residing in Turkey9:
1 For the purposes of this memorandum, the foreign capitalized entities shall refer to the (i) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, (ii) the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, or (iii) the entities -located in Turkey- the joint control and/or control of which is held by persons residing abroad. – The item (iii), extending exception to the local entities controlled by the foreign entities has been brought with the Second Amendment Communique.
2 Although there is no clarity about what is meant by foreign currency expenditure items, given the nature of construction and work agreements, it should be understood as any item, (i) which is utilized by the parties, while performing their obligations to create the work result undertaken with the individual contracts and reflected to the financial accounts being kept thereof; and (ii) the costs of which is borne in foreign currency. Nevertheless, please be noted that the opinion of the financial advisors about their understanding of the foreign currency expenditure items shall be important to duly benefit from the exemption brought with this provision, in practice.
3 It should be noted that the service agreements relating to the software and hardware manufactured abroad may in any event be executed in foreign currency, as per the clause 11 of the Second Amendment Communique, which is slightly clarified version of the clause 8 of the Previous Amendment Communique. Yet, the specific exceptions relating to the employment and service agreements, covering the performances including components abroad, non-Turkish nationals and export related items are also applicable to the foreign capitalized entities.
4 The contracts relating to the lease of vehicles and (due to the new insertion with the Second Amendment Communique) also the sale of commercial vehicle for transportation which have been concluded before the entry into force of the Amendment Order (e.g. before 13 September 2018), are exempted from the adaptation obligation; and in this regard the prices and /or the payment obligations arising out of these contracts are not required to be re-determined in Turkish currency.
Furthermore, as per the Second Amendment Communique, the financial leasing contracts relating to immovable and movable properties, which have been concluded before the entry into force of the Amendment Order (e.g. before 13 September 2018), are exempted from the adaptation obligation; and in this regard the prices and /or the payment obligations arising out of these contracts are not required to be re-determined in Turkish currency.
5 As regards to the general provisions, the Second Amendment Communique, omit the last clause of the Previous Amendment Communique stating that the parties of the contracts that are exempted from the currency restriction may also set or re-determine the contractual prices -that are originally in foreign currency- in Turkish currency. Given the clarity included in the Frequently Asked Questions published by the Ministry ("FAQ"), upon the enactment of the Previous Amendment Communique, expressing that 'if the party of the contract, to which the exemption is brought asks for redetermination in Turkish currency, the other party should be bound'may be deemed to be grounded upon this specific clause, it may be construed that neither of the parties of the exempted contracts will have this privilege and they -just in accordance with the freedom of contracts principle- would be required to act mutually while (as the case may be) continuing in foreign currency, as is; or making re-determination in Turkish currency.
6 The persons residing in Turkey, have been defined in the Decision No. 32, as the legal entities and natural persons who have a legal residence in Turkey, including the Turkish citizens that are employed, has a professional occupation or operates an enterprise, abroad. Nevertheless, with the Previous Amendment Communique, it was designated that the entities, branches, representative offices, liaison offices, funds, which are abroad and directly or indirectly owned, operated, managed or participated with a minimum shareholding of 50% by the persons residing in Turkey will also be considered as persons residing in Turkey for the application of the currency restriction. This time, with the Second Amendment Communique it is designated that in cases, where the contract will be performed abroad, the currency restriction should not be applicable.
7 Article 17 and 17/A of the Decision No. 32 permits determination of values for certain financial leasing transactions (e.g. those linked to loans in foreign currency) in foreign currency.
8 The Amendment Communique sets forth that indexing the prices to the precious metal and/or commodities, prices of which are determined in foreign currency or to the foreign currency in an indirect manner shall be construed as an indexing to foreign currency. Therefore, such kind of indexing shall not be resorted, as well. It shall anyhow be noted that contrary to the Previous Amendment Communique, the Second Amendment Communique allows the indexing to oil prices in service contracts relating to transportation activities.
9 The Amendment Communique also restrain the determination of the values in the negotiable instruments -created pertaining to the contracts that may not be concluded in or indexed to foreign currency- in foreign currency. It shall also be noted that the Second Amendment Communique clarifies that the negotiable instruments issued and entered into circulation before the enactment of the Amendment Order are exempted from the restriction.
10 With the Second Amendment Communique it is clarified that (i) the deposits already paid, and (ii) the negotiable instruments already put in circulation in foreign currency, regarding the lease of immovable property shall not be affected from the foreign currency restrictions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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