Att. Evrim Peynircioğlu, LL.M. / Att. Şeref Erdem Eren
Preamble
One of the main purposes of the Capital Markets Law (“CMB”) is the protection of the investor. In order to realize this aim, there are many regulations in the CMB. Some of these regulations aim to protect the capital of publicly held corporations. In order to achieve this, one of the prohibited transactions introduced by the CMB is the “prohibition of transfer of camouflaged profits”. It is aimed to prevent the transfer of hidden income with the regulations under article 21 of the CMB. According to this provision, it is prohibited for publicly-held corporations and affiliates and subsidiaries of publicly-held corporations to make agreements or commercial practices involving different prices, fees, charges or conditions with real or legal persons with whom they are directly or indirectly related in terms of management, audit, or capital or to transfer profits by reducing their profits or assets, or preventing the increase of their profits or assets by engaging in transactions such as generating trading volume in violation of the arm's length principles, market practices, prudence and honesty of commercial life..
Purpose of the Prohibition
The purpose of introducing this prohibition by the legislator is to prevent damage to the partnership and, in this way, to protect other partners investing in the publicly held partnership. In fact, the aim of this provision is to prevent the minority shareholders from incurring losses by transferring the company profits of some of the individuals who come together within a company and operate in order to make a profit by trading and who trust each other in this regard. In this context, the provision in question both emphasizes a moral value and helps to maintain trust between partners.
Conditions for the Existence of Camouflaged Profit Transfer
i. Carrying out the transfer of profits in a publicly traded partnership or through its affiliate or subsidiary.
As it can be understood from the expression, it is seen that in order for the camouflaged profit transfer to occur, this can be done not only through the publicly held partnership, but also through the subsidiary or affiliate of the said partnership. However, in case the camouflaged profit transfer is realized through its affiliate or subsidiary instead of a publicly held partnership, they are not required to be publicly held corporations.
ii. The transferee is a related party for a publicly traded partnership or the transaction is a related transaction
It should be noted that the legislator has not made any distinction between whether the party to which the profit is transferred implicitly is a natural or legal person. The existence of a direct or indirect relationship between the party whose assets have increased as a result of the covert transaction and the partnership that has decreased has been deemed sufficient. In addition, not only the management or capital of the publicly traded partnership, but also the auditor is to be accepted as a related party.
Another issue to be considered within the scope of this condition is the related party transaction. Related party transactions that do not comply with market practices and precedents are considered as camouflaged earnings transfer. An example of a related party transaction is transactions with a person or business when a person and a business are part of the same group, or when a person or a member of that person's family has significant influence or control over that business. However, it should be noted that the legislator alone does not prohibit related party transactions, it prohibits the transfer of camouflaged (hidden) income in this way. Therefore, although it is a related party transaction, situations that are made in accordance with market conditions and precedents or that result in favor of the publicly-held corporation that transfers the income cannot be considered as a camouflaged profit transfer.
iii. Transfer of Earnings
As we mentioned above, transferring of hidden income is prohibited; however, the legislator did not determine what he meant by profit. In our opinion, this situation has been deliberately left vague. Because, if a certain definition of earnings were made, it would be possible to transfer implicit earnings in different ways, based on the definition of a certain income; and those transfers were not prohibited; thus, the protection purpose of the norm would not have been achieved.
In this context, it should be accepted that all kinds of earnings may be subject to hidden earnings transfer. As long as such earnings are transferred by making agreements or commercial practices with different prices, fees, prices or conditions, or by making transactions such as generating transaction volume or by reducing their profits or assets or preventing the growth of their profits or assets in violation of Arm’s Length Principle, market practices, prudence and honesty principles of commercial life.
Sanction
As clearly regulated by CMB article 21/4.When the Capital Markets Board (“Board”) determines the disguised profit transfer, it will request the transfer amount to be returned to the transferor, together with the legal interest, from the party to which the earnings transfer is made, within the period to be determined. The parties to whom the profit is transferred must return the transferred amount together with the legal interest within the period determined by the Board. In addition, the Board is authorized to file a lawsuit for the return of the determined amount within the determined period, in accordance with Article 94 of the CMB. In case the extradition is not made, the Board may impose an administrative fine under Article 103/6 of the CMB, as well as a penal sanction pursuant to the provisions of Article 110/1-b and c of the CMB. In addition, camouflaged earnings transfer constitutes the qualified version of the "crime of abuse of trust" in accordance with the Turkish Penal Code No. 5237.
References
Nahit Akarkarasu, Örtülü Kazanç ve Sermaye Aktarımı, Banka ve Finans Hukuku, Panel ve Seminer Notları, İstanbul Barosu Yayınları, İstanbul: 2009,
Memiş Tekin / Turan Gökçen, CAPITAL MARKETS LAW, Ankara: 2020, Seçkin Yayıncılık
