Ahmet Hakan MİRZA
Capital is one of the most important elements of a corporation and is essential for a company to carry on its activities and business operation. Turkish Commercial Code (“TCC”) regulates sanctions for partners in the event of failure to pay the capital that they had committed to in the Articles of Association (“AOA”) on the due date.
In this article, firstly the definition of the capital commitment of the partners will be examined, then the consequences of failure to pay the capital on the due date will be analysed in line with regulations and case law.
Keywords: Capital Commitment, Not Paying Capital in Due Date, Distribution of Disguised Profit Through Transfer Pricing
Capital can be defined as the sum of assets that serve the aim of executing the business activities of commercial companies. Thus, paying the capital that is decided upon in the AOA is regarded as the fundamental obligation of partners. In accordance with this, partners who do not pay their capital share on due date will be held liable accordingly to the private law in the context of TCC.
In addition to this, it is seen that this breach is sometimes interpreted as distribution of disguised profit through transfer pricing in the context of Corporate Tax Code (“CTC”).
Capital can be allocated either in kind or in cash by partners to the company for the purpose of the continuity of the company and to provide the company with sufficient resources to attain the objectives agreed on in the AOA. This promise to pay the capital in cash or in kind by the partners is called ‘capital commitment’. The TCC Article 344, states that 25% of the capital must be paid before the establishment and the remaining 75% must be paid within 24 months of the establishment. Otherwise, in accordance with Articles 128, 129, 482 and 483 of the TCC, the optional rights that can be exercised by the company are stipulated by the legislator, aiming to protect the capital of the company. According to the articles herein mentioned, there is a private law debt relationship between the partner and the legal entity company where TCC law is applied. Payment of overdue debts arising from capital commitment comes to the fore in different situations, such as the prerequisite for borrowing to the company regulated in Article 358 of the TCC 358.
The mechanism/sanctions regulated under the TCC in case partners fail to pay the capital they committed are:
In accordance with the TCC Article 128 Paragraph 7, a company can demand the payment of the capital commitment and file a lawsuit. This article also states that compensation can be requested from the partner who failed to make the payment. The TCC Article 129 further states that default interest can be demanded as long as the rights on compensation are protected. Although notification is not required to demand default interest, a notification to the said partner is deemed to be a prerequisite by law in order to make a claim for compensation for the loss. Furthermore, the TCC Article 482 states that the company is authorized to exclude the said partner, sell that partner’s shares, replace the partner by selling shares, and annul the shares given.
Annulment process is outlined in Article 483 of the TCC, and it is stipulated that a notice shall be issued through a notification to be published in the Registry Gazette and on the company's website through an announcement as mentioned by the AOA, and that this notice shall state that if the shareholder fails to pay the delayed amount within one month, they shall be deprived of their rights arising from the relevant shares and the contractual penalty shall be requested.
As a resource that should belong to the company is used free of charge, some argue that it is possible to consider the non-fulfilment of the capital commitment as a disguised profit distribution. This argument will be evaluated below by taking the characteristics of the capital commitment into consideration.
Article 13 of the CTC states that if corporations purchase or sell goods or services with related people by breaching the arm’s length principle, the profit will be deemed to be distributed by the transfer pricing, wholly or partially. Additionally, “Distribution of Disguised Profit Through Transfer Pricing Communique No.1” (“Communique”) states three conditions that are required to define distribution of disguised profit through transfer pricing. Accordingly, it is stated that there will be no disguised profit distribution through transfer pricing if a good or service purchase or sale is made with a related person and the price or price determination conditions that are contrary to the arm's length principle are not met.
In this context, the following arguments have been made:
In addition to these opinions, legal precedent also offers different views on whether distribution of disguised profit through transfer pricing does or does not occur in the event of failure to pay the capital agreed.
As seen in aforesaid Council of State decisions, there is a tendency to interpret that unpaid capital commitments cannot be evaluated in the context of disguised profits.
On the other hand, the above-mentioned decision of the Council of State overturned the Regional Administrative Court Decision that states: “In order to be able to talk about disguised profit distribution through transfer pricing in case of unpaid capital commitment, the existence of the purchase or sale of goods and services, or one of the transactions that can be evaluated within this scope, is mandatory and the fact that no default interest has been charged by the company cannot constitute this profit transfer.
As explained above, the Council of State does not have consistent jurisprudence on whether or not the failure to pay the capital commitment constitutes disguised profit distribution through transfer pricing. In some of its decisions, the Council only rules for the payment of the default interest if the capital commitment is not paid within the legal period; it cannot be inferred from the provision that the shareholder, who fails to fulfil the capital commitment on due date, will be obliged to pay default interest without the need for a notice since that default interest is directed towards the interest benefited by the defaulting shareholder.
As a matter of fact, it is impossible to think that the shareholder, who did not pay the capital on due date, can benefit from an asset that does not exist in the company. However, as mentioned above, there are decisions of the Council of State to the contrary; it concludes that in case the capital contribution obligation is not paid on due date, a disguised profit transfer is made in accordance with the Article 12 of the CTC.
As we mentioned above, capital, provided by company shareholders, is one of the essential elements in terms of both the establishment and the continuity of companies. . In this context, if the capital commitment, a commercial debt between the partners and the company's legal entity, is not fulfilled in due time, certain mechanisms such as payment of compensation, application of an interim injunction, interest in default and application for annulment have been envisaged in line with the relevant articles of the TCC to protect the capital.
In line with the opinions stated in this article and a number of decisions made by the Council of State, it is argued that the CTC Article 13 should be applied, and it should be concluded that the distribution of disguised profit through transfer pricing occurs in the event of not fulfilling the capital commitment on due date. On the other hand, there are also some contrary opinions and decisions of the Council of State that argues that it is not possible to benefit from an asset that does not exist yet and the conditions stated in the Communique on the Distribution of Disguised Profit Through Transfer Pricing are not met. In our opinion, this topic being open to interpretation harms the legal certainty principle, and this inconsistency should be ceased by deciding that there is no distribution of disguised profit through transfer pricing from our standpoint. In that respect, the Council of State should clarify the issue and provide consistency regarding the consequences that may arise in cases where the capital commitment is not paid due date.
 MİMAROĞLU, S. Kemal, Ticaret Hukuku C.II, 1972, GÖLE, Celal, Anonim Ortaklıklarda Nakdi Sermaye Koyma Borcu ve Borcu İfada Temerrüt, 1976 Aktaran: BAHTİYAR Mehmet, Anonim Ortaklıkta Kayıtlı Sermaye Sistemi ve Sermaye Artırımı
 İbid. BAHTİYAR
 II – Prohibition of the shareholders from borrowing Money from the company
ARTICLE 358- (Amended: 26/6/2012-6335/15 art.) (1) The shareholders cannot borrow money from the company unless they have fulfilled their obligation to pay the capital and the sum of the profits and the capital reserve compensates the retained losses.
 Şentürk, M., Ödenmeyen Sermaye Taahhüdü ve Örtülü Kazanç Dağıtımı İlişkisi, Vergi Sorunları Dergisi (Mayıs 2015)
 “The criteria stated below must be met in order to talk about disguised profit distribution through transfer pricing;
- There must be a purchase or sale of a good or service by an institution (buying, selling, manufacturing and construction transactions, leasing, leasing transactions, borrowing and lending money, bonuses, fees, and similar payments are also included in this scope),
- Purchase or sale of the goods or services must be between related persons of the institution in question,
- In the purchase or sale of these goods or services, the price or the value must be determined in violation of the "principle of arm's length".
Therefore, if the institutions have purchased or sold goods or services with related parties with the price considering the arm’s length principle, disguised profit distribution through transfer pricing cannot be applied.”
 Küsen, M. Ortaklar Tarafından Taahhüt Edilen Nakdi Sermaye Borcunun Vergi Kanunları Yönünden Değerlendirilmesi, Vergi Raporu (2020)
 Decision in the same direction; decision of the 4th Chamber of the Council of State dated 16.02.2022 and numbered E.2018/1134, K.2022/827
 Decisions in the same direction:
Decision of the 4th Chamber of the Council of State dated 29.06.2021 and numbered E.2018/3678 K.2021/3634
Decision of the 4th Chamber of the Council of State dated 29.06.2021 and numbered E.2018/3679 K.2021/3635
Decision of the 4th Chamber of the Council of State dated 29.06.2021 and numbered E.2018/3680 K.2021/3636
Decision of the 4th Chamber of the Council of State dated 29.06.2021 and numbered E.2018/2640 K.2021/3637
NAZALI TAX & LEGAL