Latest Developments On Crypto Assets In Turkey: How The Recent Regulations Going To Effect Taxation And Enforcement Of Crypto Currencies? – Technology

Crypto Assets, referred as ‘Crypto Currencies’ in
practice, are encrypted, decentralized articles of exchange. Due to
their decentralized nature, they have the infrastructure of
distributed ledger technology and mining activities and
only exist in the digital environment. Turkey has accelerated the
legal recognition process of Crypto Assets with the recent
regulations issued by the Central Bank of Republic of Turkey
(“CBRT“) and the Financial Crimes
Investigation Board (“MASAK“).

Turkish Authorities have not regulated or defined Crypto
Currencies until the year 2021, except the one official press
release¹ dated November 25, 2013 regarding Crypto Assets
made by the Banking Regulation and Supervision Agency
(“BRSA“), stating that Crypto Assets
cannot be considered as electronic money within the scope of the
“Law on Payment and Securities Settlement Systems, Payment
Services and Electronic Money Institutions” and that
surveillance and supervision cannot be carried out within the
framework of the said law.²

The Presidential Press Release³ and the Economic
Reforms Action Plan⁴ published on March 12, 2021,
defined Crypto Assets and introduced some prohibitions and
regulations in respect thereof for the first time in Turkey,
followed by the “Regulation on Non-Use of Crypto Assets in
Payments” (“the
Regulation“)⁵ which came into
effect on April 30, 2021 and the “Regulation Amending the
Regulation on Measures Regarding Prevention of Laundering Proceeds
of Crime and Financing of Terrorism” ⁶ ,
issued by MASAK regarding Crypto Asset service providers, which
came into effect on May 1, 2021.

The Term “Crypto Assets” and its Taxation

The first matter in question about the recent regulations is the
definition of Crypto Assets. According to the Article 3(1) of the
Regulation, Crypto Assets shall be deemed as “intangible
assets that are created virtually using distributed ledger
technology or a similar technology and distributed over digital
networks, but are not qualified as fiat currency, fiduciary money,
electronic money, payment instrument, securities or other capital
market instruments“. The ambiguous issue here is that,
the Regulation grounded the definition of “intangible
assets” on what crypto assets do not constitute of, rather
than their legal status which will be discussed hereinafter.

The aforementioned definition is primarily interpreted as an
indication of preparations for the taxation of Crypto Assets. As in
some other countries but most particularly in the United States,
following the identification of Crypto Assets as “intangible
assets”, they were considered as asset value and income tax
principles were applied on increments and taxed within the scope of
capital gains.⁷ Accordingly, pursuant to the Official
Opinion8 published by the Edirne Tax Office on September 23,2020 on
the grounds that “As per the Article 3(1) of the
Inheritance and Transfer Tax Law numbered 7338, the term
“Commodities” refers to all other rights and receivables
that can be subject to movable and immovable property“,
Bitcoin assets should also be declared with an inheritance and
transfer tax return and the tax to be accrued should be paid.
Moreover, the concept of “intangible rights” and
“intangibles” are already mentioned and defined in the
tax legislation of Turkey. With this regard, it is possible that
intangible assets will be considered within the scope of intangible
rights and therefore will be subject to taxation in the long
term.

Crypto Assets are deemed seizable

Despite the definition deemed by the Regulation on May 20, 2021,
the Istanbul Enforcement Law Court ruled that these assets are
seizable by comparing their nature to
securities. The complaint of the obligor was dismissed on the
ground of that “… it is understood that such currencies
are also evaluated within the scope of commodities/securities and
are considered as a type of digital currency or virtual money.
Therefore, regardless of how it is defined in the economic field,
in terms of Enforcement and Bankruptcy Law, in order for a property
or right to be seized, it must first hold an economic value on its
own and it is settled that this factor subsists for
cryptocurrencies. The attachment proceedings applied in this case
is in compliance with the law.“. Therefore, by the said
decision, a definition made by the Court was contrary to the one
made in the Regulation. However, if the decision is finalized, it
will set a precedent, being the first and only court decision on
Crypto Assets in Turkey declaring Crypto Assets will be considered
seizable within the scope of Enforcement and Bankruptcy
legislation, irrespective of its economic definition.

The Court states with the related ruling that “Since it
is understood that in the (Turkish) law, the sales of (the seized)
movable and immovable property is regulated in detail, the
complaint at the sales stage should be evaluated
separately” and doesn’t refer to the procedure of
sale of the seized Crypto Assets. Except the issuance of a warrant
in accordance with the Article 89 of the Enforcement and Bankruptcy
Law to an Exchange Platform of which the Debtor has a wallet. The
Court rejected the Debtor’s plea on the subject.

There are several theories manifested within the sector about
the proceedings of the seizure of Crypto Assets. The first matter
in question is the evaluation and determination of the Debtors
property of Crypto Assets since they are digital and have a
decentralized nature. Namely, foreclosure of the seizure on any
kind of central ledger or issuance of a warrant to any
kind of intermediary or escrow is not possible. Therefore, the
enforcement action may only be conducted by retaining. The Private
Key of the Debtors wallet should be identified, confiscated and
changed by the Office to block off Debtor’s access.

The second conjecture suggests the Enforcement Office to
transfer the Debtors assets to a dedicated Cryptocurrency Wallet
owned by the Enforcement Office, in this case the Office may also
issue a warrant in accordance with the Article 89 to determine the
existence of Debtor’s claims of Crypto Assets from third
parties and demand the transfer of said Assets to the Wallet. But
direct transfer of the Debtors assets to a wallet owned by the
Claimant is not possible due to encashment principle of the Turkish
Enforcement and Bankruptcy Law⁸ . Further operation by
the relevant Enforcement Office may set forth a different approach
to be discussed.

Finally, although the regulations regarding Crypto Assets
constitute the initial steps of legal recognition of these assets
by the Republic of Turkey, they prohibit direct or indirect use of
Crypto Assets as payment instruments and provision of electronic
payment services, excluding the Cryptocurrency investment
services/exchange platforms. No regulation has yet been made
regarding the sanctions to be applied in case of violation of the
Regulation. However according to the recent statement of the
Vice-Minister of Treasury and Finance, further legislation that is
relatively strict but with a Western European/American approach is
to be expected in the forthcoming periods that will form the
economic, technological and legal infrastructure of digital money
in line with the above-mentioned Economic Reforms Action Plan.

References

Turkey. Banking Regulation and Supervision Agency. Press
Release. 25 Nov. 2013. Web. https://www.bddk.org.tr/ContentBddk/dokuman/duyuru_0512_01.pdf

Turkey, Suç Gelirlerinin Aklanmasinin Önlenmesi
Hakkinda Kanun. No. 5549. https://www.mevzuat.gov.tr/MevzuatMetin/1.5.5549.pdf

Turkey. Economic Reforms Action Plan. Ministiry of Treasury and
Finance, 12 Mar. 2021. Web. https://ms.hmb.gov.tr/uploads/2021/03/Ekonomi-Reform-Takvimi.pdf

Turkey. Presidency Of The Republic Of Turkey. 12 Mar. 2021. Web.
https://www.tccb.gov.tr/konusmalar/353/125242/ekonomi-reformlari-tanitim-toplantisinda-yaptiklari-konusma

Turkey. The Banking Regulation and Supervision Agency. 30 Apr.
2021. Web. https://www.resmigazete.gov.tr/eskiler/2021/04/20210416-4.htm

Turkey. Financial Crimes Investigation Board. 1 May 2021. Web.
https://ms.hmb.gov.tr/uploads/sites/12/2021/05/20210501-5.pdf

Ciat. “Cryptocurrency Taxation: How to Take a Step
Forward.” Inter-American Center of Tax Administration. 27 July
1970. Web. 11 June 2021. https://www.ciat.org/cryptocurrency-taxation-how-to-take-a-step-forward/?lang=en

Turkey. Turkish Revenue Administration. Official Opinion. 23
Sept. 2020. Web. 11 June 2021. https://www.gib.gov.tr/mirascilara-bitcoin-varligi-karsiliginda-odenecek-tutarinveraset-ve-intikal-vergisi-yonunden

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