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Cablegate: Turkey: New Got Tax Implementation Upsets Free Trade Zones

VZCZCXRO7790
PP RUEHDA
DE RUEHAK #0278 0450716
ZNR UUUUU ZZH
P 140716Z FEB 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 5230
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL 3876
RUEHDA/AMCONSUL ADANA 2694

UNCLAS ANKARA 000278

SIPDIS

USDOC FOR ITA/MAC/CRUSNAK

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EINV ECON TU
SUBJECT: TURKEY: NEW GOT TAX IMPLEMENTATION UPSETS FREE TRADE ZONES

1. (U) Summary: A recent communique issued by Turkish Customs levies
additional taxes against companies operating in Free Trade Zones.
This unforeseen change in tax policy substantially increased
production costs in these zones. The Aegean Free Trade Zone, which
has majority U.S. ownership, was adversely affected by this new
decision. Deputy Prime Minister Hayati Yazici, who holds
responsibility for Customs, reportedly visited ESBAS on February 7
and directed Customs personnel to resolve this problem. Even if
there is a timely solution, however, this type of arbitrary and
unexpected policy change sends a bad signal to potential investors
at a time when Turkey is trying to attract greenfield investment.
End summary.

2. (SBU) Turkish Customs issued a circular on January 21, 2008, that
required the companies operating in Free Trade Zones (FTZ) to pay
Value Added Tax (VAT) on the goods they buy for investment,
consumption and internal use. Customs based its circular on a 1999
law that called for all VAT-free materials entering into the FTZs to
be used for production purposes. The law states that materials to
be used for consumption must pay regular VAT. To date, the
companies operating in FTZs have been exempt from all taxes, based
on the 1985 legislation creating these zones. Although the VAT
legislation was passed in 1999, it has not been applied before to
companies operating in the FTZs. On January 21, however, Customs
officers started inspecting all trucks bringing goods into these
zones and requiring companies to pay VAT on materials they use for
internal consumption purposes. With the new and unexpected
requirement to pay VAT on all operating expenses, including fuel for
heating, the companies face significant cost overruns that have
already caused some to stop production.
3. (SBU) The new requirements had a serious negative impact on the
Aegean Free Trade Zone (ESBAS), which is majority owned by the
American company EAC Turkey International. ESBAS Marketing
Coordinator Ertugrul Isiksoy stated that this new interpretation of
the law has caused significant problems to the companies operating
in ESBAS, including interruptions in production and reluctance to
make additional investment in the zone, which currently boasts 55
million Euro worth of investment. Isiksoy said Customs officers at
the entrance to ESBAS have refused entry to trucks carrying
construction material for new facilities until companies agree to
pay VAT on these goods. "Even the fuel our companies use for
heating purposes is subject to VAT now," complained Isiksoy, "which
imposes substantial a cost burden on them." Isiksoy noted that
Deputy Prime Minister Hayati Yazici, who oversees Customs, visited
ESBAS on February 7, and directed his staff to find an immediate
solution to the problem.
4. (SBU) Comment: In recent years, the GOT has been taking important
steps to improve its investment environment. While the related
changes in legislation brought positive developments such as faster
and more efficient company establishment procedures and a
streamlined bureaucracy focused on investment, the Turkish
government must consider the investment implications of unexpected
and arbitrary shifts in policy. Such drastic changes that affect
the operating costs of companies will only send a bad signal to
companies looking to invest in Turkey. End comment.
WILSON

© Scoop Media

 
 
 
 
 
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