Cablegate: Turkish Government Fully Resolves Citibank Tax
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS ANKARA 009181
STATE FOR E, EB AND EUR/SE
TREASURY FOR OASIA - MILLS AND LEICHTER
USDOC FOR 4212/ITA/OEURA/CDP/DDEFALCO
STATE PASS USTR - NOVELLI AND BIRDSEY
E.O. 12958: N/A
TAGS: ECON EINV PREL TU
SUBJECT: TURKISH GOVERNMENT FULLY RESOLVES CITIBANK TAX
REF: ANKARA 8255
Sensitive but Unclassified. Not for internet distribution.
1. (SBU) Citibank General Manager for Turkey Mark Robinson
informed us December 23 that Turkish Finance Minister Kemal
Unakitan reversed a Finance Ministry tax assessment of
Citibank and its foreign clients who invest in Turkish
T-bills through Citibank. As described reftel, a Finance
Ministry tax inspector had earlier denied Citibank's clients
the preferred foreign investor tax rate on T-bill income (11
percent versus the normal rate of 44 percent), and made an
enormous assessment of back taxes. Citibank received the
formal MinFin letter canceling this assessment December 28.
Robinson thanked us for Embassy's help in resolving this tax
Comment: A Victory, But Also An Explanation
for Turkey's Risk Premium
2. (SBU) Unakitan's action to cancel this tax assessment
averts potential damage to the T-bill market. Citibank wanted
this claim resolved before year-end, at which time fund
managers would have had to disclose this tax claim to their
investors. Unakitan's action also gives us an early example
of the new GOT's interest in helping to resolve foreign
investment tangles with the Turkish bureaucracy.
3. (SBU) Nevertheless, as Citibank country risk manager
Peter Rossiter commented, this kind of outrageous tax
assessment helps explain why there is a large risk premium on
Turkish T-bills. Unpredictability of regulatory and legal
treatment is a big factor. Rossiter said Citibank would
follow up this victory by working with the Turkish Ministry
of Finance to clarify the tax regulatory treatment of foreign
investors and thus ensure that such assessments won't be
levied in the future.