Introduction To Turkish Business Law

Introduction to Turkish Business Law

Second Edition
Edited by
Tugrul Ansay
Eric C. Schneider
r
Law & Business
"This is a local edition of Introduction to Turkish Business Law, 2nd Edition, ISBN 978-90-4115248-0, by T. Ansay and Eric C. Schneider, published and sold by Seckin Yayincilik, by
perffiission of Kluwer Law International, Alphen aan den Rijn, The Netherlands, the owner of all
rights to publish and sell same. Distribution of this work is limited to sales in Turkey, and may
not be sold or exported to any other territory."
"T. Ansay and Eric C. Schneider tarafmdan hazrrlanan Introduction to Turkish Business Law (2nd
Edition, ISBN 978-90-411-5248-0) isimli kitabm yaymlama ve satlt ile ilgili ttim haklara sahip
Kluwer Law International, Alphen aan den Rijn, The Netherlands, Se9kin Yaymc1hk A.$.'ye
kitabm Tilrkiye'de bu lokal basktsm1 yaymlama ve satma iznini vermitir. Bu eserin sattl
Tiirkiye ile smtrhdtr ve herhangi baka bir ulkeye sattlamaz veya ihra9 edilemez."

Edited by: Tugrul Ansay - Eric C. Schneider
Original Edition ISBN 978-90-411-5248-0
Local Edition ISBN: 978-975-02-3370-8
2d Edition
2014 Kluwer Law International BV, The Netherlands I Sei;kin Yaymctltk A.$. Tiirkiye
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without written permission from the publisher.
Bu kitabm Tiirkiye' deki her tilrlti yaym hakk1 Se9kin Yaymc1hk A.$. 'ye aittir. Yaymevinin yazth
izni olmadan, tamtlm ama9h toplam bir sayfay1 ge9meyecek almttlar hari9 olmak tizere, hi9bir
ekilde kitabm ttimti veya bir ktsm1 herhangi bir ortamda.yay1mlanamaz ve 9ogalt1lamaz.
Published by:
~
se~ki11
Se9kin YaymcthkA.$. I Sagltk Sok. No:21 06410 S1hhiye/Ankara

Tel: (312) 435 30 30-Faks: (312) 435 24 72
www.seckin.com.tr I satis@seckin.com.tr
Publisher Certificate No: 12416
Printed by:
Si:izkesen Matbaas1, Tel: (0--312) 395 21 10 - Certificate No: 13268
l.1
To Roz Schneider
E. C. Schneider
To the memory of my parents
T. Ansay
I
I
List of Editors and Contributors
Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Ko<; University, School of Law, Istanbul.
Prof. Eric Schneider, JD., LL.M. (NYU): Emeritus Professor, University of Baltimore
School of Law, Baltimore, Maryland.
Dr. I~nk Onay: Asst. Prof. Ko<; University, School of Law, Istanbul.
Prof. A. A. Lale Sirmen: Professor of Law, Ihsan Dogramac1 Bilkent University,
Ankara.
Prof. Dr. Firat Oztan: Emeritus Professor, University of Ankara.
Assoc. Prof. Dr. Gill Okutan Nilsson: Associate Professor, Faculty of Law, Bilgi
University, Istanbul.
Asst. Prof. Dr. Kerem Cem Sanh, LL.M.: Assistant Professor, Istanbul Bilgi University,
School of Law, Istanbul; Adjunct Professor, Bilkent University, Institute of Social
Sciences, Ankara.
Prof. Dr. Nurhan Stiral: Professor of Law; National correspondent to the European
Network of Legal Experts in the Field of Gender Equality. The authors can be reached
at sural@metu.edu.tr.
Dr. Mustafa Klh<;oglu: Honorary Chamber Chief Judge of the Appeals Court; lecturer,
Faculty of Law, Ba$kent University, Ankara.
Prof. Dr. Ahmet Kumrulu: Faculty of Law, University of Ankara.
Prof. Dr. BHlur Yalh: Faculty of Law, Ko<; University, Istanbul.
Asst. Prof. Dr. Ba~ak ~it imamoglu: Assistant Professor of Law, University of Ankara.
Prof. Dr. Bilgin Tiryakioglu: Professor of Private International Law, Faculty of Law,
Bilkent University, Ankara.
Assoc. Prof. Dr. Zeynep Derya Tarman LL.M.: Ka<; University, School of Law,
Istanbul.
vii
_J
7
!
Summary of Contents
vii
xxv
List of Abbreviations
Preface
xxvii
Acknowledgement
xxix
CHAPTER
General Introduction to Turkish Business Law

1
Tugrul Ansay & Eric Schneider

CHAPTER
Sales of Personal Property
15
Tugml Ansay & I~ik Onay

CHAPTER
Consumer Protection Law
29
A. Lille Sirmen
CHAPTER
Agency
Tugrul Ansay & I~ik Onay
47
5
Secured Transactions (Securities and Seuretyship)
CHAPTER
59
A. Lille Sirmen
CHAPTER
Negotiable Instruments
77
Tugrul Ansay & Firat Oztan
ix
Summary of Contents
CHAPTER 7
Business Associations
Tugrul Ansay
89
CHAPTER 8
Unfair Trade Law
Giil Okutan Nilsson

CHAPTER
111
Competition Law
Kerem Cem Sanli
CHAPTER
121
10
Intellectual Property
Giil Okutan Nilsson
141
CHAPTER 11
Labor Law
Nurhan Siiral & Mustafa Kilu;oglu
161
CHAPTER 12
Tax Law
Ahmet Kumrulu & Billur Yalti

CHAPTER
185
13
Banking Law
BG.$ak $it jmamoglu
207
CHAPTER 14
Private International Law

CHAPTER
221
15
Foreign Investment
Bilgin Tiryakioglu
233
CHAPTER 16
International Commercial Arbitration in Turkey
Zeynep Derya Tarman
245
Index
257
Table of Contents
vii
xxv
Preface
xxvii
Acknowledgement
xxix
CHAPTER
General Introduction to Turkish Business Law

1
Tugml Ansay & Eric Schneider
1.01
1.02
1.03
Overview
Foundations of Turkish Business Law
[AJ Statutory Sources
[lJ The Constitution
[2J Civil Law System
[BJ Commercial Usage
[CJ Court Decisions (Case Law)
[DJ General Principles
State Involvement in Business
[AJ Direct State Involvement
[lJ General
[2J State Economic Enterprises (SEEs) and Public Economic
Institutions (PEis)
[BJ Indirect State Involvement in Business
[CJ Regulation by the State
[l] State Registration Requirements
[a] The Commercial Registry (Ticaret Sicili)
[b] Other Registries
xi
1
2
2
2
3
s
6
6
7
7
7
8
8
8
9
9
10
Table of Contents
[2J State Permit Requirements
[3J Regulatory Agencies
1.04 The Effect of Turkish Law on the Business Environment
1.05 Persons Conducting Business
[AJ The Individual or Real Person Merchant
[BJ Business Organizations
[CJ Representatives of a Merchant
[DJ Foreigners
Selected Bibliography
CHAPTER
10
10
10
11
11
12
12
12
13

Tugml Ansay & I$ik 6nay
15
2.01
2.02
15
Definition and Sources

Basic Elements of a Sales Contract
[AJ Subject Matter
[BJ Price
[CJ Legal Nature
[DJ Formal Requirements
2.03 Obligations of the Seller
[AJ Transfer of Possession and Ownership
[lJ Place of Delivery
[2J Time of Delivery
[3J Default (Temerriit) of the Seller in Delivery
[BJ Cost of Shipment
[CJ Warranty of Title (Zapttan Sommluluk)
[DJ Warranty Regarding Defects
[lJ Express or Implied Warranties
[2J Exercise of Warranty Rights
[3J Buyer's Remedies for Defective Goods
2.04 The Obligations of the Buyer
[AJ Taking Delivery
[BJ Paying the Price
[CJ Other Obligations
[DJ Default of the Buyer
2.05 Benefits and Risks
CHAPTER
16
16
16
17
18
18
18
19
19
19
20
21
21
21
22
23
24
24
24
25
25
25
27

A. Lale Sirmen
29
3.01
3.02
29
30
Introduction
Consumer Contracts
xii
b
Table of Contents
General Conditions of Consumer Contracts
Prohibition of Failure to Supply
Information for Consumers
Liability for Defective Goods and Services
Certificate of Guarantee
Product Safety
Consumer Contracts Governed by the LPC
[AJ Installment Sales
[BJ Timeshare Contracts
[CJ Package Tour Contracts
[DJ Sales through Campaigns and Other Prepaid Sales
[EJ Doorstep Selling
[FJ Distance Contracts
[G] Subscriptions to Periodic Publications
[HJ Consumer Credits
[IJ
Housing Finance Contracts
3.10 Advertising
Penalties
3.11
Consumer Institutions
3.12
[AJ Council of Consumers
[BJ Arbitration Committees for Consumer Problems
3.13
Consumer Courts
3.03
3.04
3.0S
3.06
3.07
3.08
3.09
CHAPTER 4
Agency
Tugrul Ansay & I$ik Onay
4.01
4.02
4.03
4.04
4.0S
4.06
31
32
32
33
34
34
35
35
36
36
37
37
38
38
38
39
40
41
41
41
41
42
4S
47
Agency Contract and Agency Relationship (Vekalet Sozle$1Tiesi

ve Temsil jzi$kisi)
Creating Agency
Duties and Liabilities of the Agent and the Principal
Relationships with Third Parties
[AJ Agent and Third Persons
[BJ Principal and Third Parties
Termination of the Agency Contract and Agency Relationship
Different Types of Agents
[AJ Commercial Representative (General Manager, Ticari
Temsilci, C.O. Articles S47-SSO)
[BJ General and Special Agents
[CJ "Acente"
[lJ Acentelik
[2J The Contractual Relationship between the
Acente and the Principal
[3J Termination
xiii
47
49
so
Sl
Sl
S2
S3
S4
S4
SS
SS
SS
S6
56
Table of Contents
57
58
[DJ Sole Distributor

CHAP-TER 5
Secured Transactions (Securities and Seuretyship)
A. Lale Sirrnen
59
5.01
59
59
60
60
60
60
61
61
62
62
62
62
62
63
63
64
64
5.02
Personal Securities ($ahsi Teminatlar)

[AJ Suretyships (Kefalet)
[lJ Introduction
[2l Requisites for a Valid Suretyship
[aJ A Principal Obligation
[bJ Capacity of the Surety
[3J Kinds of Suretyship
[al Ordinary Suretyships (Adi Kefalet)
[bl Joint Suretyships (Miiteselsil Kefalet)
[cJ Co-suretyships (Birlikte Kefalet)
[dJ Secondary Suretyships (Kefile Kefalet)
[eJ Counter Suretyships (Riicua Kefalet)
[4J Liability of the Surety
[SJ Defenses for the Surety against the Creditor
[6l Proceedings against the Surety
[7l Duties of the Creditor
[SJ Right to Demand Acceptance of Payment
[9J Relationship between the Surety and the Principal
Debtor
[lOJ Surety's Right of Recourse
[lll Surety's Duty to Notify
[12J Termination of the Contract of Surety
[Bl Revocation
[BJ Joint and Several Liability (Miiteselsil Bon;luluk)
[CJ Guarantees (Garanti)
[ll Pure Guarantees
[2l Collateral Guarantees
[DJ Avals (Bill of Exchange Guarantees)
Real Securities (Ayni Teminatlar)
[AJ Securities on Immovable Property
[lJ Kinds of Securities on Immovable Property
[2J Mortgage (jpotek)
[aJ Mortgage Burden
[bl Subject Matter
[cl Creation of Mortgages
[dl Extent of Security
[el Order of Priority between Mortgages
xiv
65
65
65
65.
66
66
67
67
67
68
68
69
69
69
69
70
70
71
71
Table of Contents
[fJ
Alienation of the Mortgaged Property
[gJ Foreclosure of Mortgages
[BJ Securities on Movable Property
[lJ Pledges
[aJ Pledges on Movables (Ta~mr Rehni)
[b J Pledges on Claims and Other Rights
[cJ Pledges on Negotiable Instruments
[dJ Pledges on Commercial Enterprises
[eJ Pledges on Mines
[2J Mortgages on Ships and Aircraft
[3J Liens
72
72
72
73
73
73
74
74
74
75
75
75
CHAPTER 6
Tugrul Ansay & Firat 6ztan
77
6.01
77
77
78
78
78
78
78
79
79
79
80
80
82
82
83
83
84
84
84
85
85
86
86
87
87
87
87
88
Introductory Remarks
[AJ General
[BJ Classification of Negotiable Instruments
[lJ According to the Right Represented by the Document
[2J According to Transferability
[CJ Commercial Papers (Ticari Senetler or Kambiyo Senetleri)
[DJ Sources
6.02 Types of Commercial Papers
[AJ General
[BJ General Characteristics of Commercial Papers
6.03 Bills of Exchange
[AJ The Required Form
[BJ Consequences of Omissions (Comm. C. Article 672)
[CJ Endorsement (Indorsement, Ciro)
[DJ Aval
[EJ Maturity (Vade)
[FJ Presentment
[GJ Payment (Odeme)
[HJ Protest and Notice of Dishonor (Protesto ve jhbar)
6.04 Checks
[AJ General Characteristics
[BJ Formalities
6.05 Promissory Notes (Bonolar)
6.06 Documents of Title (Emtia Senetleri)
[AJ Bill of Lading
[BJ Warehouse Receipts (Makbuz Senetleri)
[CJ Function of Documents of Title and Negotiation
xv
Table of Contents
CHAPTER
Tugrol Ansay
89
7.0i
7.02
Overview
Ordinary Partnership (Adi $irket)
[AJ General
[BJ Characteristics
[CJ Partners
[DJ Internal Relations among Partners
[EJ External Relations
[FJ Changing Partners
[GJ Dissolution and Winding-Up
7.03 General Partnership (Kolektif $irket)
[AJ Definition and Characteristics
[BJ Formation
[CJ Relations between Partners
[DJ External Relations
[EJ Change of Partners
7.04 Limited Partnership
7.05 Corporations (Joint Stock Companies)
[AJ Overview
[lJ In General
[2J Sources of Law
[3J State Supervision
[BJ Incorporation
[CJ The Operational Structure of Turkish Corporations
[lJ Board of Administration (Board of Directors)
[2J Auditors (Controllers)
[3J General Assembly of Shareholder
[DJ Shareholder Rights
[EJ Capital Structure
[FJ Share Certificates
[GJ Liability of Persons Participating in the Administration
7.06 Partnership with Limited Liability
CHAPTER
92
93
93
93
94
94
94
95
95
95
96
96
97
97
97
98
98
99
101
101
103
104
105
107
108
109
109
110
Unfair Trade Law

Giil Okutan Nilsson
8.01
89
91
91
91
111
Prohibition of Competition
[AJ General Service Contract
[BJ Commercial Representatives or Agents
[CJ Directors of Business Corporations and Partnerships
xvi
111
111
112
112
Table of Contents
8.02
Unfair Competition Law (HakslZ Rekabet)

[A] Definition and Scope of Protection
[B] Types of Legal Actions and Claims
[C] Persons with a Right of Legal Action
[D] Liability of Third Persons
[E] Special Liability of Employers
[Fl Special Liability of Press, Broadcasting, Communication
and Information Technology Enterprises
[G] Criminal Liability
CHAPTER
112
113
116
117
118
118
118
119
119
Competition Law
Kerem Cem Sanli
121
Background and the Sources of Competition Law

Main Concepts
[AJ The Relevant Market
[BJ Territorial Reach
[CJ Undertakings and the Associations of Undertakings
9.03 Overview of the Substantive Provisions
[A] Restrictive Agreements
[lJ Collusion
[2J Test of Illegality: Restriction of Competition
[3J Exemption
[BJ Abuse of Dominant Position
[l] Dominant Position
[2] The Concept of Abuse
[aJ Exploitative Abuses
[b] Anti-competitive Abuses
[CJ Concentrations
[lJ The Concept of Concentration
[2] Duty to Notify
[3] Illegality Test: Creating or Strengthening
Dominance and Thereby Lessening Competition
121
122
123
124
125
127
127
127
129
9.01
9.02
130
132
132
133
134
135
136
136
137
138
139
CHAPTER 10
Intellectual Property
Giil Okutan Nilsson
141
10.01 General Background

10. 02 Administrative Bodies and Courts
10.03 Patents and Utility Models
[A] Types of Patents and Patentable Subject Matter
141
xvii
142
142
143
Table of Contents
Conditions for Patentability
[l] Novelty
[2] Inventive Step
[3] Industrial Applicability
[C] The Right to Apply for a Patent
[DJ Rights Granted by a Patent
[E] Infringement of Rights
[F]
Registration and Period of Protection
[G] Termination of Patent Rights
10.04 Industrial Designs
[A] Scope of Protection
[BJ Criteria for Protection
[l] Novelty
[2] Individual Character
[CJ The Right to Apply for Design Registration
[DJ Rights Granted by a Design
[E] Exceptions to Design Rights
[F]
Infringement of Rights
[G] Registration and Term of Protection
[H] Termination of Design Rights
10.05 Trademarks
[A] Concept
[BJ Criteria for Protection
[CJ Rights Granted
[DJ Exceptions to Trademark Rights
[E] Infringement of Trademark Rights
[F]
[G] Termination
10.06 Copyright
[A] Protected Works
[BJ Ownership of Copyright
[CJ Rights Granted
[DJ Collective Rights Management
[E] Exceptions and Limitations to Copyright
[F]
Infringement
[G] Protection Period
10.07 Exhaustion of Intellectual Property Rights
[BJ
143
143
144
144
144
145
145
146
147
147
147
148
148
148
149
149
149
150
150
150
151
151
151
152
153
153
153
154
154
154
155
156
156
157
158
159
159
159
CHAPTER 11
Labor Law
Nurhan Siiral & Mustafa Kilu;oglu
161
11.01 General Introductory Remarks

11.02 Scope and Branches of Labor Law
161
162
xviii
Table of Contents
11.03 Individual Labor Law
[AJ Basic Concepts and Coverage
[BJ Labor Contract
[lJ The Types of Labor Contracts
[2J Working Time
[3J Termination of the Labor Contract
(Termination of Employment)
11.04 Collective Labor Law
[AJ Formation of Unions
[BJ Structure of Unions
[CJ Union Membership
[DJ The Scope and Level of Collective Labor Agreements
[EJ Competence and Authorization
[FJ Collective Bargaining
[GJ Mediation
[HJ Industrial Action and Its Consequences
[IJ
The Duration, Effect and Termination of Collective Labor
Agreements
163
163
164
164
167
168
173
173
175
175
177
178
179
180
180
182
184
12
Tax Law
CHAPTER
185
12.01 Introduction
12.02 A Survey of General Principles and Institutions
[AJ Tax Law Classification
[BJ Sources of Law
[lJ Binding Sources
[aJ Primary Legislation
[bJ Secondary Legislation
[cJ Judicial Source of Law: Unifying Decisions of
Courts
[CJ Non-binding Secondary Sources of Law
[lJ Administrative Decisions
[2] Court Decisions and Jurisprudence
[DJ Parties to the Tax Relationship
[1] Taxpayer (Yiikiimlii)
[2J Tax Claimant (Vergi Alacaklisi)
[3J Tax Responsibility (Vergi Sorumlulugu)
[4] Third Parties
12.03 The Turkish Tax System in General
[AJ Classification of Major Taxes
185
186
186
187
187
187
188
L
c
xix
188
188
188
189
189
189
189
190
190
190
190
Table of Contents
[BJ
12.04
12.05
12.06
12.07
Selected
Taxation of Individual Income: Income Tax

(lJ Taxable Matters
(2J Taxable Event (Vergiyi Doguran Olay)
[3J Taxpa, 2r
(4J Tax Base
(SJ Tax Rate
(6J Methods for Determining the Tax Base
[7J Techniques of Assessment (Verginin Tarhi)
(8J Tax Advantages
(CJ Taxation of Corporate Income: Corporate Tax
[lJ Taxable Matters (Konu)
[2J Taxable Event (Vergiyi Doguran Olay)
[3J Taxpayer (Yiikiimlii)
[4J Tax Base (Matrah)
[SJ Tax Rate
[6J Methods to Determine the Tax Base
[7J Techniques of Assessment
[8J Tax Advantages
Taxation of Expenditure: Value Added Tax (Katma Deger Vergisi)
[AJ Taxable Matters (Konu)
[BJ Taxable Event (Vergiyi Doguran Olay)
[CJ Taxpayer (Yiikiimlii)
[DJ Tax Base
[EJ Tax Rate
[FJ Techniques of Assessment (Verginin Tarhi)
[GJ Tax Advantages .
Process of Taxation
[AJ Prerequisites
[BJ Preparatory Stage: Determination of the Tax Base
[CJ Stage of Administrative Actions
[DJ Time Limits (Statutes of Limitation, Zaman A~mi)
Conflict Solving in Tax Disputes
[A] Administrative Procedures
[l] Correction of Errors (Diizeltme)
[2] Conciliation Agreement (Uzla$Tlla)
[BJ Judicial Procedures
Penal Law of Taxation
Bibliography
191
191
191
192
192
192
193
193
194
194
195
195
195
196
197
197
198
198
199
199
199
199
200
200
200
201
201
201
202
202
203
203
203
204
204
204
205
206
CHAPTER 13
Banking Law
BG.$ak $it jmamoglu
207
13.01 Sources
[A] Banking Law (BL)
207
207
xx
Table of Contents
[BJ Secondary Legislation
[CJ Form Contracts Term and Conditions
13.02 Types of Banks
[AJ Credit Institutions
[lJ Deposit Banks (Mevduat Bankalan)
[2J Participation Banks (Katilim Bankalan)
[3J Development and Investment Banks
(Kalkmma ve Yatinm Bankalan)
13.03 Banking Institution (Bank as a Corporation)

[AJ Formation and Termination
[lJ Permissions for Formation and Operation
[2J Formation Conditions
[3J Requirements for the Opening of a Branch in
Turkey by Banks Headquartered Abroad
[4J Termination
[BJ Scope of Activity
[CJ Shares and Shareholders
[DJ Board of Directors and Corporate Governance (Committees)
[EJ Independent Auditing and Supervision
13.04 The Regulation of Some Important Banking Transactions
[AJ Deposit Transactions
[BJ Loan Transactions
13.05 Electronic Banking
13.06 Confidentiality
1
210
210
211
211
211
211
212
213
213
213
214
215
216
216
217
218
218
218
CHAPTER 14
221
Tugml Ansay & Eric Schneider
14.01
14.02
14.03
14.04
Overview
General Characteristics of Turkish Private International Law
General Provisions
Specific Rules of Conflicts of Law
[AJ Personal Status
[BJ Capacity
[CJ Property
[DJ Contracts (and Unilateral Declarations)
[EJ Torts
[FJ Unjust Enrichment
14.05 International Law of Procedure
[AJ Jurisdiction
[lJ Agreements on Jurisdiction
[2J Pending Process (lis pendis, derdestlik)
[BJ Lex Fori
i .
208
208
209
209
209
xxi
221
221
222
224
224
225
225
226
227
227
227
228
228
229
230
Table of Contents
[CJ
[DJ
Proof of Foreign Law

Enforcement and Recognition of Foreign Court Decisions
[lJ Enforcement Hearing
[2J Reciprocity (Kar$iliklilik)
[3J Ordre Public
[4J National Treatment
230
230
231
231
232
232
232
CHAPTER 15
Foreign Investment
Bilgin Tiryakioglu
233
15.01 Foreign Investment: History and Legislative Framework

15.02 Definition of Investment and Investor under the New Turkish
Foreign Investment Regime
[AJ Foreign Direct Investment
[BJ Foreign (Direct) Investor
15.03 The Governing Principles in the New Foreign Investment Regime
[AJ Freedom to Invest
[BJ National Treatment Principle
[CJ Freedom to Transfer
15.04 Other Principles Applicable to Foreign Direct Investments within the
New Foreign Investment Regime
[AJ Standards of Expropriation and Nationalization
[BJ Resorting to Arbitration and Other Dispute Resolution
Mechanisms in the Resolution of Disputes
[CJ Valuation of Non~cash Capital
15.05 Forms of Investment
[AJ Incorporation of a Company
[BJ Establishing a Branch Office
[CJ Share Acquisition and Portfolio Investment
[DJ Establishing a Liaison Office
[EJ Merging with a Turkish Company or Acquiring a Turkish
Company
[FJ Participating in a Joint Venture
15.06 Work Permits of Foreign Personnel
233
235
235
236
236
236
236
237
237
237
23 7
238
238
238
239
239
240
241
241
241
243
16
International Commercial Arbitration in Turkey
CHAPTER
Zeynep Derya Tarman
245
16.01 Legislative Framework (Sources)

16.02 Turkish International Arbitration Law
[AJ Scope of Application
245
247
247
xxii
Table of Contents
The Arbitration Agreement
Governing Law
[lJ Procedural Law
[2J Substantive Law
[DJ Intervention of the State Courts
[EJ Setting Aside Procedure of the Arbitral Award
16.03 Recognition and Enforcement of Arbitral Awards
16.04 Conclusion
248
249
249
250
250
251
253
254
255
Index
257
[BJ
[CJ
xxiii
BDDK
BOT
BRSA
C. Civ. Pr.
Bankacilik Diizenleme ve Denetleme Kumlu
Build, Operate and Transfer

Banking Regulation and Supervision Agency
Turkish Code of Civil Procedure
c.c.
Turkish Civil Code
C.O.
Turkish Code of Obligations

Code on the Collection of Public Claims
Capital Market Administration
CCPC
CMA
Comm. C.
Cons.
CPAA
Turkish Commercial Code

Turkish Constitution
Code on the Procedures of Administrative Adjudication
CTA
CTP
DISK
Corporate Tax Act

Code of Tax Procedures
EEC
EFTA
European Economic Community

European Free Trade Agreement
EPL
ETC
Employment Protection Legislation
EU
FDI
Tiirkiye Devrimci j~i;i Sendikalan Konfederasyonu
Energy Charter Treaty

European Union
Foreign Direct Investment
FTZ
GDFI
GDFZ
Free on Board
Free Trade Zones
General Directorate of Foreign Investment
General Directorate of Free Zones
HAK-I$
ICCPR
International Covenant on Civil and Political Rights
FOB
Tiirkiye Hak j~i;i Sendikalan Konfederasyonu
xxv
ICESCR
ILO
IMF
ITA
LA
LIA
LPC
MIGA
OECD
OG
OJ
PA
PatKHK
International Covenant on Economic, Social and Cultural Rights

International Labor Organization
International Monetary Fund
Income Tax Act
Labor Act
Law on Intellectual and Artistic Works Nr. 5846
Law on the Protection of the Consumer
Multilateral Investment Guarantee Agency of the World Bank
Organisation of Economic Co-operation and Development
Official Gazette
Official Journal
Privatization Administration
Patent Haklanmn Komnmasi Hakkmda Kanun Hiikmiinde
Karamame
PEI
PHC
SDIF
SEE
SIF (CIF)
SME
SMEs
SPA
TL
TMSF
TPI
TRIPS
Public Economic Institutions

Privatization High Council
Savings Deposit Insurance Fund
State Economic Institutions
Cost, Insurance and Freight
Small and Medium Size Enterprises
Small and medium sized business
State Planning Administration
Turkish Lira
TURK-i$
UCLAA
UDHR
U.S.
UA
UN
UT
VAT(A)
WIPO
WTO
YKD
YPK
Tiirkiye j~i;i Sendikalan Konfederasyonu
Tasarruf Mevduati Sigorta Fonu
Turkish Patent Institute

Treaty on the Trade Related Aspects of Intellectual Property
Rights
Unions and Collective Labor Agreements Act
Universal Declaration of Human Rights
United States
Unions Act
United Nations
Undersecretariat of the Treasury
Value Added Tax
World Intellectual Property Organisation
World Trade Organization
Yargitay Kararlar1 Dergisi
Supreme Planning Council
xxvi
Preface
The need for a book on Turkish business law occurred to Professors Ansay and
Schneider in 1988 when they were collaborating on an article about a new Turkish
conflicts of law statute. At the time, Professor Schneider was on a sabbatical in Ankara,
and Professor Ansay was teaching Commercial Law at the University of Ankara Law
School. Their mutual interest in commercial law led them to discuss the free market
reforms that were taking place in the Turkish economy in the 1980s, the increasing
importance of Turkish business law, and the inaccessibility of that law to non-Turkish
students, business persons and lawyers. These discussions continued over a number of
years until the spring of 1998 when Professor Schneider was a Fulbright Lecturer at the
Middle East Technical University (METU) and Professor Ansay was teaching at Bilkent
University in Ankara. By then the Turkish economy and its commercial connections
with the rest of the world had grown dramatically, prompting Professors Ansay and
Schneider to use their time together in Ankara to begin this book.
This book follows a similar format and is, to some extent, the continuation of a
previous book, An Introduction to Turkish Law, which was prepared by Professor
Ansay and Professor Wallace, Jr.
The book is intended to give the reader an overview, with a fair amount of detail,
of the major topics concerning business law in Turkey. The authors hope it will be of
help to Turkish and non-Turkish students, businesspersons, lawyers and others
interested in the subject.
Since the publication of the first edition of this book in 2001, important
substantive changes have occurred in various areas of Turkish business law. These
changes include, among others, the enactment of two statutes basic to Turkish
business law: The Code of Obligations and the Commercial Code. Also revised are the
law of private international law (conflict of laws rules) and the Code of Civil Procedure.
Additionally. Turkey participated in several international conventions affecting international business. This new edition of Introduction to Turkish Business Law reflects
these changes and adds additional chapters on Banking Law, Commercial Arbitration
Law and Intellectual Property Law.
Thanks are extended to the contributing authors, without whose efforts this book
would not have been possible.
xxvii
Preface
We would like to thank to those persons assisted us in preparing this new edition,
particularly to Mr. I~1k bnay and Ms. Zeynep Elibol.
Prof. Dr. T. Ansay, MCL, LL.M. (Columbia University)
Prof. E. Schneider, JD, LL.M. (N.Y.U.)
xxviii
Acknowledgement
The generous help of many friends have made this book possible. Although I cannot
thank all who have helped, I would like to mention Ahmet Acar, Vice President of the
Middle East Technical University for inviting me to teach and conduct research during
my Fulbright year at METU. His wife Professor Feride Acar and son Aybar Acar have
also made my wife and me feel welcome in Ankara. Toni Cross, director of the
American Research Institute in Turkey and her husband Ihsan Cetin have been close
friends whose advice and encouragement have made researching and writing this book
a pleasure. I also want to acknowledge the hospitality of Dr. Marie-Henriette Gates and
Dr. Charles Gates and the other members of the Bikent University Kinet Project for their
hospitality and encouragement. I particularly thank Mimi Carre for her patient editing
effort.
In addition, I acknowledge with appreciation the University of Baltimore Educational Foundation and the Fulbright Council for the International Exchange of Scholars
for their financial support of this project.
Eric C. Schneider
Dean and Professor of Law
University of Baltimore School of Law
xxix
CHAPTER
General Introduction to Turkish Business

Law
Tugrul Ansay & Eric Schneider*
1.01
OVERVIEW
Business law is that branch of law which deals with all legal problems of business
activities. Transactions or acts might cause such problems. There might be contractual
relations, like sales or agency, transportation, insurance, banking and many others,
where primarily goods are involved or services are performed. Persons may also cause
damage to other persons in the course of doing business.
The term business in Turkish law generally indicates transactions or acts which
are not done by ordinary persons but by those who are professionally involved in
commerce. These persons may be called business people (businessmen/
businesswomen) or merchants. The latter has a more specific meaning.
Since the founding of the Turkish Republic more than 90 years ago the Turkish
economy has gone through different stages. During the early years of the Republic, the
State was involved heavily as an entrepreneur in business partly because some
enterprises were taken over as a legacy from the former Ottoman Empire. Additionally,
new factories were established and operated by the State and the State founded several
banks for financing emerging industries and established insurance companies. The
world economic crises of 1929 also forced the direct involvement of the State in the
economy. Various laws allowed State interference in business. Among the laws from
Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Kai;: University, School of
Law, Istanbul. Prof. Eric Schneider, JD., LL.M. (NYU): Emeritus Professor, University of
Baltimore School of Law, Baltimore, Maryland.
-1.02[A]
that time perhaps the most significant is the 1930 Law on the Protection of the Value of
Turkish Money 1 , which is still in force today.
After World War II, during the period of the separation of the world politically
and _economically as capitalist and communist blocks, Turkey took the side of the
so-called free market economies, giving more emphasis and encouragement to Turkish
entrepreneurs and passing various new laws making foreign investment in Turkey
attractive. Many mixed enterprises (between the State and private internal or external
investors) were created. Furthermore, Turkey participated in many international
institutions and organizations and ratified contemporary international treaties having
political, social or economic content. Turkey has recognized the jurisdiction of the
European Court of Human Rights and the European Commission on Human Rights.
Turkey has an association agreement with the European Community (now European
Union) and has been working toward full membership. It is a member of the WTO. It
adheres to the OECD Code of Liberalization of Capital Movements, and in 1987 Turkey
signed and ratified the Convention for the International Center for Settlement of
Investment Disputes, and the Multinational Investment Guarantee Agency. Protection
and Promotion of Investment Agreements have been signed with many countries.
During the 1980s and thereafter the Turkish economy has experienced a liberalization. Foreign investors started to choose Turkey as a country of investment and
Turkish businessmen became active in other countries, either by exporting goods and
services or by establishing joint ventures, participating in large foreign construction
projects and other commercial activity. Parallel to this development the State followed
a policy of decreasing its traditionally heavy involvement in business activities.
Recently privatization has become a common policy of most political parties in Turkey.
Many State enterprises have already been sold and transferred to private investors, of
native or foreign origin.
1.02
FOUNDATIONS OF TURKISH BUSINESS LAW
[A]
Statutory Sources
(1)
The Constitution
The political and economic foundations of business are contained in the Turkish
Constitution of 1982. Article 2 of the Constitution states that, "the Republic of Turkey
is a democratic, secular and social State governed by the rule of law." Various articles
mention the free enterprise system and indicate the liberal character of the economy.
Under Article 48, "Everyone has the freedom to work and conclude contracts in the
field of his choice, - and to establish private enterprises -. The State shall take
measures to ensure that private enterprises operate in conformity with national
economic requirements and social objectives and in conditions of security and
stability."
1. Law Nr. 1567, OG Feb. 25, 1930.
Chapter 1: General Introduction to Turkish Business Law
l.02[A]
The Constitution guarantees the right of ownership by listing it among its basic
rights and by establishing conditions for expropriation of private property. Under
Article 46, "The State and public legal persons shall be entitled, where the public
interest requires it, to expropriate privately owned real estate, wholly or in part or
impose administrative servitude on it, in accordance with the principles and procedures prescribed by law, provided that compensation is paid in advance." Fundamental rights are also safeguarded under the provisions of the European Human Rights
Convention.
[2]
Civil Law System
Like most European countries, Turkey belongs to the Civil Law system. In this system,
legislation is the primary source of law and is binding on courts. Legislation can take
the form of separate statutes that deal with specific issues, or be grouped by general
subject matter into codifications such as the Civil Code, the Code of Obligations, and
the Commercial Code. 2
The present Turkish Civil Code of January 1, 2001 is basically the continuation of
the Civil Code of 1926, which was taken from the Civil Code of Switzerland. It
regulates, among other matters, issues of business having to do with personal property
(ta~imr mal, menkul mal) and, through a land registry, the ownership and transfer of
real property (immovable, ta~mmaz mal, gayrimenkul mal). It also regulates transactions, which create particular in rem rights in property, such as mortgages, liens and
rights of enjoyment of property, which one does not own (usufruct). The Civil Code
also regulates the legal capacity of persons to enter commercial transactions.
The Turkish Code of Obligations of July 1, 2012 is a Turkish version of the Swiss
Code of Obligations of 1911. It regulates general contract formation and the fulfillment
and non-fulfillment of obligations as well as various special types of common business
contracts such as contracts of sale, construction, agency, guarantee, tenancy and
others. In addition to the regulation of contracts, the Code of Obligations also regulates
obligations arising out of torts and obligations based on unjust enrichment.
Another basic statutory source of business law is the Commercial Code. This
Code, in force since July 1, 2012, is Turkish in origin, but has taken a considerable
number of provisions from the laws of other countries, primarily Switzerland and
Germany. To some extent the legislation of the European Union is made a part of this
Code. It regulates business associations, negotiable instruments, insurance and admiralty law as well as some special types of contract. This Code also regulates the
Commercial Registry, Commercial Books, Trade Names and other issues such as Unfair
Competition.
Although it seems inefficient to have two or three Codes possibly covering a
particular business transaction, this development in Turkish law results from the
historical development of the codes out of European practice. Following the German
and French traditions, Turkey originally had two different sets of code provisions: one
2. See Introduction to Turkish Law, Ansay and Wallace (eds.), 6th ed., Kluwer 2011.
l.02[A]
for commercial transactions by merchants and one for ordinary transactions by

non-merchants. Today the provisions of the codes are generally applicable to all
persons and transactions, but some provisions apply only to merchants or only to
commercial transactions. For example, the provisions on offer and acceptance (contract formation) or agency contract in the Code of Obligations (Articles 3-11, 502-514)
and the provisions of the Commercial Code on negotiable instruments (Articles
645-849) are applicable to all persons, Some provisions of the Code of Obligations on
sales contracts (Article 212 II) are directed only to transactions of a commercial nature
while some provisions of the Commercial Code are only applicable to merchants
(Article 19) and some apply only if both parties are merchants (Article 23).
In order to determine when and to whom these codes apply, the Commercial
Code takes the commercial enterprise as the basic institution. A merchant is defined as
a person who wholly or partly operates a commercial enterprise in his own name
(Comm. C. Article 12). Under the Commercial Code, the obligations of a merchant are
considered commercial obligations (Comm. C. Article 19). That is, all transactions, acts
and affairs related to a commercial enterprise are characterized as commercial (Comm.
C. Article 3). Unfortunately, the Commercial Code does not contain a clear definition of
commercial enterprise but, an independent enterprise is considered a commercial
enterprise, if, among other attributes, "the volume and importance of its business
necessitates commercial accounting" (Comm. C. Article 15). Volume of business and
therefore yearly income are becoming important factors for determining whether a
business is a commercial enterprise for purposes of applying the Code (Comm. C.
Article 15; Article 11 II) .
The distinction between civil or commercial activities has lost much of its
significance over the years. The Commercial Code differentiates court cases as being
either civil or commercial and characterizes some issues as being within the jurisdiction of commercial courts (Comm. C. Article 4). Nevertheless, although there are
special chambers in the High Court of Appeal (Court of Cassation, Yargitay) to hear
commercial conflicts, there are only a few special commercial courts of first instance in
Turkey.
There are today only few provisions which provide rules specifically for merchants, and those that do mention merchants have lost their original significance.
Among those worth mention is the duty of a higher degree of diligence from merchants.
A merchant must act as a prudent businessperson in all business activities (Comm. C.
Article 18 II). The standard of care is that which is expected from a merchant who is
active in the same type of trade. 3 Although merchants are obliged to register in the
Commercial Registry (Ticaret Sicili) for merchants, the status of merchant is independent of this registration, in the sense that a person might be considered a merchant
without having registered. Only business associations cannot acquire legal personality
and become merchants unless they register.
Another requirement of the Commercial Code is that merchants must keep
commercial books. But such books, if they are kept properly, may primarily be used as
3. Arkan, p. 137 et seq.
l.02[B]
evidence in court. Similar books, even without the code requirement, must nevertheless be kept for tax purposes.
Many provisions of the Commercial Code regarding negotiable instruments,
which were enacted for merchants, have lost their relevance. Today non-merchants
commonly use checks or other types of negotiable instruments.
New types of contracts are emerging among merchants in areas such as franchising, licensing, leasing, and factoring. Many business related issues have developed
since the enactment of the Code, such as consumer protection and environmental
protection. These areas are not covered by the existing general codes, but regulated by
special laws in Turkey.
There are other statutes, regulations and decrees applicable to business transactions and activities. Some of the most significant are the Banking Law, Capital Market
Law, Law on Competition, Law on Consumer Protection, Trade Mark Law, Law on
Patents, Law on Copyrights, Law on the Control and Inspection of Insurance Companies, Bankruptcy Code, and the Law on Foreign Direct Investment. However, statutory
law does not keep pace with changes in business practice. For example, code
provisions on the formation of contracts do not take account of modem electronic
technology and new modes of communication increasingly being used to do business
in Turkey. Nevertheless, there have been some revisions in recent years of the
Commercial Code and a few reforms made in the Code of Obligations. Work on
revisions to bring the Commercial Code in line with modem business developments in
recent years to meet Turkey's commitments for its possible membership in the
European Community is progressing. Turkey became member to several international
conventions during the recent years. Some of them became a part of the Commercial
Code. Since 2012 the United Nations Convention on Contracts for the International Sale
of Goods of 1980 became a part of Turkish internal law.
[B]
Commercial Usage
If there is no statutory provision applicable to a commercial transaction, commercial
usage (teamiiller) and custom govern (Comm. C. Article 1 II). Commercial usage
among merchants is considered a custom when it lasts for a long time and when a
general feeling exists among merchants that they should follow the usage. Commercial
usage is not a legal rule as such, but is mainly referred to in the interpretation of
declarations or other expressions of intentions of the parties (Comm. C. Article 2 I).
Commercial usage as a source of law is not only mentioned in a general provision of the
Commercial Code, but also referred to in some articles of the Code of Obligations. For
commercial sales, the Code of Obligations provides that special trade usage regarding
the calculation of the weight of goods sold must be taken into consideration (C.O.
Article 233 III). According to the Ankara Chamber of Commerce and Industry, for
example, it is a usage among merchants to sell sterile cotton in gross weight.
Local usage or usage specific to a certain type of business is preferred over
general usage. A usage among carpet merchants might be different than a usage
established for the sale of clothes. If parties are not in the same locality, the usage at the
l.02[D]
place of performance governs, as long as the parties have not otherwise agreed (Comm.
C. Article 2 II).
[Cl
Court Decisions (Case Law)
Court decisions are, as a rule, binding only on the parties to that particular case. They
do not create law that binds other courts in later cases. Nevertheless, court decisions in
Turkey play an important role in the development and administration of business law.
Since legislators cannot react promptly to new business developments, courts are
often faced with the problem of creating solutions to unregulated issues by the
interpretation of laws. In this way the Turkish High Court of Appeals (Yargitay)
contributes to the development of law by its decisions. The decisions of the Yargitay
and the Council of State (Dam~tay), Turkey's highest administrative court, are not
binding on other courts in later cases in the strict legal sense, but courts of first
instance, practicing lawyers and, of course, the high-courts normally follow these
decisions. Judgments of the Chambers of the Yargitay, which are held at plenary
meetings of the Court to unify contradictory application of law by different chambers
of this court, are like parliamentary enactments in that they have legally binding effect
upon courts in future cases.
[D]
General Principles
(1) The Turkish Constitution guarantees freedom of contract. Generally the
provisions of the Commercial Code and the Code of Obligations are not
mandatory and apply only to the extent that the matter has not been covered
by the agreement of the parties. The parties to a contract can agree that certain
code provisions or commercial usage will not govern their contract. There are,
however, certain code provisions that contain general principles that are
mandatory law and will govern a contract even if the parties agree that they
should not apply. To this extent, freedom of contract is limited in the interest
of public policy. For example, a contract, which is contrary to "good morals
and public order", is not enforceable (C. 0. Article 2 7 I). The Code of
Obligations also contains a mandatory general principle, which protects the
inexperienced party, if there is an evident disproportion between the obligations of the parties and one of the parties takes advantage of the distress, the
inexperience or the improvidence of the other party (C. 0. Article 28). As a
defense to the enforcement of a contract consumers normally use this general
protection. It is unlikely that a merchant could successfully use this defense.
(2) General principles found in the introductory part of the Civil Code are
also applicable to business transactions by cross references made in the
Code of Obligations (C. 0. Article 646} and the Commercial Code (Comm. C.
Article 1).
l.03[A]
Article 1 of the Civil Code states: "The law must be applied in all cases
which come within the letter or the spirit of any of its provisions. Where no
provision is applicable, the judge shall decide according to existing customary
law, and, if there is not any, according to the rules which he would lay down
if he had himself to act as legislator."
Article 2 of the Civil Code states: "Every person is bound to exercise his
rights and fulfill his obligations according to the principles of good faith. The
law does not favor the evident abuse of rights. "4
Another principle is stated in Article 3 of the Civil Code is on good faith:
"Good faith is presumed to exist whenever the existence of a right has been
made to depend on the observance of good faith. A person can, however, not
plead of good faith in cases where he has failed to exercise the degree of care
expected by the circumstances."
1.03
STATE INVOLVEMENT IN BUSINESS
The Turkish State is involved directly and indirectly in business in Turkey. It acts
directly by establishing businesses and conducting commercial transactions. It also
acts indirectly as a regulator of private business. The role played by the State as
entrepreneur in business is diminishing, but the State is still involved in many
businesses in different ways.
[A]
Direct State Involvement
[1]
General
The State acquired some businesses during the early years of the Republic, which it
inherited from the disappearing Ottoman Empire. Some of these businesses, which the
State no longer owns, were monopolies, such as the monopoly to produce matches and
cigarettes. For example, the State is still involved in the operation of the nation's
railroads, which are run by directorates, attached directly to the State.
The State is also involved directly as an actor in business in the development of
infrastructure projects such as darns, highways, bridges and public buildings. The
activities of the State in this capacity, and contracts between the State and individuals,
may be subject to different laws than other business contracts. Disputes arising out of
these contractual relations may be under the jurisdiction of the administrative rather
than the civil courts. 5
4. See, bzsunay, "Abuse of Rights under Turkish Civil Law", Aequitas and Equity: Equity in Civil
Law and Mixed Jurisdictions (ed. Rabello) Jerusalem 1997, p. 645 et seq.
5. See Ansay and Wallace (eds.), Chapter 3 on Administrative Law.
l.03[CJ
[2]
State Economic Enterprises (SEEs) and Public Economic Institutions

(PEis)
The State operates businesses through business associations, such as corporations,

recognized by private law. These businesses are founded according to the rules laid
down by general provisions of Turkish law or through special legislation. They are
called State Economic Enterprises and are subject to the general provisions of the Civil
Code, Code of Obligations and Commercial Code when they are involved in business.
They are considered merchants.
When the State or an administrative unit of it conducts business in a joint venture
with Turkish or foreign private investors, the business organization is called a mixed
enterprise and the governmental entity, whether it operates a commercial enterprise
directly or through another legal entity, is not considered a merchant (Comm. C. Article
16 II).
In recent years, the policy of the governments in power has been to limit the
involvement of the State in business to certain vital areas. Many of the State-owned or
operated enterprises have been privatized; a process which continues.
[BJ
Indirect State Involvement in Business
(1) The Constitution places a duty on the State to accomplish economic, social
and cultural planning. The State Planning Administration (SP A, Devlet Planlama Te~kilati) was created within the Prime Ministry to carry out this duty. 6
Initially the SP A found considerable approval among the political parties and
in public opinion. Presently, the SP A is mainly a research institution, which
collects information and proposes long-term programs and five-year plans for
the government. It also supplies public information and data regarding the
development and expectations of the economy. Thus it plays a guiding role on
business in general.
(2) State Aid and Protection of Business: The State may take measures to protect
and assist certain types of small traders, craftsmen and cooperative associations (Cons. Articles 171 and 173} through tax cuts, tax exemptions, cost
minimization through infrastructure construction by the State; low-interest
credit and guaranteed loans. Certain areas in the country are receiving direct
or indirect financial advantages from the State.
[CJ
Regulation by the State
The State is authorized by the Constitution to regulate and supervise business in order
to establish a regular and stable business environment so that business runs free of
6. Constitution, Art. 166.
rs
I:
Ii
chapter 1: General Introduction to Turkish Business Law
1.03 [CJ
disturbances and conflicts. Direct regulation is accomplished by registration and permit

requirements and by governmental agencies.
[1]
State Registration Requirements
[a]
The Commercial Registry (Ticaret Sicili)
The State maintains commercial registers. All merchants and their branch offices are
obliged to register in a commercial registry. Changes in the nature or financial
condition of a business must also be registered. For example, the bankruptcy of a
merchant or the dissolution of a corporation must be registered in the commercial
registry. 7
The registry is a "public record." All persons may examine the contents of the
commercial register and all documents and certificates kept in the registry office, and
demand certified copies (Comm. C. Article 35 II). The purpose of registration is to
inform the public and to provide evidence of, among other facts, the existence of a
business association, the names of the persons who are authorized to represent a
merchant, and the manner of representation.
In situations where registration is legally required, registration and publication
are duties of the persons concerned (Comm. C. Article 27). The law may allow
non-compulsory data to be included in the register. There is, however, no serious
sanction if the obligation to register or publish is not fulfilled on time or if it is
inaccurate.
A real person merchant, as opposed to a legal person such as a corporation, who
meets the conditions of being a merchant, assumes the status of merchant even without
registration. For a real person, registration has only a declaratory effect. It makes
certain facts public, as in the case of registration and publication of a trade name. In
some situations, however, registration has a creative effect. It becomes the basis for the
validity of certain transactions. For example, a corporation acquires its existence only
upon registration.
If a fact, which should be registered, has been properly registered and, if
required, the registration has been published, third persons are presumed to have
notice of such fact. For example, with regard to business associations, without
registration (and publication, if required) third persons will not be presumed, when
dealing with a representative of the association, to have knowledge of the existence of
the association and will not be bound by contract to the association unless it is proven
that they had actual knowledge of the facts (Comm. C. Article 36).
Commercial Registries are kept on behalf of the State by Chambers of Commerce
and Industry. The persons authorized to maintain the registries are generally nonlawyers. If a registry is negligently kept and the negligence results in damages to a
party, that party may have a remedy against the Chamber.
7. See Chapter 4 on Agency and Chapter 7 on Business Associations.
1.04
[b]
Other Registries
A Land Registry (Tapu Sicili) is also kept by the State for the purpose of creating
ownership and other rights such as mortgages in immovable property. 8 A registration
is also kept for vessels (Comm. C., Article 954 et seq.) Patent and Trade Mark Registries
are also kept by the State and are regulated by statute.
[2]
State Permit Requirements
Certain activities, such as the monopolistic operation of mines and electricity producing plants, require concessions from the State. In order to be binding, the Council of
State must examine the conditions of a concession contract. 9
The formation of a business association with limited liability requires not only
registration and publication but some of them must also have the permission of the
State. Additional permits are also required for specific businesses if numerous persons
are involved and there is a public interest aspect to the business, such as in banking,
insurance or stock exchange trading.
[3]
Regulatory Agencies
The Capital Market Administration (CMA) is one of a number of autonomous institutions established by the State to monitor business activities. The CMA is empowered,
primarily, to regulate publicly held corporations (listed companies) and those corporations which act as intermediaries in stock exchange transactions or operate investment funds. Other autonomous institutions are the Competition Board, which regulates monopolistic and unfair trade practices (See Chapter 8 below), and the Board on
Consumer Protection (See Chapter 3 below), which deals with consumer problems. An
autonomous institution for Bank Regulation is also formed. In each of these institutions, the power of the State to control business is theoretically delegated to a
semi-independent, autonomous institution.
1.04
THE EFFECT OF TURKISH LAW ON THE BUSINESS

ENVIRONMENT
In general, business transactions in any country require speed, minimal formality and
trust among merchants. Turkish law has not always helped to achieve these results.
Some provisions in the Turkish Commercial Code conflict with the goal of
creating a business environment without complicated formal requirements. Although
8. See Ansay and Wallace, Chapter 8 on Property.

9. Constitution, Art. 155. In August, 1999 the Turkish Parliament amended the Constitution to limit
the role of the Turkish High Administrative Court to a non-binding review of concession
contracts.
10
l.05[A]
Turkish law recognizes freedom of contract, which includes the freedom of parties to
agree on form, it contains exceptions to this rule.
Between merchants, as well as non-merchants, procedural rules require that the
agreements should be proven by written document if the value of the contract exceeds
TRY 2,500 (Appr. USD 1,250 C. Civ. Pr., Article 200). A written letter of confirmation
sent after an oral agreement is a normal practice among merchants. A merchant, who
receives a letter confirming (teyit mektubu) the terms of an oral contract or statements
made verbally, is deemed to have accepted that the oral agreement was consistent with
the confirmation if he does not object within eight days after the day of its receipt
(Comm. C. Article 21 III).
Contracts concerning certain types of transactions must be in writing to be
enforceable. For example, suretyship (kefalet) contracts must be in writing to be valid
(See Chapter 3 on Consumer Protection).
Similarly, if negotiable instruments do not include specific language required by
the Commercial Code, they lose their validity as negotiable instruments.
The formality in Turkish law that is perhaps most inconsistent with efficient
business practices is the legal requirement for giving notice of a legal act. In order to be
valid, "all notices and warnings" between merchants to put another party "in default or
to dissolve or rescind a contract" must be made through a notary, by return registered
letter, by telegram or secured electronic signature (Comm. C. Article 18 III). Although
there was a tendency in doctrinal writings and court decisions to limit this rule and to
interpret its formal requirements not as a rule, which deprives a non-compliance notice
of validity, but rather as evidence of having given notice, the new Commercial Code
kept this rule.
1.05
PERSONS CONDUCTING BUSINESS
Individuals known as real persons or business organizations with legal personality

transact business. They may act as either merchants or non-merchants.
[A]
The Individual or Real Person Merchant
As stated above, a merchant (tacir) is a person who operates a commercial enterprise,

wholly or partly under his own name. 10 The owner of a commercial enterprise is a
merchant, even if he does not operate it personally, because transactions are done in
his name. General managers and directors of business enterprises are not merchants.
since they are not operating such organizations in their own names, but in the name of
the owner. Similarly, parents who operate a commercial enterprise belonging to a
minor are not merchants. Such representatives are, however, liable for damages
caused by their administration, as if they were merchants (Comm. C. Article 13).
10. See above at section l.02[A)[2] for discussion of merchant.
11
1.0S[D]
[B]

Business Organizations
A sole proprietorship is not usually suitable for conducting major business undertakings. There are various business entities that can be formed by groups of individuals to
pool their talents and capital or to limit their liability. The simplest way of working
together is to establish a partnership without legal personality, which is called ordinary
or simple partnership. In this type of partnership, partners act together, or they
authorize a partner to do business in their names. When a partner acts on behalf of the
partnership, he acts not only in his own name, but also for other partners. The law,
therefore, considers all partners to be merchants.
A business enterprise may also be operated by an organization formed by many
persons with separate legal personality. Turkish law recognizes two main types of
organizations with legal personality. They are called societies or business associations,
depending on the purpose for which they were formed. Societies (demekler) are
created for non-profit making purposes (C. C. Article 56). However, if a society
operates as a commercial enterprise, it is considered a merchant even if its main
purpose is charitable. Public benefit societies do not acquire the status of merchant,
even when they operate a commercial enterprise (Comm. C. Article 16 II). Business
associations (ticaret ~irketleri) of various types are recognized by the Commercial Code
as having legal personality. These business associations are merchants (Comm. C.
Article 16 I), but their partners or shareholders are not. Organizations or institutions
founded by public bodies, such as the State, a province or a municipality, to be
operated as commercial enterprises or operated according to the provisions of private
law, are also considered merchants (Comm. C. Article 16 I).
Legal personality may also be created in the form of a foundation (vakif) by
establishing a fund dedicated to a specific purpose. The issue of whether foundations
can be established to operate commercial enterprises is not yet resolved in Turkey.
There are many private universities and schools, which are operated by foundations. 11
[CJ
. Representatives of a Merchant
A merchant may authorize persons to operate his business. They may be dependent or
independent. Persons who have power to represent a merchant are generally called
"agents." A merchant may also create a branch office in a different locality than the
business center and appoint a person to manage it. Branch offices are not wholly
independent of the merchant and they are, therefore, not separate merchants.
[D]
Foreigners
Foreigners may do business in Turkey if they acquire a work permit, but some activities
are prohibited to foreigners. International Agreements may bring exemptions to this
rule. Foreigners may, with certain restrictions, own real property.
11. Arkan, 122.
12
h
1.0S[D]
Adal, E., Fundamentals of Turkish Private Law, istanbul 2012.
Ansay, T. & Don Wallace Jr. (eds.), Introduction to Turkish Law, 6th edn, Kluwer 2011.
Arkan, S., Ticari j~letme Hukuku, 18th ed., Ankara 2013.
Bazer, A. & Gi:ile, C., Ticari j~letme Hukuku, 2nd ed., Ankara 2013.
Poroy, R. & Yasaman, H., Ticari j~letme Hukuku, 14th ed., iistanbul 2012.
Si:izer, B., Legal Environment of Business, istanbul 2001.
Ulgen, H., et al., Ticari j~letme Hukuku, istanbul 2006.
13
CHAPTER

Tugrnl Ansay & I$Lk Ona/
2.01
DEFINITION AND SOURCES
One of the most common commercial transactions is the contract for the sale of
personal (movable) property (or chattle, ta$imr). When we buy a newspaper or a bottle
of wine or medicine we enter into a contract for the sale of personal property. Retailers
buy their goods from wholesalers and manufacturers. These are supplied by other
manufacturers or from the owners of raw materials, such as farmers or miners. Goods
are exported and imported between persons in different countries. All of these
transactions are based on contracts of sale.
A contract of sale is a contract in which the seller is obliged to transfer the
possession and ownership (title) of the property sold to the buyer in exchange for
payment of the agreed price (C.O. Article 207). The party who transfers ownership is
the seller (or vendor, satici) and the transferee is the buyer (or vendee, purchaser,
alici).
Sales contracts are primarily regulated by the Turkish Code of Obligations.

Following a couple of general provisions on contracts of sale, the C.O. extensively deals
with the sales of personal property. These provisions on sales of personal property can
also be considered as general provisions for sales contracts, since they are (albeit
sometimes by analogy) mostly applicable to all types of sales contracts. There are, in
addition, special provisions for some particular types of sale contract, such as sales of
real (immovable) property, installment sales, sales on approval, sales by sample and
sales by auction. Although commercial sales are mainly subject to provisions of the
C.O.; The Comm. C. Article 23 contains few rules applicable only to commercial sales.
* Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Koy University, School of
Law, Istanbul. Asst. Prof. Dr. I$1k Onay: Research assistant, Koy University, School of Law,
istanbul.
15
Tugrul Ansay & Is,1k Onay
2.02[B]
Another source pertaining to contracts of sale of personal property under Turkish

law is the United Nations Convention on International Sale of Goods (CISG). Under
Turkish law, contracts falling under CISG' s scope of application (See CISG Articles 1-6)
are governed by its provisions since August 1, 2011.
Contracts of sale concluded between a consumer and a seller are subject to a
special regime, set up by the Law on Consumer Protection (See the chapter on
Consumer Protection). Because the main purpose of this law is to protect the interests
of consumers in an age of mass production and mass consumption, most of its
provisions are mandatory and cannot be waived by agreement of the parties. The
provisions of the other laws regulating sales contracts are, for the most part, not
mandatory, and apply only if the parties have not otherwise agreed.
2.02
[A]
BASIC ELEMENTS OF A SALES CONTRACT
Subject Matter
The subject matter of a sales contract may be personal or real property. Personal
property can include every tangible thing that has economic value, including things
produced from real property such as crops, fruits and minerals. However, the property
in crops, minerals and quarry materials can only be transferred separately once they
have been extracted from the land (C.O. Article 209). Goods need not be in existence
at the time of the formation of a sales contract. For example, crops not yet grown and
which will exist in the future or do not belong to the seller at the time of contract
formation may be the subject of a sales contract.
By analogy, the Code's provisions on the sale of personal property also apply to
contracts for the sale of rights in legal claims, the transfer of a commercial enterprise in
its entirety (asset deal) or transfer of its shares (share deal), the sale of goodwill or a
share in a corporation, or copyright and other industrial property rights. Even contracts
to sell energy produced by electricity or gas are treated as sales contracts. However,
human beings may not be the subject of a sales contract. The sale of football players
from one club to another normally indicates a transfer of contractual rights and
obligations from one club to another.
Sales of real property are subject to a number of special provisions (C.O. Articles
243-245) concerning conditional sales, title retention clause, warranty regarding
defects, benefits and risks. In the absence of special provisions for sales of real
property, provisions governing sales of personal property step in. In other words,
provisions on sales of personal property are by analogy applicable for sales of real
property (C.O. Article 246).
[B]
Price
In exchange for receiving property the buyer agrees to pay a price. This exchange is the
basic feature that distinguishes a sales contract or barter (exchange, trampa, mal
deffe_$im sozle$mesi) from a gift (donation, baffe$lama). A barter is an exchange of the
16
Chapter 2: Sales of Personal Property
2.02[C)
property of a good for the property of another (C.O. Article 282 et seq.), whereas a gift
is a gratuitous transfer of property (C.O. Article 285 et seq.) The price in a contract of
sale is always a certain amount of money. This feature distinguishes the contract of sale
from barter.
Price is an essential term (essentialia negotii) of the sales contract. It must be
stated with reasonable certainty in terms of money for the contract to be legally
binding. However, it does not need to be fixed as a precise amount during the
formation of the contract. 1 It is sufficient if it is objectively determinable at the maturity
date without any need for an extra agreement (C.O. Article 207 paragraph 3). For
example, in the case of a sale of shares at the Stock Exchange, parties may set the price
as the market price at a later date. Although debated by some authors, it is also deemed
possible for parties to let a third person decide on the price at a later date.
If a buyer places an order for an item, which has a "market price" (ortalama
piyasa fiyati), expressing his/her definite intention to buy without stating a price, it is
implied that the item is to be sold at the market price at the time and place of the order
(C.O. Article 233).
The price may be in Turkish or foreign currency. If parties agree on a foreign
currency, the price is also payable in Turkish Lira. 2 Parties may prevent the buyer from
paying in Turkish Lira by explicitly stating their intention that the price is only payable
in the agreed currency (actual currency clause) in the contract (C.O. Article 99
paragraph 2).
The parties to a sales contract are free to agree on any price unless the goods are
in a limited category of goods whose prices are fixed by the Turkish authorities, such
as gasoline, fuel oil or bread.
[C]
Legal Nature
The contract for sale is of an obligatory nature. With its conclusion the seller
undertakes to transfer possession and ownership of the goods to the buyer, whereas
the buyer is obliged to pay the price. The conclusion of the sales contract per se does
not lead to a transfer of ownership under Turkish law. Due to the obligatory nature of
a sales contract, the seller does not need to be the owner of sold goods at the time of
contract formation. A person can sell goods belonging to another, and thus oblige
himself/herself to transfer possession and ownership of these. If the seller fails to fulfill
this obligation at the maturity date, he/she will be liable to pay damages to the buyer.
1. The Law on Consumer Protection, on the other hand requires the price to be clearly displayed for
sale of retail goods (Art. 54).
Note that references to the Law on Consumer Protection in this article refer to the Law nr.
6502, which comes into force as of 281h May 2014, replacing the former Law nr. 4077 on
Consumer Protection (Also see Annex to the chapter on Consumer Protection).
2. In this case, the price is determined according to the exchange rate applied at the date of payment.
17
2.03[A]
[D]
Formal Requirements
Unlike contracts for the sale of real (immovable) property such as land, which need to
be done as a public deed to be valid, contracts for the sale of personal (moveable)
property are not generally subject to any formal requirements for their validity.
However, certain types of sales contracts are subject to special formal requirements,
such as the sale of motor vehicles, shares of stock, claims, trademarks or copyrights.
Furthermore installment sales are subject to strict formal requirements (C.O. Article
253), unless the buyer is a merchant or buys the goods for purposes related to his/her
business, craft or profession (C.O. Article 263 V).
2.03
[A]
OBLIGATIONS OF THE SELLER
Transfer of Possession and Ownership
In order to transfer the ownership in goods they must normally be delivered to the
buyer. Transfer of ownership can be accomplished by either the actual (physical)
delivery of the subject matter or, more frequently, the delivery of a document of title or
ownership. For example, proper delivery of the document of title, such as a warehouse
receipt or bill of lading, has the effect of the delivery of ownership of the goods.
However, ownership can exceptionally be transferred without delivery of the
goods or of title instruments. For example, parties of a sales contract may simultaneously conclude a contract of bailment, whereby the seller undertakes to keep the
goods safe. In this case, the seller keeps hold of the goods but the ownership of the
goods is transferred to the buyer without delivery. 3 The delivery is deemed to take
place fictitiously (hiikmen teslim) and the buyer acquires ownership and indirect
possession (dolayli zilyetlik). Similarly in case of the sale of a pledged (pawned)
movable, the pledgee retains direct possession, whereas the buyer acquires ownership
with indirect possession, i.e., without delivery (zilyetli@n havalesi). It is also possible
that the buyer was already in direct possession of the goods prior to the sale (e.g., due
to a rental agreement), which obviously makes delivery redundant and the ownership
is acquired without need for delivery (kisa elden teslim).
There are, however, sales situations where delivery of goods does not transfer
title, such as when, under a contract to sell, the seller wishes to retain ownership of the
property until the fulfillment of certain conditions (title retention clause, miilkiyeti
muhafaza sakll tutma kaydi). Here the seller continues to remain the owner, despite
the delivery of goods and the acquisition of possession by the buyer.
A sale in which the goods must be delivered over a great distance may require
several interim deliveries. The passing of the goods or the document of title at each
stage of delivery is not considered a final delivery to the buyer because the goods will
be handed over to a trucker, then to the captain of a ship and other carriers until the
3. In a case where the parties concluding this agreement intend to harm third parties or circumvent
provisions governing pledging of movables, the transfer of ownership is considered null and void
against third parties (C.C. Art. 766}.
18
c
ii
a
v
c
c
g
(
2.03[A]
buyer takes actual delivery of the goods at the place of destination. Some legal
consequences of delivery do occur on final delivery, such as the buyer having a right to
inspect the goods and to send a notice to seller regarding defects (C.O. Article 226).
{1]
Place of Delivery
The parties are free to determine the place of delivery in the contract. In the absence of
a particular provision in a contract regarding the place of delivery, commercial usage
will determine where seller must deliver the goods (Comm. C. Article 1II). If there is no
clear commercial usage, the law contains the following solution: if the subject matter
of the contract to sell consists of specific goods which are known by the parties, the
goods shall be delivered at the place of their location at the time of contract formation
(C.O. Article 89 Nr. 2). Otherwise delivery must be made at the domicile of the seller
at the time when the contract was formed (C.O. Article 89 Nr. 3).
{2]
Time of Delivery
If parties did not specify a time for delivery, it must be accomplished within a
reasonable time given the nature of the sales contract. Where a time for delivery is
stated in the contract, delivery on that date may be demanded by the buyer (C.O.
Article 90 et seq.) Since the legal consequences (particularly with regard to default) of
non-performance on the agreed date vary depending on the type of date specified, it is
useful to make a distinction between two types of maturity dates: specified date and
fixed date.
If parties merely specified a time for performance without attaching any particular importance to it, the date is called a specified date (belirli vade). Where parties fix
a time for performance and explicitly state that this deadline is vital (Time-is-of-theessence clause), the agreed time of delivery is called a fixed date (kesin vade). In the
absence of an explicit Time-is-of-the-essence clause, the parties' intention of agreeing on
a fixed date may also be derived from the nature of the contract, as is the case with the
delivery of a tuxedo for a marriage ceremony.
{3]
Default (Temerrtit) of the Seller in Delivery
The consequences of failure to deliver goods at the agreed place and time are regulated
differently for ordinary and commercial sales.
In the case of an ordinary sales contract, if parties did not specify a date for
performance, the buyer puts the seller in default by sending him a notice of default. The
notice requirement for default does not apply if parties have agreed on a specific or
fixed date. In this instance the seller defaults automatically upon the expiry of the
deadline.
Once the seller defaults, the buyer may continue to demand performance and, in
addition, damages caused by delay. He/she has also two additional options, provided
that the seller is given a reasonable time to complete performance after default and the
19
2.03[B]
seller does not do so (C.O. Article 125). The first option for the buyer is to demand
damages for non-performance (i.e., damages he/she would not have incurred, had the
seller performed in time) rather than the performance itself. Finally, the buyer may
terminate the contract and demand compensation for his damages due to the termination of the contract (i.e., damages that he/she would not have incurred, had he/she not
entered into contractual relationship with the seller in the first place). If the buyer
intends to use one of the additional options, he/she must notify the seller of his
intention immediately after the expiry of the reasonable time given. In cases where a
fixed date was agreed on by the parties; it is evident that giving additional time to the
seller would serve no purpose or performance has become pointless upon the seller's
default, the buyer does not need to give the seller extra time to fulfill in order to make
use of these additional rights.
If a sales contract is commercial in nature (See Introduction), the buyer has the
same remedies as a buyer in an ordinary contract as explained above. However, there
are two particularities of commercial sales with specified dates pertaining to seller's
default and buyer's rights resulting thereof. Firstly, if a specified delivery date is
provided this date is considered to be a fixed date, which gives the buyer the possibility
to make use of his/her three options without giving the seller an additional time to
fulfill. Secondly, there is a statutory presumption that the buyer rejects late delivery
and claims damages for non-performance. Therefore, the buyer must notify the seller
immediately after the expiration of the agreed date if a late delivery or termination is
desired (C.O. Article 212 paragraphs 2-3).
In a case where the buyer decides to give up on performance and claim damages
instead, the amount of damages he/she is entitled to claim are regulated in paragraphs
2 and 3 of Article 213 of the C.O.
The buyer is entitled to claim the difference between the contract price and the
price at which he replaced, in good faith, the goods in respect of which default in
delivery was made. If there is a market price or a commodities or stock exchange price
for the sold goods, the buyer is entitled to claim damages for the difference between
that price and the contract price at the contractual date for delivery, whether or not he
has bought substitute goods.
If the subject matter of a commercial sale between merchants is divisible so that
each part is separately performable, or if the buyer has accepted partial delivery
without any reservation, a default in delivery of one part will only enable the buyer to
use his/her rights with regard to that part, unless the failure to deliver that part
significantly harms buyer's interests, defeats the purpose of the contract or it is clear
that the other part will not be delivered either (Comm. C. Article 23 Nr. 1 a).
[B]
Cost of Shipment
Buyer must pay for the cost of shipment of goods if the contract does not state who
should bear this cost and if there is no contrary commercial custom. Buyer must pay for
the costs of shipment if the goods are to be shipped to a place different than the
required place of delivery. If free delivery is stipulated, it is presumed that the seller has
20
J
]"
(!
[i
2.03[D]
agreed to pay the cost of shipping. Where the agreement provides for delivery without
harbor expenses or customs duties, it is presumed that the seller is to pay export-import
duties and duties in transit (C.O. Article 211).
[C]
Warranty of Title (Zapttan Sorumluluk)
The seller is obliged to deliver goods which are neither totally nor partially encumbered
by prevailing third-party claims which were already in existence at the time when the
contract was formed (C.O. Articles 214-218). For example, a perfect delivery of shirts
does not occur if trademarks on labels attached to the delivered shirts are not legal.
If the goods are totally encumbered, namely if the goods belong to a third party
and this person asserts his right, the contract is deemed null and void retroactively. The
seller has to return the sale price with interest, reimburse costs incurred by the buyer
and buyer's damages directly caused by assertion of the prevailing right. The buyer
may claim these, regardless of the seller's fault or knowledge of the encumbrance.
Other damages caused indirectly by the assertion of the prevailing right can only be
claimed, unless the seller can prove that he/she is not at fault.
In case of partial encumbrance of goods by prevailing rights (e.g., usufruct, or
partial ownership) the contract remains valid. The buyer may only claim damages
incurred due to the assertion of right. However, if circumstances indicate that the buyer
would not have entered into the contract, if he/she had known the encumbrance, the
judge may terminate the contract upon buyer's request. In this case, provisions
governing total encumbrance apply.
[D]
Warranty Regarding Defects
The seller is also obliged to deliver goods free from defects. This is called the warranty
regarding defects (ayiptan sommluluk) of the goods sold. It is different than sending
the wrong goods (aliud). If the seller delivers rice instead of wheat, there is no
performance at all; therefore warranty provisions do not apply. A partial performance
does not trigger warranty provisions either. If the buyer accepts partial performance,
default provisions are applicable for the non-performed part, unless lack of quantity
affects quality.
[1]
Express or Implied Warranties
Warranties may be express or implied (C.O. Article 219 I). An express warranty takes
the form of a promise or undertaking on the part of the seller regarding the subject of
the sale. For example, if the seller explicitly promises to deliver tables made of walnut
but delivers tables made of pine, the goods are considered defective. The promise need
not necessarily be explicit. If a gallery owner sells a painting for an astronomical price,
he is considered to warrant the originality of the painting, even if he did not explicitly
promise that it is original.
21
2.03[D]
If there is no express warranty, the seller impliedly warrants the necessary

qualities of the goods sold (Merchantable quality, average quality). The article is
considered defective, if it does not serve the ordinary purpose for which it will be used.
It must be noted that the P"rpose for which the article is bought plays a crucial role in
determining the necessary qualities. For example, if the subject of sale is an automobile, a functioning motor would normally be considered a necessary quality. However,
this is not the case if the automobile is bought as salvage.
The seller is liable, regardless of his/her fault or knowledge with regard to the
defect (C.O. Article 219 II). In consumer sales the producer and the importer of
defective goods are jointly liable with the seller, if the buyer chooses to make us of
his/her rights to demand the defective goods to be repaired free of charge or the
replacement of defective goods by perfect goods of the same kind (Law on Consumer
Protection, Art. 11 III).
The parties, by agreement, may exclude or limit warranties. 4 Such exclusion or
limitation may sometimes be implied, if, for example, the goods are sold for an extremely
low price or in a second hand shop. Agreements to exclude warranties will not be valid if
the seller has fraudulently concealed defects from the buyer (C.O. Article 221).
The seller is not liable for defects known to the buyer at the time of contract formation (C.O. Article 222). Defects that the buyer could have ascertained by the exercise of
reasonable care are deemed known by the buyer, and the seller will not be liable for such
defects, unless the seller additionally warranted the absence of such defects.
(2)
Exercise of Warranty Rights
(a) Inspection and Notice. To exercise his warranty rights a buyer must comply
with certain formalities. When goods that have not previously been examined by the buyer are delivered, the buyer is not deemed to have accepted
them unless he has had a reasonable opportunity to inspect. According to the
Code the buyer shall inspect the goods as soon as feasible in the normal
course of business (C.O. Article 223). The buyer in reality gets the opportunity to inspect only when the goods are actually delivered to him at the place
of destination. Upon discovering any defect the buyer must send notice to the
seller within a reasonable period of time. Failure to do so results in the loss
of buyer's remedies for defective performance. In the case of willful fraud by
the seller however, failure of timely notice by the buyer does not end the
liability of the seller (C.O. Article 225). In the second paragraph of the same
article, the Code bars the seller from asserting failure of notice in cases where
the seller carries out the sale as part of his/her profession.
For commercial sales, the reasonable period of time to send notice is set by
Comm. C. Accordingly, the buyer shall examine the goods and send a notice
within two days for obvious defects at the time of delivery, and within eight
4. Such exclusion would be invalid for consumer sales, since provisions of Law on Consumer
Protection are mandatory and cannot be altered in a way to limit consumer rights.
22
2.03[D]
days if the defects are not obvious (Comm. C. Article 23 I c). In conumer
sales, Art. 10 of the Law on Consumer protection presumes that any defect
revealed within six months after delivery was present during the delivery,
unless proven otherwise by the seller.
Delivered goods may have hidden defects that are not reasonably discoverable by the buyer. A buyer has a duty to try to discover such defects by
examination within a reasonable time and to give immediate notice to the
seller upon the discovery of such defects. If the defect is discoverable by
taking reasonable care in examination and the buyer does not react, the
buyer is deemed to have accepted the goods and loses remedies for defective
performance. Some hidden defects however may only be discovered after the
goods are used by the buyer. In these cases the buyer, provided that he/she
notifies the seller immediately after the discovery of defect, may make use of
his/her rights (C.O. Article 223/II).
(b) Limitation periods. In the case of ordinary sales, defects may not be subject
of a claim after two years from the date of delivery (C.O. Article 231). If the
buyer sends a notice within the limitation period, he/she may raise his
objection to defective delivery as a defense against claim by the seller even
after the expiry of the limitation period. This is for example the case when
the buyer asks for a reduction in price upon the seller's claim for the sales
price after the expiry of the limitation period (For consumer contracts see,
Law on Consumer Protection, Article 12). In a case of willful fraud on his/her
part, the seller may not make use of these shorter limitation periods (C.O.
Art. 231 II, Law on Consumer Protection Art. 12 III), so that the claims
resulting from the defect are subject to the ordinary limitation period of ten
years.
(3)
Buyer's Remedies for Defective Goods
When defective goods are delivered the buyer has the following options:
(a) The buyer may accept or keep the goods and demand a reduction in the
purchase price because of the diminution in value of the goods (C.O. Article
227 I Nr. 2).
(b) If the goods are fungible goods, the buyer has the option to demand that the
delivered goods be replaced by perfect goods of the same kind (C.O. Article
227 I Nr. 4). The seller may immediately offer to replace defective fungible
goods with proper ones provided that the seller pays the additional losses of
the buyer resulting from the defective delivery; thus preventing the buyer
from making use of other options (C. 0. Article 22 7 III).
(c) The buyer also has the option to terminate the contract and refuse to receive
the goods (C.O. Article 227 I Nr. 1). If he has already received the goods, he
may return them to the seller together with the benefits, if there are any,
derived by buyer. The buyer is, of course, entitled to get back the purchase
23
2.04[B]
price he has paid for the goods with interest and the seller shall also
reimburse litigation expenses and any other costs incurred by the buyer for
the sold goods (C.O. Article 229 I, Nr. 1-2).
This right of the buyer to terminate the contract because of defect is not
available if the goods are destroyed due to the negligence of the buyer or if
the buyer has transferred the goods to another person or has altered the form
of the goods (C.0. Article 228 II). A judge may not recognize the termination
of the contract and may decide that the buyer is only entitled to a price
reduction or free repair, if the circumstances do not justify termination of the
contract (C.O. Article 227 IV). But, if the loss of value of the goods due to a
defect is equal to the price of the goods, the buyer may simply demand the
termination of the contract (C.O. Article 227 V).
(d) The buyer may also ask the seller to repair the defective goods for free. This
option cannot be exercised if repairing the goods would be extremely costly
(C.O. Article 227 I Nr. 3).
(e) Regardless of the buyer's choice with regard to foregoing options, the seller
is additionally liable for damages caused by the defect. Damages directly
caused by the defect may be claimed, even if the seller is not at fault, whereas
damages indirectly caused by the defect can only be claimed unless the seller
can prove that he is not at fault.
The buyer is also protected under the provisions on bad performance,
(C.O. Article 112, see Article 227 II) and the provisions on mistake or fraud
(C.O. Article 30 et seq.), if relevant conditions are fulfilled. These demands
compete with the demands resulting from defective performance, and are of
particular importance if the buyer failed to comply with necessary formalities
to make use of provisions governing defective performance.
2.04
[A]
THE OBLIGATIONS OF THE BUYER
Taking Delivery
It is the both a duty and a right of the buyer to take physical delivery of the goods.
Unless there is an agreement or commercial custom to the contrary, immediate

acceptance is necessary (C.O. Article 232). This might be the case when the goods are
bought in a supermarket or department store. When the buyer delays or refuses to
accept the goods without any reason he is deemed to be in default.
[B]
Paying the Price
The buyer is also obliged to pay the price. 5 In the absence of an agreement to the
contrary, this obligation of the buyer is not due until the goods come into his possession
(C.O. Article 234 I).
5. See section 2.02[B].
24
a
i
[C]
Other Obligations
The buyer also has other obligations, which are of accessory nature. Examples are the
obligation to pay cost of transportation if there is no contrary custom or agreement
(C.0. Article 211 I) and the duty to take necessary precautions in distance sales
involving perishable goods (C.O. Article 226).
[D]
Default of the Buyer
General rules on default, laid down in the general contract rules of the C.O., are
applicable in a case where the buyer defaults in paying the price.
If parties have agreed on a specified date for the payment of the price, upon
expiry of the deadline the buyer is automatically in default and interest on the amount
due starts to run against the buyer without any notice being given by the seller (C.O.
Articles 234 II, 120). This interest is called interest of default (temerriit faizi).
The seller may accept late payment and demand recovery of damages caused by
late payment, if these exceed the interest of default. A particularity in the default of the
buyer in a sales contract, when compared to general provisions on default, is that the
seller may rescind the contract by notifying the buyer forthwith of his intention without
allowing an additional period of time for payment (C.O. Article 235 I-II). This rule is
only applicable for cash sales and prepaid sales. In credit sales, where goods are
delivered prior to the payment of the price the seller may not terminate the contract,
unless such a right is explicitly reserved in the agreement (C.O. Article 235 III). The
right to terminate is deemed to be' explicitly reserved if parties included a reservation of
title clause in the contract.
2.05
BENEFITS AND RISKS
The point of time, at which benefits and risks of sold goods pass from the seller to the
buyer is set by C.O. Article 208 as the moment when the possession is transferred6 for
personal property, and the moment of registration for real property.
Rules on impossibility are of particular importance with regard to risks of sold
goods. If a specific good is sold and the performance is impossible due to non-existence
of this good at the time of contract formation, this impossibility renders the contract
void (C.O. Article 27). This occurs when, for example, a particular painting by a famous
artist was destroyed by a fire before the date of the contract. If the painting is destroyed
after the contract formation but before the transfer of possession, this causes an
impossibility of performance not attributable to the debtor (seller) and C.O. Article 136
is applicable. Accordingly the obligation of the seller ceases to exist. Since the contract
6. The transfer of possession can either be carried out by actual (physical) delivery or exceptionally
without it (See section 2.03[A]). The latter cases require an agreement by the parties for the
transfer to take place.
25
2.05
Tugrul Ansay & Is,1k bnay
of sale is bilateral in nature, the buyer's obligation to pay the price extinguishes as well
(C.O. Article 136 paragraph 2). If the buyer had already paid the price, he is entitled to
restitution for unjust enrichment.
The impossibility in both cases is due to the fact that the subject of sale is a
specific good. In other words in both cases the obligation of the seller is a specific
obligation (pan;a borcu). Different legal consequences occur when fungible goods are
purchased (indeterminate obligation, cins borcu). In the sale of 100 kg. apples,
theseller's performance does not become impossible, even if the apples, the seller
already had, were destroyed before or after the formation of the contract. The seller,
bearing the risk of loss or damage prior to the transfer of possession, is still obliged to
deliver 100 kg. apples.
If the damage or loss occurs after the transfer of possession, the buyer bears the
consequences, be it a purchase of specific or fungible goods. In other words, in both
cases he/she still has to pay the price and cannot claim restitution if he/she already did
so.
The rule in C.O. Article 208 is also applicable in the case of a sale made subject
to a condition precedent (geciktirici ~art). Even if the condition is not fulfilled at the time
of delivery, the buyer bears risks and gains benefits during the time period between the
delivery and the fulfillment of the condition, once the condition is fulfilled (C. 0. Article
172). 7
It must be noted that there are some exceptions to the rule laid out in C.O. Article
208. In other words, in certain cases the passing of benefit and risks to the buyer can
take place before the transfer of possession (or registration), and sometimes it does not
take place despite the transfer of possession:
- C.O. Article 208 is not mandatory. The parties may agree on the date of the
transfer of risks and benefits from the seller to the buyer. This agreement can
be concluded both explicitly and implicitly.
- If the buyer defaults in taking delivery, benefits and risks are deemed to have
passed to the buyer. This rule is not applicable to sales of real property (C.O.
Article 208 paragraph 2). For sales of fungible goods, an extra condition for
risks and benefits to pass is required. Risks and benefits pass to the buyer, once
goods to be delivered are selected and separated.
- If the seller sends the goods to another place than the place of performance
upon the buyer's request, risks and benefits pass with the delivery of the goods
to the carrier (C.O. Article 208 paragraph 3}. For sales of fungible goods, risks
and benefits pass to the buyer, once goods to be delivered are selected and
separated.
7. This general contract rule pertaining to conditions regulates the issue only with regard to benefits,
but by analogy it is also applicable for risks.
26
6
2.05
Aral, F. & Ayranc1, H., Bon;lar Hukuku, Ozel Bon; jli~kileri, 9th ed., Ankara 2012.
GU.mu~, M.A., Bon;lar Hukuku, Ozel Hiikiimler, vol. 1, istanbul 2012.
Namer, H. & Engin, B.i ., Tiirk Bon;lar Kanunu 2. Kisim: Ozel Bon; jli~kileri, 1. Fasikiil,
1st ed., Ankara 2013.
Tandogan, H., Bon;lar Hukuku, Ozel Bon; jli~kileri, vol. I/1, 6th ed., istanbul 2008.
Yavuz, C. & Acar, F. & bzen, B., Bon;lar Hukuku Dersleri, Ozel Hiikiimler, istanbul
2014.
Zevkliler, A. & Gi:ikyayla, K.E., Bon;lar Hukuku Ozel Borr; jli~kileri, 12th ed., Ankara
2013.
27
CHAPTER

A. Lale Sinnen
3.01
INTRODUCTION
Concurrent with and resulting from the industrialization of the country, the protection
of consumers became an important issue in Turkey. However, until the adoption of the
Law on the Protection of the Consumer 1 (LPC) (Tiiketicinin Komnmasi Hakkmda
Kanun), there was no single la'Y dealing with all aspects of consumer protection.
Numerous rules of both private and public law were in many different statutes and
decrees, making their application difficult. Although many of these laws were passed
to protect consumers, they did not specifically address consumer protection nor
provide sufficient protection.
Consumer protection as a public policy was first introduced by a provision of the
1982 Constitution. Article 172 of the Constitution grants the State the authority to take
all measures necessary for the protection of consumers. The culmination of measures
taken was the adoption of the LPC, which became enforceable in 1995. With the LPC,
a special body of law, characterized by a consistent policy and aimed at the protection
of consumers' interests was established. The rules introduced by the LPC can be
divided into two groups: the first group of rules concern mostly public law and are
applicable to commercial activities preceding the delivery of a product or the supply of
a service to the consumer, and administrative sanctions that are applicable in case of
failure to comply with such provisions. Among these rules are those regulating
advertising or establishing obligations to provide information to consumers, in particular with respect to the origin, quality and price of goods on sale. The second group of
rules concern primarily private law and are intended to protect consumers after the
delivery of products or the supply of services, or after damage has occurred. In this
1. Law Nr. 4077, OG Mar. 8, 1995, Nr. 22221. Law Nr. 4077 was amended by the Law Nr. 4822 in
2003, see OG Mar. 14, 2003, Nr. 25048.
29
3.02
A. Lale Sirmen
respect, reference is made to provisions that provide compensation for damages caused
by defective goods and/or services sold to consumers.
There continues to be other legislation in addition to the LPC that affects
consumer protection. Every consumer contract is based on the law of contracts.
Therefore, the Turkish Code of Obligations (C.O.) and the Turkish Commercial Code
(Comm. C.) continue to have importance in consumer protection. Article 30 of the LPC
states that if none of its provisions are applicable to a matter, general provisions of law
shall be applied. Additionally, laws that protect public order and general Code laws
also provide consumer protection.
In fact, the renewed Turkish Code of Obligations which entered into force in
2012, contains more advantageous provisions for consumers than the LPC. Additionally, the LPC being adopted 18 years ago seems unable to cope with the problems that
arise under some new legal relationships consumers face in today's marketplace.
Therefore, a draft for a new Law On the Protection of Consumers have been prepared
and sent to the Parliament by the Government in 2013. The new Law was adopted on
November 7, 2013, but it will enter into force six months after its publication in the
Official Gazette. 2
3.02
CONSUMER CONTRACTS
The main task of the LPC is to strengthen the contractual rights of consumers. It applies
to contracts related to the supply of goods and services in the market, where one party
is the consumer and the other is either the seller or the supplier.
The term "consumer" (tiiketici) is defined in the LPC as any natural or legal
person who acquires, uses or makes use of goods or services for purposes which can be
regarded as outside of his trade and profession (Article 3 e). According to the LPC, a
"seller" is any natural or legal person, including public legal persons, who supplies
goods to consumers in his commercial and professional capacity (Article 3 f), a
"supplier" is any natural or legal person, including public legal persons, who supplies
services to the consumers in his commercial and professional capacity (Article 3 g).
The LPC defines the term "goods" as movable things that can be subject to trade,
immovable property used for residential or holiday purposes, software, audio, video
and similar intangible goods (Article 3 c). The term "services" is defined as all activities
done in exchange for a price or an interest, excluding the supply of goods (Article 3 d).
Consequently, the LPC governs contracts concluded between consumers and
sellers or suppliers in markets for goods and services which are considered consumer
transactions (Article 3 h). As long as one party is a "consumer" and the other party is
a "seller" or a "supplier" as defined by the LPC, the LPC governs their contract. If both
parties conclude the contract in the course of a business or trade, or if neither of the
contracting parties act in the course of a business or trade, the LPC is not applicable.
2. Law Nr. 6502, Official Gazette dated 28.11.2013, numbered 28835. For a brief description of the
new LPC' see the Annex.
30
.I
3.03
Chapter 3: Consumer Protection Law
Some consumer contracts, such as installment sales, timeshare contracts, package tour contracts, sales through campaigns and other prepaid sales, doorstep selling,
distance contracts, consumer credit contracts, housing finance contracts and subscriptions to periodical publications are governed by special provisions of the LPC.
It should be pointed out that the Court of Cassation has been reluctant to treat
contracts for work and insurance contracts as consumer contracts because they were
not mentioned in the LPC. 3 However, the new LPC states that contracts concluded
between consumers and sellers or suppliers in markets or goods and services are
consumer contracts even when they are not mentioned in the LPC (Articles 31 and
83/2)
3.03
GENERAL CONDITIONS OF CONSUMER CONTRACTS
Contracts, particularly those set out in printed standard forms, commonly contain
unfair terms giving the seller or the supplier the control on the terms of the contract or
the performance of the contract, or seeking to exclude or limit their liability. Consumers
are often unaware of these terms or even when they are aware of them, they may not
have the bargaining power to refuse them. Therefore, to provide adequate protection
for consumers, there must be an efficient statutory control of these terms.
The amendment of the LPC in 2003 was therefore specially aimed at ensuring
protection in an area where consumers are particularly vulnerable and are subject to
exploitation, e.g., unfair terms in the contracts. According to Article 6 I of the LPC, a
term which has not been negotiated for is unfair if contrary to the requirement of good
faith, it causes a significant imbalance in the parties' rights and obligations to the
detriment of the consumer. Unfair terms used in a contract concluded with a consumer
by a seller or a supplier are not binding on the consumer (LPC Article 6 II). The
remainder of the contract continues to bind on the parties if it is capable of continuing
in existence without the unfair terms. Article 6 III of the LPC introduces an irrebuttable
presumption of non-negotiation in the cases where the term has been drafted in
advance and gives as a typical example the case of standard form contracts. It should
be pointed out that the negotiation of a specific term individually would not exclude the
application of these provisions if an overall assessment of the contract indicates that it
is nevertheless in advance drafted standard contract (LPC Article 6 IV).
The Implementing Regulation on Unfair Terms issued in accordance with
Article 6 of the LPC contains an indicative and non-exhaustive list of terms that may be
3. Therefore, when disputes arising from these contracts are heard in Consumer Courts, the Court
of Cassation considers this to be grounds for reversal, even when one party is a consumer and the
other party is a seller or a supplier as they are defined in the LPC.For contracts for work, see the
following decisions of the 11th Civil Chamber of the Court of Cassation, dated 9.4.2002,
Nr. 5915/1689; dated 23.9.2002, Nr. 3627 /4107: Zevkliler & Aydogdu, pp. 978-979; also decision
of the General Assembly of Civil Chambers, dated 26.2.2003, Nr.15-27 /102: http://www.
kazanci.com; for insurance contracts see the decision of the 11th Civil Chamber of the Court of
Cassation, dated 18.1.2001, Nr. 106562/197: Yarg1tay Kararlan Dergisi, Vol. 27 /6, June 2001.
31
3.05
A. Lale Sirmen
considered unfair. 4 The court may only use it as an interpretative aid. The Implementing Regulation provides that unfairness shall be assessed taking into account the nature
of the goods or services for which the contract was concluded and by referring, at the
time of the conclusion of the contract, to all circumstances surrounding the conclusion
of the contract (Article 6 II}.
3.04
PROHIBITION OF FAILURE TO SUPPLY
According to the Turkish Code of Obligations, unless the contrary is clearly and easily
understood, the display of goods with a price-quotation is considered an offer (Article
8 II). Upon the acceptance of this offer by the customer, the seller cannot prevent the
conclusion of the sales contract. If goods are displayed without a price-quotation, the
LPC goes a step further and prescribes a duty on the seller to accept the offer of the
consumer. Accordingly, the display of goods in a shop window, on a shelf or in any
other easily noticeable place in a commercial enterprise means that they are available
for sale. If goods are not meant for sale they should be marked with an expression like
"sample only" or "not for sale." The seller cannot refuse to sell displayed goods nor
designate items as sold when the goods are not in fact sold (LPC Article 5 I). Likewise,
a seller cannot refuse to supply a service unless there is a justified ground for doing so
(Article 5 II). These provisions have two aspects. First, they give the consumer the right
to sue for the formation of a contract and for damages that may result from the seller's
delay in selling. In addition, they allow a fine to be imposed on the seller (LPC Article
25 II).
Moreover, the seller cannot make the sale of goods or services conditional upon
the consumer buying such goods or services in quantities, numbers or sizes or some
other goods or services determined by him unless this is a commercial usage or custom
(Article 5 III).
3.05
INFORMATION FOR CONSUMERS
The LPC has accorded an important role to consumer information. Consumer contracts
which are governed by the LPC, such as doorstep selling, installment sales, sales
through campaigns and other prepaid sales, timeshare contracts, package tour contracts, distance contracts, consumer credit contracts and housing finance contracts
must be concluded in written form typed in bold black letters of at least 12 point size
(LPC Article 6 VI) and contain particular terms required by law. Observance of this
requirement is a condition for the validity of a sales contract under the general
provisions of the C.O. (Article 12 II}. However, a claim of invalidity that is to the
detriment of the consumer would be contrary to good faith and regarded as inadmissible.
4. The Implementing Regulation on Unfair Terms is modeled on the Council Directive (EEC) 93/13
on unfair terms in consumer contracts ([1993] OJ L95/29).
32
3.06
The LPC requires sellers to display the origin, quality and price of retail goods
subject to trade. Labels on which the place of production, distinctive characteristics of
the product and price including all taxes, must be attached to goods, packages, or on
lids, and when this is not possible, lists must be made available on which the same
information is stated (Article 12 I). Those who import or manufacture industrial
products are required to issue guarantee certificates that inform consumers of their
rights should there be a breach of warranty (Article 13). Industrial goods which are
manufactured in Turkey or imported into Turkey must be sold with a user's guide
written in Turkish. The user's guide must include instructions for the use, maintenance
and repair of the goods (Article 14).
3.06
LIABILITY FOR DEFECTIVE GOODS AND SERVICES
The LPC and the C.O. regulate warranties arising from the sale of defective goods
differently, because unlike the C.O., the LPC seeks unilaterally to protect consumers.
Under Article 4 of the LPC, goods are considered to be defective if their quality,
or quantity which affects quality, is not in compliance with the standards or technical
specifications, information on their packaging or labels, instructions written in the
user's guides, warranties given by the seller, or advertisements or commercial announcements of the item. In the same manner services are considered defective if their
quality, or quantity which affects the quality, does not conform to the standards or
technical norms prescribed for them in the advertisements or commercial announcements or to the warranties given by the supplier (Article 4/ A). Additionally, goods or
services are defective if they have physical, economic or legal deficiencies which
destroy or substantially prejudice their value for the purpose for which they are
intended or totally, or partially, prevent the benefits which a consumer would
reasonably expect to receive from them.
The LPC regulates the legal consequences of consumers purchasing defective
goods. When goods are sold there is either an express or implied warranty by the seller in
favor of the consumer. Accordingly, when the purchased goods are defective the
consumer can, by notifying the seller within 30 days starting from the date of their
delivery, withdraw from the contract, return the defective goods and recover his money,
or demand a reduction in the purchase price or demand repair of defective goods free of
charge, or the replacement of the defective goods with new goods. If the defects could
not be discovered with the exercise of reasonable care, or if there is willful fraud by the
seller, buyer's failure to give notice does not limit the warranty. However, the seller has
no liability for defects known to the consumer at the time of the contract (Article 4 V). In
this context, the LPC obliges the seller of used, repaired or defective goods to label them
with the expression "defective" in a manner easily noticeable by the consumer. The
same information must also be provided in the invoice, receipt or sales voucher
furnished to the consumer. These rules do not apply to sellers selling only defective
goods, or who permanently provide a section of their business premises, such as a floor
or a shelf, for the sale of defective goods (Article 4 VI).
33
3.08
A. Lale Sirmen
The seller, the dealer, the agent, the manufacturer (or the producer),the person
who has imported defective goods, the creditors and the housing finance institutions
which grant house financing loans shall be jointly and severally liable for any damage
caused to the consumer by the delivery of defective goods. The liability of the housing
finance institutions shall be limited to the amount of the credit. The time limit for
actions based on warranty is two years from the date of delivery to the consumer.
For defective goods, the LPC imposes a duty on manufacturers and importers to
establish service stations, to keep spare parts in stock and to employ qualified
technicians for the maintenance and reparations of the goods they sell for a period of
time specified in the relevant Implementing Regulation (Article 15).
The LPC also regulates the legal consequences of consumers purchasing defective
services. In the case of a defective service, the consumer can, by notifying the supplier
within 30 days following the date of performance, rescind the contract or demand
either the performance of the service or a reduction in the price in proportion to defect
(LPC Article 4/ A II).
3.07
CERTIFICATE OF GUARANTEE
Importers or manufacturers are obliged to issue and furnish guarantee certificates for
industrial goods imported or manufactured (LPC Article 13). The period of warranty
starts from the date of delivery of the goods and covers at least a period of two years.
The certificate of guarantee must contain the number and the date of the invoice of the
goods sold, as well as their label (bandrol) and serial number.
In case goods fail to perform their functions within the period of warranty due to
faults in either material or of assembly, the seller is under an obligation to repair the
items. If, due to frequent failures in the performance of goods within the period of
warranty, the consumer is permanently prevented from using them, or when the
maximum period of time allowed for their repair has expired, the consumer is entitled
to demand from the seller the replacement of goods. For any violation of this
obligation, the seller, the dealer, the agent, the manufacturer (or the producer) and the
person who imports the goods sold are jointly and severally liable.
3.08
PRODUCT SAFETY
In order to ensure a high level of protection, safety and health for consumers, the Law
on the Preparation and Implementation of the Technical Regulations Concerning the
Products 5 was adopted in 2001. This Law imposes a general obligation that manufacturers and distributors shall place only safe products on the market. Products which are
in compliance with the requirements prescribed in their technical regulations are
regarded as safe products. Conformity with the requirements of the technical regulations however, does not prevent competent authorities from imposing restrictions or
requiring the withdrawal or recall of unsafe products. Under the LPC, the Ministry of
5. Law Nr. 4703, Official Gazette dated Jul. 11, 2001, numbered 24459.
34
I
3.09[A]
Customs and Trade and consumer organizations are authorized to bring an action for
the cessation or prohibition of the production and th~ sale of defective goods which are
mass-produced (Article 24 I).
It should be noted that there is also a regulation in Turkey similar to the European
Directive 85/374 of July 25, 1985 on the liability of producers for defective goods under
which an injured party may have a claim for damages based on non-contractual
grounds. According to Article 6 of The Implementing Regulation on the Liability
Arising from Defective Goods issued in accordance with Article 4 of the LPC, the
producer of a defective product or the person who has imported it must compensate
any damage caused by it to the physical well-being or property of individuals, whether
or not there is any fault on the part of the producer or the person importing it. A product
is to be regarded as defective when it does not provide the safety which a person is
entitled to expect, taking into account all the circumstances, including its presentation,
the use to which it could reasonably be expected to be put, and the time at which it was
put into circulation.
3.09
[A]
CONSUMER CONTRACTS GOVERNED BY THE LPC
Installment Sales
An installment sale is a type of sale in which the seller is under an obligation to deliver
goods or render services before receiving the purchase price and the buyer promises to
pay the purchase price in portions at successive periods. Installment sales are used
primarily by persons of lower income to secure the ownership of goods without having
to pay the full purchase price immediately. As the successive installments usually
represent a relatively small amount, it is hard for the consumer to estimate the real
amount of his commitment.
Installment sales are extensively governed by the C.O., but the LPC also has
provisions related to the sale of the goods and services under which the price is paid in
successive installments. Both the C.O. and the LPC have introduced a set of conditions
that are essential for the validity of an installment contract. First, a written form is
required. Second, the contract must include specific terms that are essential for it to
take effect, such as the price of the goods or services on a cash basis, the price increase
resulting from the payment by installments, the amount and the annual ratio of
interest, the amount of interest for delay, the amount of the initial payment and the
payment plan which covers the number of installments and their due dates (C.O.
Article 253, LPC Article 6/ A). Any increase in the agreed price after the formation of the
contract will not be effective (LPC Article 6/ A VI). The seller must give a copy of the
contract to the consumer (LPC Article 6/ A III). If the seller fails to act accordingly, he
will be fined as prescribed in the LPC (Article 25 II).
In case of default by the buyer in the payment of one or more installments, the
seller may demand the total amount owed only if the consumer is in default with the
payment of at least two consecutive installments the sum of which must not be less
than one tenth of the purchase price provided that, the seller has reserved such right in
35
3.09[C]
A. Lfile Sirmen
the contract and performed all his obligations under the contract (LPC Article 6/AV).
In addition, the seller must give the buyer a period of grace to pay of not less than a
week. This period of grace is however 15 days in Article 259 III of the C.O., and 30 days
in Article 19 of the new LPC.
If the buyer is in default with the payment of an installment, the seller may also
rescind the contract only if he has reserved such right (C.O. Article 259 II).
The buyer may at any time pay the balance of his debt in a single payment or
discharge part of his debt in more than one installment payment in advance. In both
cases, the consumer is entitled to a reduction in the sum of the interest in proportion to
the amount of his payment (LPC Article 6/ A IV).
The C.O. goes one step further and grants the buyer the right of withdrawal from
the contract without being required to give any reason within seven days after a copy
of the contract reaches him (C.O. Article 255).
[B]
Timeshare Contracts
A time share contract is any contract or a group of contracts concluded for at least three
years under which the rights relating to the use of one or more immovable properties
for a specified or specifiable period of the year which may not be less than one week,
is purchased (LPC Article 6/B). The Implementing Regulation Concerning Timeshare
Contracts sets out minimum requirements to be included in the contract which shall be
in writing (Article 5). Specified items which must be included in the contract cover
matters such as the identities and domiciles of the parties, the exact nature of the right
to be purchased, an accurate description of the property and its locations as well as the
supporting services such as gas, electricity, and water connections. The consumer may
withdraw from the contract within 10 days after the parties have signed the contract (IR
Article 6. I).
[CJ
Package Tour Contracts
The LPC concerns not all travel, but only package travel. According to Article 6/C of the
LPC "package" is a holiday covering a period of more than 24 hours or including
overnight accommodation and which must be a combination of at least two of three
components when sold or offered for sale at an inclusive price. These three components are transport, accommodation, or other tourist services. The contract must be in
writing. Article 12 of the Implementing Regulation on Package Tour Contracts issued in
accordance with Article 6/C states that a brochure must be made available to the
consumer which shall indicate both the price and adequate information concerning a
list of matters including destination, transport, type of accommodation and itinerary.
The consumer is entitled to be compensated for non-performance of the contract (IR
Article 9). If the organizer finds before departure that he has to alter the price due to a
change in respect of dues, taxes or exchange rate, he must notify the consumer as
quickly as possible. The consumer may either withdraw from the contract or be entitled
to a substitute package of equivalent value (IR Article 6 II).
36
i
'
[D]
3.09[E]
Sales through Campaigns and Other Prepaid Sales
The LPC refers to sales through campaigns where consumers are invited to participate in campaigns organized by informing the public through announcements made
in the press, on radio, television or by other means of communication, and by
which the goods are promised to be delivered or services to be rendered after payment
(Article 7 I). With regard to sales through campaigns, not only the seller, but also the
manufacturer (or the producer), the person who imports the goods sold, the creditors
and the housing finance institutions which grant house financing loans are jointly and
severally liable for failure to deliver the goods and render the services announced in the
prescribed time and for breach of contract in respect to the price, quality and quantity
of the goods and services (Article 7 III). However, the liability of the housing finance
institutions shall be limited to the amount of credit.
In sales through campaigns, the seller is required to give the consumer in writing
information concerning the date on which the campaign will be over and the date and
manner of delivery of the goods and performance of the services. In addition the seller
must give the information specified for sales by installments (Article 7 V).
In sales through campaigns, where the purchase price is paid in installments,
provisions concerning sales by installments will also apply (Article 7 IX).
[E]
Doorstep Selling
Doorstep selling is defined in the LPC, as sales that are carried out in places other than
a seller's business place or a fair or an exhibition (Article 8 I). In such sales, the
consumer has the right to reject the goods without being required to give any reason
until the end of a seven-day period which begins to run after the goods are delivered.
Until the expiration of this period, the seller is required not to receive any payment, as
well as any document which imposes a liability upon the consumer. In addition, the
seller is under an obligation to take back the goods within 20 days after he receives the
notice of withdrawal (LPC Article 8 III).
These contracts must be made in writing and in addition to the other terms
required to be included in the contract, the seller is also obliged to insert in it a phrase
typed in bold black letters of at least 16 point size, in which the consumer is informed
of his right to withdraw from the contract and of the seller's obligation to take back the
goods sold (LPC Article 9).
The consumer should sign the contract in which the rights conferred to him have
been inscribed and write down the date in his own hand writing. If the seller, in case
of a dispute, fails to prove that a contract has been drawn up in accordance with the
said provisions and the goods sold have been delivered to the consumer, the consumer
would not be bound with the seven-day period to exercise his right of withdrawal.
37
3.09[H]
[F]
A. Lale Sinnen
Distance Contracts
A distance contract is any contract where the delivery of goods or performance of

services take place iIDIDediately after the conclusion of the contract or later. It should be
concluded using written, audiovisual, telephonic and electronic means or other means
of distance communication without physically meeting the customer. The consumer
must be furnished with certain information indicated in the Implementing Regulation
on Distance Contracts, and the contract may not be concluded before the consumer
confirms in writing that he or she has received such information (IR Article 6). The
seller or the supplier must execute the order within a period of 30 days following the
date on which the consumer's order reaches the seller or the supplier. However, the
said period may be extended for a maximum of 10 days by notifying the consumer in
writing (IR Article 9 I).
[G]
Subscriptions to Periodic Publications
According to the LPC, consumers who have subscribed to a periodic publication, may
cancel the contract at any time provided they notify the seller in writing (Article 11 /A
I). The publisher must carry out the cancellation within 7 days after he received the
notification (LPC Article 11 /A II) and refund the rest of the subscription fee within 15
days following the termination of the contract (Article 11/A IV). A notice of the
termination begins to run when it is received by the publisher. It is effective after 15
days for daily publications, after one month for weekly publications and after three
months for monthly publications. For publications of a longer period, the notice of
termination takes effect following the date of the first publication after the notice is
communicated (Article 11/A III). Unfortunately, the regulation of the LPC as it regards
to periodic subscriptions has not been successful, particularly when buyers have
agreed to a certain period of time for a notice of termination to take effect.
The LPC regulates the incentives that can be offered by publishers of periodical
publications in their organized campaigns. Because incentives may include only
cultural products such as books, reviews, magazines, encyclopedias, flags, posters,
magnetic bands, or optical discs (LPC Article 11) the constitutionality of this Article
was challenged in the Constitutional Court. The Court held that the Article is not
contrary to provisions of the Constitution regarding freedom of the press, freedom of
contract and the principle of equality before the laws. 6
[H]
Consumer Credits
The only statutory provision that covers consumer credit contracts in Turkish law is in
the LPC (Article 10). However, it covers only consumer credit contracts made between
consumers and banks or other similar financial institutions.
6. Decision of the Constitutional Court, dated 29 .9 .1998, Nr. 1998/25 /56: Official Gazette dated Mar.
18, 1999, numbered 23643.
38
3.09[1}
The LPC has prescribed a number of conditions that are necessary for the validity
of such contracts (Article 10 II). The credit contract must be made in written form and
include the annual interest rate and a payment plan in which the date of the payments,
the amount of the capital, the amount of interest and other charges are expressly
indicated. The total amount of credit, total cost of credit with interest and other
charges, the guaranties required, the rate of interest for default, and the legal
consequences of debtor's default in payment must be also stated in the contract.
Furthermore, the contract must contain clauses regarding the payment of the
total credit before the time fixed. A consumer may discharge part or all of the obligation
in a single payment before the time fixed and is entitled to a reduction in the sum of the
interest and commission fee in proportion to the amount of payment (Article LPC 10
IV). However, an amendment of the terms of the contract, after its formation, to the
detriment of the consumer is prohibited (LPC Article 10 I).
Where credit is made available exclusively for the purchase of specific goods and
services or for the purchase of goods and services from a certain seller or supplier, and
if the seller or supplier fails to perform his obligation or does not fulfill it properly, the
consumer has the right to a remedy for loss against the grantor of the credit, who is
jointly and severally liable with the seller and supplier (Article 10 V).
Credits provided to consumers by the use of cretlit cards are also regarded as
consumer credits (LPC Article 10 /A).
[I]
Housing Finance Contracts
Housing finance is an extension. of loans that are made to consumers in order to

acquire, lease, or secure a house. Loans extended to refinance loans are also included
in the housing finance context. "Housing finance institutions:' are banks that lend or
lease directly to consumers for the purposes of housing finance and leasing companies
and consumer finance companies which are found eligible to operate in housing
finance by the Banking Regulation and Supervision Agency.
According to Article 10/B, housing finance institutions are obliged to provide
consumers general information about loans or leasing transactions and deliver "precontractual information sheet" that contains the conditions of the loan or leasing
agreements offered to the consumer before making the contract. Consumers have the
right to accept or reject the offer. A housing finance contract is not considered signed
and will be considered invalid unless one day passes after the issuance of the
pre-contractual information sheet provided to the consumer (LPC Article 10/B II).
A housing finance contract must be written and a copy of the contract must be
submitted to the consumer. The conditions of the contract cannot be amended to the
detriment of the consumer (LPC Article 10/B III).
In case the consumer falls in default with a payment, the housing finance
institution is obliged to notify the consumer within five working days (LPC Article 10/B
IV). If the consumer is in default for at least two consecutive payments, the housing
finance institution has the right to demand the remaining payments by giving a grace
period to pay of at least one month (LPC Article 10/B V).
39
3.10
A. Lale Sirmen
In financial leasing transactions, if the contract is cancelled by the housing

finance institution due to a default of the consumer, the housing finance institution is
under the obligation to sell the house. The housing finance institution shall sell the
house acting in a prudent way, regarding the value of the house. Where the housing
finance institution cannot recover its loss from the sale of the house, it can demand it
from the consumer. If the amount obtained from the sale of the house is above the
remaining debt, then the amount exceeding the debt will be paid to the consumer (LPC
Article 10/B VI) .
However, if the loan has been granted on condition that a sales contract is
concluded with a specified seller, or for the purchase of a specified house, and the seller
fails or delays to deliver the house, the consumer has the right to a remedy for his loss
against the grantor of the credit, who is jointly and severally liable with the seller up to
the credit amount(LPC Article 10/B IX).
3.10
ADVERTISING
There are a number of legislative provisions that seek to protect consumers against
dangerous advertising in some specific areas. For instance, pursuant to Article 11 of the
Law on the Establishment and the Broadcasting of Radios and Televisions, advertising
for alcohol, tobacco and pharmaceuticals that are available only with a medical
prescription is prohibited on radio and television. 7
Erroneous or misleading advertising is considered to be unfair competition and
customers who are injured in their economic interest by such advertising are given the
right to bring proceedings to obtain an acknowledgement of the illicit nature of the
advertising or the cessation, prohibition or correction thereof. They may also bring
proceedings to claim compensation for damages (Comm.C. Articles 56, 57).
The content of advertising must also comply with the provisions of the LPC that
require that commercial advertisements and announcements to be in compliance with
the law and public morality and be accurate and true. Advertisements and announcements are prohibited if they are misleading, unfair, exploit the lack of experience,
endanger the safety of the consumer in health and property, promote violence and
crime, injure public health, or exploit children, the elderly or handicapped persons
(Article 16 II).
The LPC provides for the establishment of the Advertising Council, which is
made up of representatives of several public institutes, the advertising industry, the
media and consumers (Article 17). The Advertising Council issues principles which
commercial advertisements and announcements must observe and impose monetary
penalties and order the cessation or correction of advertisements or announcements
which do not comply with the provisions of the LPC.
7. Law Nr. 6112, Official Gazette dated Mar. 3, 2011, numbered 27863.
40

3.11
3.12[B]
PENALTIES
The legislature has introduced a system of administrative penalties which is codified in

the LPC (Articles 25 and 26) to assure compliance with the obligation to provide
information to consumers, to protect the economic interests and safety of consumers,
and the formal provisions mandating the contents of consumer contracts. The system
allows competent public authorities to impose fines on the perpetrator of infringements
up to a certain amount.
3.12
CONSUMER INSTITUTIONS
The two consumer institutions established under the LPC to protect the interests of
consumers are the Council of Consumers and the Arbitration Committees for Consumer Problems.
[A]
Council of Consumers
The Council of Consumers is an advisory body, operating under the coordination of the
Ministry of Customs and Trade. It deals with measures to be taken to meet the needs
and to protect the interests of consumers and may issue recommendations regarding
the implementation of the LPC. The Council of Consumers consists of representatives
of several ministries, state bodies, public institutions, the Bar Association and representatives of consumer organizatipns, such as consumer associations and foundations
(LPC Article 21). The president of the Council is the Minister of Customs and Trade.
However, the Minister may appoint a ministry official as president.
[B]
Arbitration Committees for Consumer Problems
The Arbitration Committees provide a quick and inexpensive mechanism for the
resolution of consumer disputes (LPC Article 22). There is at least one arbitration
committee in each province or district. The Director of Trade of the province or an
officer appointed by him is the president of the committee. The committee is composed
of five members including the president.
The LPC sets a monetary limit and grants judicial power to Arbitration Committees for Consumer Problems only where a dispute involves a value below the relevant
limit (Article 22/V). Accordingly, Arbitration Committees for Consumer Problems have
exclusive power to deal with disputes valued at an amount below the monetary limit as
indicated in the LPC. The said monetary limit is determined each year at the end of
October, based on the increase in the wholesale price index of the State Statistics
Institute, and is announced in the Official Gazette in December by the Ministry of
Customs and Trade (LPC Article 22/VI). However, in the case where a province is
governed by a Metropolitan Municipality, the Arbitration Committee of the capital of
the province can only deal with disputes where the value of the claim is not below a
value which is determined and announced by the Ministry of Customs and Trade every
41
t
3.13
A. Lale Sirmen
year in December. Disputes involving an amount below this limit must be brought
before the Arbitration Committees of the districts within the boundaries of that
Metropolitan Municipality. 8
If a consumer's claim is valued at an amount equal to or more than the monetary
limit established in accordance with the LPC, 9 the claimant is not required to bring the
dispute before the Arbitration Committee for Consumer Problems, and if he desires to
obtain an enforceable decision, the claimant must bring the dispute in a Consumer
Court. However, if such a dispute is brought before an Arbitration Committee, the
decision of the Committee constitutes a source of evidence that can be presented in
Consumer Courts (LPC Article 22/VI).
3.13
CONSUMER COURTS
The establishment of consumer courts was a major reform in the area of consumer
protection brought about by the LPC which states that all disputes arising from the
implementation of the LPC will be within the jurisdiction of consumer courts (Article
23). Consumers are entitled to initiate proceedings to protect their personal rights in the
consumer courts. In addition, the Ministry of Customs and Trade and consumer
organizations are able to bring an action for cessation or prohibition of the production
and sale of defective goods that are mass-produced (Article 24). The Ministry of
Customs and Trade may also bring an action for the cessation and correction of unfair
commercial advertisements and announcements in the consumer courts (Article 25
VII).
Consumer courts are special lower courts in which lawsuits are heard in
accordance with the procedure prescribed in the Code of Civil Procedure for a simple
trial. However, the decisions of consumer courts can be reviewed by the Court of
Cassation. It should be noted that litigation brought before the consumer courts by
consumers or consumer organizations are exempt from all fees and duties (court costs)
(LPC Article 23 II).
8. For the year 2014, the claims for which the district Arbitration Committees have exclusive power,
are required to involve an amount less than TRY 1,272.19; the value of the claims which the
provincial Arbitration Committees are to deal with is required to be not less than TRY 3,321.17:
Official Gazette dated Dec. 25, 2013, numbered 28862.
9. See the previous note.
42
b
3.13
ANNEX
The latest Law on the Protection of the Consumer ("LPC") will enter into force on 28
May 2014. It aims to keep pace with consumer protection legislation of the European
Union. However, it contains some provisions which are not modeled on EU Law.
The notable differences between the former and the new LPC can be summarized
as follows:
I. Definitions
The core definition of "goods" remains untouched. However, the new LPC defines the
term "consumer" as any natural or legal person who acts for purposes outside a
business and trade (Art. 3k). According to the new LPC, a "seller" is any natural or legal
person, including public legal persons, who offers goods to consumers with a commercial or professional purpose or who acts in the name or on behalf of the seller (Art.
3i), a "supplier" is any natural or legal person, including public legal persons, who
offers goods to consumers with a commercial or professional purpose or who acts in
the name or on behalf of the supplier (Art. 31).
II. Consumer Contracts
According to the new LPC, a consumer transaction is any contract made between a
consumer and natural or legal pe.rsons, including public authorities and institutions,
who act with a commercial or professional purpose or those who act in the name, or on
behalf of them, in the market of goods and services. The new LPC rejects the argument
supported by the Court of Cassation10 that only contracts which have been covered by
the former LPC are consumer contracts by explicitly stating that contracts, such as
contracts for work, agency contracts, brokerage contracts, insurance contracts, contracts for transportation, and all contracts regarding banking and similar transactions
can also be consumer contracts (Art. 31}.
Moreover, consumer contracts, such as installment sales, timeshare and long
term holiday product contracts, package tour contracts, doorstep selling, distance
contracts, distance contracts of financial services, consumer credit contracts, housing
finance contracts, prepaid sale of houses, and subscription contracts, are governed by
the provisions of the new LPC.
Since, the new LPC seeks to adopt the legislation of the European Union on
consumer contracts, the provisions regarding timeshares and long term holiday
product contracts, package tour contracts, doorstep selling, distance contracts, distance contracts of financial services and consumer credit contracts are predominantly
inspired by the provisions of the current directives of the European Union covering
10. See above, 3.02.
43
A. Lale Sirmen
3.13
these contracts 11 . The significant consequence of this innovation is that the new LPC
aims to ensure consumer choice by imposing information duties on the seller and the
supplier and prescribing cooling-off periods in favor of the consumer. Consumers have
the right to withdraw in the case of installment sales within seven days; in the case of
consumer credit contracts, prepaid sale of houses, doorstep selling, distance contracts,
distance contracts of financial services timeshare and long term holiday product
contracts, consumers have the right to withdraw within fourteen days of the conclusion
of the contract. However, most of the provisions of the former LPC regarding
installment sales, package tour contracts, and doorstep selling and distance contracts
remain untouched. Like the former LPC, the new LPC leaves the determination of the
particular terms of the contracts to implementing regulations.
III. Liability for Defective Goods and Services
In the new LPC there are two definitions made for defective goods. Firstly, the goods
are regarded as defective if they do not comply with the mutually agreed model or
sample or are not in conformity with the contract, because they do not objectively have
the required quality (Art. 8/1). The second definition of defective goods in Article 8/2
is similar to the definition made in the former LPC.
According to the new LPC, the seller is liable for any defect in the goods becoming
apparent within six months of delivery and will be presumed to have existed at the time
delivery unless the contrary is proved by the seller. This presumption will not apply
where it is incompatible with the nature of the goods or the defect in the goods (Art.
10). The seller is liable for any defect in the goods appearing within two years of
delivery. This time limit is five years in the case of immovable property used for
residential or holiday purposes. The rights to which the consumer is entitled in the
former LPC have remained the same.
Likewise, a defective service has two definitions in the new LPC. Any service
which is not rendered on the date fixed by the parties to the contract or is not in
conformity with the contract, because it does not objectively have the required quality
is regarded as a defective service (Art. 13 /1). The second definition of a defective
service is about the same as the definition in the former LPC. In the case of a defective
service, the consumer can rescind the contract or demand the performance of the
service or the repair of the work free of charge or a reduction in the price in proportion
to the defect (Art. 1S).
11. Parliament and Council Directive (EC) 2008/122 of Jan. 14, 2009 on the protection of consumers
in respect of certain aspects of timeshare, long-term holiday product, resale and exchange
contracts ([2009] OJ 133/10); Council Directive (EC) 90/314 ofJun. 13, 1990 on package travel,
package holidays and package tours ([1990] OJ 1158/59); Council Directive (EEC) 85/577 of
Dec. 20, 1985 to protect the consumer in respect of contracts negotiated away from business
premises ([1985] OJ 1372/31); Council and Parliament Directive (EC) 97 /7 on the protection of
consumers in respect of distance contracts ([1997] OJ 1144/19); Parliament and Council
Directive (EC) 2002/65 of Sept. 23, 2002 concening the distance marketing of consumer financial
services ([2002] OJ 1271/16); Parliament and Council Directieve (EC) 2008/48 of Apr. 23, 2008
on credit agreements for consumers ([2008] OJ 1133/66).
44
3.13
IV. Unfair Commercial Practices

The new LPC contains a provision on unfair commercial practices 12 . According to
Article 62, a commercial practice is unfair when it is contrary to the requirements of
professional diligence and materially distorts, or is likely to materially distort average
consumers' behavior. Where a specific group is targeted, the behavior of the average
member will be taken into consideration in determining the impact of the practice.
Practices that are misleading or aggressive are regarded as unfair. Unfair practices are
forbidden.
V. Access to Justice
Under the new LPC, a consumer can no longer bring the dispute before the Arbitration
Committee for Consumers if his claim is valued at an amount equal to or more than the
monetary limit established in accordance with Article 68. Consequently, Arbitration
Committees for Consumer Problems are no longer empowered to give decisions which
constitute a source of evidence in accordance with Article 22 of former LPC.
The monetary limit which is set to determine the area of the judicial power of
Arbitration Committees for Consumer Problems and Consumer Courts will be fixed
every year according to Article 298 of the Code of Tax Procedures, which is based on
the increase in the wholesale price index of the State Statistics Institute.
The provisions regarding the structure and functioning of the Arbitration Committees for Consumer Problem~ and Consumer Courts remain to a large extent
unchanged.
Arslan, i. Y., Tiiketici Hukuku, 2nd ed., istanbul 2004.
Yavuz, N., bgretinin ve Uygulamamn I~1gmda Tiiketicinin Korunmas1 Hakkmda
Kanun ~rhi, 2nd ed., Ankara 2010.
Zevkliler, A. & Aydogdu, M., Tiiketicinin Korunmas1 Hukuku, 3rd ed., Ankara 2004,
pp. 158-159.
Sirmen, A. L., "Consumer Redress in Civil Proceedings in Turkish Law". Ankara Law
Review 3, no. 2 (Winter 2006): 83-97.
12. The regulation of the unfair commercial practices in the new LPC is inspired by the Parliament
and Council Directive (EC} 2005/29 of May 11, 2005 concerning unfair business-to-consumer
commercial practices in the internal market ([2005] OJ Ll49/22}.
45
CHAPTER
Agency
Tugrul Ansay & I$ik Onay *
4.01
AGENCY CONTRACT AND AGENCY RELATIONSHIP (VEKALET

SOZLE$MESi VE TEMSIL iLi$KiSi)
The conduct of business is often so complicated that a single person as a merchant may
not be able to administer all his affairs by himself. Agency (temsil, vekalet) makes it
possible for a merchant to act' through intermediaries. These intermediaries are
different than those persons such as workers or employees, who have no power of
representation. It must also be noted that administrative bodies (e.g., the board of
directors), who administer the business of legal persons, such as general partnerships
or corporations, are not agents. They are the so-called "organs" of the legal person, and
any act on their part concerning the legal person's business is attributed to the legal
person (C.C. Article SO).
The term agency denotes two different, yet connected concepts, which should be
differentiated: agency relationship (C.O. Article 40 et seq.) and agency contract1 (C.O.
Article 502 et seq.) The agency relationship (temsil ili$kisi) between an agent and a
principal pertains to the former' s representation2 of the latter, when dealing with third
parties. The agency contract (vekalet sozle$mesi), however, is a contractual relationship between the agent and the principal, regulating their rights and obligations
towards each other.
* Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Ko<; University, School of
Law, Istanbul. Asst. Prof. Dr. l~tk bnay: Ko<; University, School of Law, Istanbul.
1. The term agency may also be used to indicate a specific type of agency contract (acente). See
below, section 4.06[C].

2. The term representation is used in the sense of voluntary representation (iradi temsil), i.e. power
of representation given by an act in law. It must be distinguished from statutory representation
(kanuni temsil), an example of which is the power of representation given to the parents of a
minor, who lacks the lack legal capacity to administer his own affairs.
47
Tugrul Ansay & I~1k Onay
4.01
The agency relationship is formed through a unilateral act (authorization) by the

principal, giving the agent power of representation (temsil yetkisi). However, both
parties need to consent for the agency contract to be formed. This discrepancy is due
to the fact that the agency contract imposes obligations on the agent, whereas the
agency relationship per se does not create an obligation for the agent. The authorization to represent is directed to third parties and is separate from the contractual
relationship between the principal and agent and, therefore, does not create any rights
or liabilities between the principal and agent. In an agency relationship it is up to the
agent to make use of his power of representation or not. This difference between the
agency contract and the agency relationship becomes apparent in cases where minors
with capacity to consent are involved. A minor with capacity to consent may represent
a principal in an agency relationship, but cannot enter into an agency contract without
the consent of his guardian.
In an agency relationship the agent (temsilci) is a person who enters into transactions in the name of or on behalf of another person, who is called the principal (temsil
olunan). In other words, here the term "agency" refers to the power of the agent to
represent the principal as to third persons. If the agent acts in the name of the principal,
the principal is a party to the transaction, but the agent is not (C.O. Article 40 I). Thus
a triangular relationship is created between the principal, the agent and the third party.
The power of representation mostly results from a contractual relationship between the
agent and the principal. This contractual relationship may be an agency contract, but
is not necessarily one. An employee in a service contract or a partner in a partnership
agreement may also be granted a power of representation.
In an agency contract, the agent undertakes to carry out, in accordance with the
agreement, the business or services with which he is entrusted (C.O. Article 502 I).
Rules on agency contracts are by analogy applicable to other contracts not regulated
under the C.O. when the subject of the contract is the provision of a service (C.O.
Article 502 II). An agent in an agency contract is usually granted power of representation; however, this is not a necessity for agency contracts. A brokerage agreement, for
example, does not create a power of representation in the broker, despite being a type
of agency contract. The broker only brings parties together to enter into a business
transaction (C.O. Article 520 et seq.). There are a variety of agency contracts, with or
without the power of representation. Some are regulated in the Code of Obligations and
others in the Commercial Code or in various other statutes.
In practice, people generally give a power of attorney (vekaletname) prepared by
a notary. Such documents are valid without the concurrence of the person who will be
authorized to be the representative, that is, without any contractual relationship
between the principal and agent. Usually, however, when there is an agency contract
between a principal and agent, the principal also authorizes the agent to represent him.
As a result, agents may be classified as those having the power of representation and
those not having this power. The commercial representative is an agent with representative powers, whereas the commissioner (komisyoncu) 3 or broker is only an
3. A commissioner is a representative who acts in his own name, but on behalfof the principal (C.O.
Art. 532}.
48
L,
Chapter 4: Agency
4.02
intermediary who, without entering into contracts in the name of any person, tries to
bring the parties together to do business.
The agency contract shall be distinguished from other contracts concerning the
provision of services. An agency contract is different from the relationship of employer
and employee, which is based on an employment contract. In an agency contract, the
agent may or may not receive a fee for his services, whereas in employment contracts
the employee always receives remuneration. In an employment contract the duration
of the employment is the most fundamental term, whereas in an agency contract the
fulfillment of the service is decisive. A lawyer, for example, represents his client in a
court case under an agency contract. But the same lawyer is a servant when he works
as a legal consultant for a bank. In the latter case, he gives his services for a definite or
indefinite period of time during which he is an employee.
Agency is also different from an independent contractor's contract in that the
contractor undertakes to produce a work (eser sozle~mesi). In such contracts, the
contractor promises to achieve a particular result (e.g., to complete a construction) in
exchange for remuneration, but in an agency contract, the agent merely undertakes to
work towards a result. If the agent works towards that result observing his duty of care
and loyalty, he is deemed to have fulfilled his obligation, irrespective of whether the
result was achieved or not. Simply put, in agency contracts the labor or work is more
important than the result, when compared to the contract to produce a work. A doctor
treating a patient would be considered as an agent in an agency contract, whereas a
dentist who undertakes to make a denture for his patient would be considered as a
contractor.
4.02
CR.EATING AGENCY
An agency contract may be entered into by agreement of the principal and the agent,
based on an explicit offer and acceptance. An exception to general contract rules on
formation, particular to the agency contract, is found under C.O. Article 503. According
to C.O. Article 6, silence of the offeree does not constitute an acceptance of the offer,
unless the particular nature of the transaction or the circumstances are such that
express acceptance cannot reasonably be expected. C.O. Article 503 provides an
example for circumstances where express acceptance cannot be reasonably expected:
"An agency contract is deemed to have been accepted where it has not been declined
immediately and relates to business which is conducted by the agent by official
appointment or on a professional basis or for which he has publicly offered his
services."
As noted before, the consent of the agent is not required for the formation of an
agency relationship. The principal may grant the agent power of representation in
various ways. 4 The power of representation may be given by a declaration addressed
to the agent, which might be done by giving a letter of authorization to the agent or to
4. The authorization may also come subsequent to the agent's action in the principal's name. In this
case the agent's action binds the principal as if the agent was authorized at the outset.
49
Tugrul Ansay & I~1k bnay
4.03
third persons or by public announcement. In exceptional cases, the principal may also
be held responsible for the agent's actions, despite the absence of a declaration on the
principal's part. For example, the principal's intention to authorize the agent may be
derived merely by his acts or conduct (implicit authorization). When, for example, the
owner of a hotel allows a person to occupy the position and assume the duties of a
clerk, authority to represent may be inferred from his actions. Even if the principal does
not actually have the intention to authorize the agent, his conduct may be such that it
creates a legal appearance, which leads third persons to believe that "the agent" has
actual authority (apparent authority, agency by estoppel). That is for example the case
if the principal sees a person dealing with third persons in his name without his
authorization and does not interfere.
The Code of Obligations does not require a special form either for the agency
relationship or for the agency contract. Even an oral agency contract or an oral
declaration giving power of representation is valid. However, agency contracts (or
relationships) authorizing the agent to dispose of immovable property registered in the
Land Registry should be notarized (Regulation on Land Registry Article 13 IV).
Moreover, agency contracts (or relationships) authorizing the agent to sign a suretyship contract (kefalet sozle~mesi) in the name of the principal, are subject to the strict
formal requirements of suretyship contracts (C.O. Article 583 II). It should also be
noted that some statutes require the appointment of the agent to be in writing. The
power of representation of an insurance agent and its scope, for example, must be in
written form and it must be registered and publicized. 5 The authority given to a lawyer
to represent a party in court must also be made before or approved by a notary (C. Civ.
Pr. Article 76 I).
4.03
DUTIES AND LIABILITIES OF THE AGENT AND THE PRINCIPAL
There is a fiduciary relationship based on confidence between the principal and agent.
It is expected that the agent will exercise reasonable care, skill and diligence in the
performance of his tasks. He is responsible for damages that he willfully or negligently

causes to the principal. Negligence is measured by the conduct of the ordinary prudent
person in doing a similar service (C.O. Article 506 III). In some cases, however, a higher
degree of skill may be required. This is so if the agent is also a merchant.
An agent is required to carry out his duties in person, unless he is authorized or
it is customary or he is compelled by circumstances to act through another person. If an
agent improperly appoints a substitute, he is responsible for the acts of the substitute
(C.O. Article 507 I). The agent must obey all lawful and express instructions of his
principal (C.O. Article 505 I). He must give an account to his principal for all property
or money belonging to his principal, which comes into his possession (C.O. Article
508).
An agent may serve gratuitously, although he is usually entitled to compensation.
Sometimes this compensation is called an "honorarium". Whether the agent is entitled
5. Law Nr. 5684, Art. 23 II.
50
4.04[A]
Chapter 4: Agency
to remuneration from the principal depends upon their agreement, which may be
express or implied. That an agent is to be compensated is implied when one requests
another to perform services connected with the latter's commercial enterprise, or
under circumstances which reasonably justify the expectation of being paid. For
example, when one asks a commissioner (Komisyoncu) or an attorney to act in his
professional capacity, such person may demand an appropriate fee (Comm. C. Article
20). The amount of compensation, in the absence of agreement, is determined by usage
or customary rates, or by what the services are reasonably worth at the time and place
where they were performed. The principal must also reimburse the agent for all
disbursements and for all expenses incurred in the lawful discharge of the agency for
the benefit of the principal (C.O. Article 510 I, Comm. C. Article 20). The principal
must, furthermore, indemnify the agent for any loss or damages sustained in the course
of carrying out his duties, unless he can prove that damages have occurred without his
fault (C. 0. Article 510 II). However, even if the principal can prove that he is not at
fault, he must share the loss of the agent in cases where the latter acts gratuitously.
4.04
[A]
RELATIONSHIPS WITH THIRD PARTIES
Agent and Third Persons
The extent of the power of representation may vary. The scope of agency may be freely
determined by the agreement of the parties in agency contacts, and by the principal in
case of an agency relationship. Unless parties agree otherwise, the scope of agency is
determined by the nature of the business to which it relates (C.O. Article 504 I).
An agent may be appointed as a general or specific agent. A specific agent is one
who is empowered to transact definite affairs or to do a certain service. He has limited
power, like purchasing only a particular painting or signing a contract of employment.
An agent, however, may also be empowered to do all kinds or some kinds of
transactions in connection with a particular enterprise. Examples are the commercial
representative, commercial agent, general agent, salesman, traveling salesman or
agents who transact certain business at a particular location (acente) or act as an
intermediary only (like broker, commissioner). In such cases, one may speak of a
standardization of representative authority. The specific title given to the agent also
expresses the particular content of representative power defined by law. A commercial
representative, for example, has the power to do everything within the scope of
business of the enterprise (The exceptions are stated in the C.O. Article 548). In the
case of corporations, the stated scope of business of the corporation creates the limits
of the power of representation (See chapter on Business Associations). The head of a
branch office is authorized to do everything within the scope of the business of the
main office at the locality of the branch office. In order to protect third parties acting in
good faith, the law has given in such cases a specific content to the power of
representation. The interests of third parties, relying on the published powers of the
agent are protected. If third parties are notified of a power of representation, the scope,
51
4.04[B]
with regard to notified parties, will be determined by the content of the notification
(C.O. Article 41 II).
In spite of being appointed as a general agent, the agent additionally needs
specific authorization to bring a law suit, to declare settlement, to enter into an
arbitration agreement, to declare or postpone bankruptcy, to ask for a bankruptcy
arrangement, to sign a negotiable instrument, to give a gift, to sign a suretyship
contract, to transfer real property or to create other real rights in real property in the
name of the principal (C.O. Article 504 III).
If an agent is given a general power, a subsequent limitation of the power of
representation cannot be asserted against third parties unless the third party has
knowledge of the limitation. One method to insure this knowledge of limitation by third
parties is to send them circular letters. A method of limiting the power of representation
is to create joint representation (elbirliifi ile temsil). In joint representation, the
signature of one representative alone is not sufficient to establish a binding relationship
between the third party and the principal. Another way of limiting a power is to
establish a branch office. This limits the power of the representative to that locality.
Those who may not have a power of so-called positive representation may have
a negative power of representation. Certain employees of a merchant, for example,
have statutory power to receive notices in the name of the principal (See below, section
4.06).
[B]
Principal and Third Parties
When an agent enters into a contract for his principal within the scope of his authority,
he usually incurs no liability. The effect of agency is that all legal declarations made by
an agent in the name of a principal bind the principal. Only the principal, not the agent,
is a party to the transaction (direct representation, dogmdan dogmya temsil). There
are, however, other instances where the agent may become liable.
A person may enter a transaction as an agent without having authority (falsus
procurator, false representation) or by exceeding the limits of the given authority
(yetkisiz temsil). In such instances the false agent becomes personally liable for
damages incurred by a third party, unless the transaction is ratified by the principal or
the false agent can prove the third party's knowledge of his lack of authority (C.O.
Article 47). This ratification (approval, icazet) may be express or implied. The third
party is entitled to call upon the alleged principal to make his choice within a
reasonable period of time (C.O. Article 46 II). If the transaction is subsequently ratified
by the principal, the transaction binds the principal as if the agent was authorized at the
outset. 6
6. These statements pertain to the principal's relationship with third parties. The internal relationship between the "false agent" and the principal is governed by different rules in different
scenarios:
If the transaction is subsequently ratified, the rules on agency contracts are applicable.
This is also the case even if no contractual relationship has existed between the parties
prior to the "false representation" (C.O. Art. 531).
52
Chapter 4: Agency
4.05
An agent who fails to disclose the existence of his agency or the identity of his
principal becomes liable as though he were acting for himself (undisclosed principal).
If the principal is undisclosed and the agent acts in his own name but on behalf of the
principal there is an indirect representation (dolayli temsil). 7 In this case, there is no
privity of contract between the principal and the third party, and the principal is not
liable to the third party. In order to create a legal relationship between the principal and
the third party, the rights and obligations derived from the transaction must be
assigned and transferred to the principal (C. 0. Article 40 III). 8 Such an assignment or
transfer is not necessary when, under the circumstances, the other party had implied
notice of the agency, or the identity of the contracting party was not a matter of
difference to the third party (C.O. Article 40 II).
4.05
TERMINATION OF THE AGENCY CONTRACT AND AGENCY

RELATIONSHIP
Here again the distinction between the agency contract and the agency relationship
should be emphasized. An agency contract may be terminated but the relationship may
continue, if, for example, the notice of termination or withdrawal of the power of
representation has not reached the third party. The power of representation may,
however, be fully or partly revoked, although the contract does not lose its validity.
Usually the termination of the power of representation also causes the termination of
the agency contract. Therefore, when an agent is dismissed or has resigned, died,
became insane or bankrupt, the agency relationship and the contract will terminate
An agency contract may be terminated in the way a contract is generally
terminated: by fulfillment of the contractual obligations, by mutual agreement, upon
the happening of a particular event, etc. However, since the agency relationship is
based on mutual confidence, the principal may dismiss the agent or limit his power of
representation at any time. Similarly, the agent may also refuse to represent the
principal (resignation, abandonment, istifa) at any time. The principal's waiver
(feragat) of his right to limit or revoke power of representation in advance is not
binding (C.O. Article 42 II). If the dismissal or resignation is done at an unreasonable
time the principal or agent must compensate the other party for damages caused by
such termination (C. 0. Article 512) .
If the transaction is not ratified and no contractual relationship exists between the parties,
rules on agency without authority (C.O. Art. 526 et seq} are applicable and the principal
may claim damages. If conditions are fulfilled the principal's claim may also be based on
tort or unjust enrichment.

If the transaction is not ratified but a contractual relationship (e.g. an agency contract}
exists between the parties, the agent's act without (or exceeding} authority is considered
a breach of contract, and the principal's claim of damages are based on this contract.
7. For example, a commissioner acts in his own name, but on behalf of the principal (C.O. Art. 532}.
8. In the case of an agency contract, if an agent has acquired claims from third parties acting in his
name but on the principal's behalf, these claims are deemed to be transferred to the principal by
law, once the principal fulfils all his obligations against the agent (C.O. Art. 509 I}.
53
4.06[A]
The termination of the power of representation has widespread effects on third

persons. If the principal had given notice to third persons of the power of representation he should also inform them in the same manner when the power is terminated
(C.0. Article 42 III); other 'se he will be bound by transactions entered into by his
agent with bona fide third persons. Even if a commercial representative is not
registered, the dismissal of a commercial representative shall not be effective as to bona
fide third persons if it .is not registered in the commercial registry (C.O. Article 550).
This also applies to the dismissal of a partner by a general partnership (kollektif ~irket).
The partner leaving the partnership continues to bind the partnership with his legal
transactions against third parties acting in good faith if the termination of his
representative power is not registered in the comrnercial registry (Comm. C. Article
259). Similarly, the principal will be liable to third parties acting in good faith if the
instrument of authorization is not handed back to the principal after the termination of
the power of representation (C.O. Article 44).
4.06
[A]
DIFFERENT TYPES OF AGENTS

Comme11cial Rep11esentative (Gene11al Manage11, Tica11i Temsilci, C.O.
Articles 547-550)
A comrnercial representative is an agent who is expressly or impliedly authorized by

the owner of an enterprise to conduct the business and to sign "per curation" (C.O.
Article 547). If the enterprise is non-comrnercial, the authority given to a commercial
representative is effective as to third persons only if registered in the commercial
registry (creative effect). If the enterprise is a comrnercial enterprise, the representative
might be authorized to represent the enterprise before registration. In this situation,
registration is still necessary, but it has only declaratory effect (C.O. Article 547 II). The
discharge of a comrnercial representative must also be entered into the comrnercial
registry. An unregistered termination is not effective against third persons acting in
good faith (C.O. Article 550).
A conunercial representative is a kind of general agent. He is an alter ego of the
principal. He has the power, as far as bona fide third parties are concerned, to enter into
all kinds of transactions within the scope of the enterprise, including signing negotiable
instruments (C.O. Article 548 I). But, he is not entitled to transfer real property or to
create other rights in real property without the specific authorization of the principal
(C.O. Article 548 II). The extent of the powers of the commercial representative derives
from the title given to him by the principal, and it may not be subject to any limitation
unless third persons have received notice or have actual knowledge of such a limitation
or have acted in bad faith (C.O. Article 549) .Nevertheless, the power of representation
may be limited to the business of a branch office or only requiring joint representation. In such cases, the limitation must be registered in the commercial registry (C.O.
Article 549).
54
4.06[C]
Chapter 4: Agency
[B]
General and Special Agents
A general agent is generally empowered to administer an estate belonging to the

principal, who is normally not a merchant. Such a general agent can do everything
within the ordinary scope of administration of an estate. Nevertheless, as mentioned
earlier, he is not entitled to commence a lawsuit, declare a settlement, consent to
arbitration, sign negotiable instruments (kambiyo taahhiidii), to declare or postpone
bankruptcy, to ask for a bankruptcy arrangement, to sign a suretyship contract (kefalet
sozle~mesi), to make gifts or transfer real property or create other rights in real property
(C.0. Article 504 III) in the name of the principal.
A commercial agent (ticari vekil) is another type of general agent acting in the
name of a merchant to operate a commercial enterprise. He/she is similar to the
commercial representative, but with fewer powers. He is not authorized to make loan
agreements, to sign negotiable instruments, to file a law suit or represent the principal
in a law suit, unless he has additional specific authorization to do such acts (C.O.
Article 551 II).
[C]
"Acente"
[1]
Acentelik
"Acentelik" is a separate institution under Turkish law. An "acente" is an agent who

contractually obliges himself to act as an intermediary for the conclusion of contracts
for a commercial enterprise or to' form such contracts in the name of such enterprises
on a continuous basis in a determined place or area without having a dependent
position like commercial representatives or commercial agents (Comm. C. Article 102
I). "Acente" is subject to the special provisions of the Commercial Code on "acentelik"
(Comm. C. Articles 102-123). These provisions are taken partly from the Swiss Code of
Obligations (Article 418 a-418 v) and also from the German Commercial Code (Article
84 et seq.) There are also special provisions regarding some particular type of acentes,
such as insurance agents.
There are two main types of acentes: The first type is those who act as
intermediaries to help parties by negotiating transactions and concluding contracts
relevant to a commercial enterprise (broker agent). Normally an acente makes contracts in the name of a commercial enterprise.
The broker agent has a limited power of representation derived from statute. He
is authorized to make or receive all kinds of notices or protests in the name of the
principal to protect the interest of the principal. Suits deriving out of broker transactions may be brought against and in the name of the principal or the broker and the
broker can initiate suits in the name of principal. A contrary agreement between the
principal and the acente is not permitted (Comm. C. Article 105). The agent may
receive payments only for goods he personally has delivered and can accept delivery
only of goods for which he personally has paid (Comm. C. Article 106).
55
4.06[C]
A second type of acente has, in addition to the above stated representative powers
of the broker acente, authority to enter into contracts in the name of the principal. The
acente may, as a rule, enter into contracts in the name of an enterprise only if such an
authority is given to him in written form and this authorization is entered in the
Commercial Registry (Comm. C. Article 107). However, even if there is no written
authorization, the principal is still bound by contracts made in his name by an agent
acting beyond his authority, if subsequently approves the contract (Comm. C. Article
108).
The provisions of the Turkish Commercial Code on acente are also applicable to
those persons who are permanently authorized to conclude contracts in their own
names but on behalf of foreign enterprises (commissioner agent). The same rules are
furthermore applicable to those persons who carry on transactions in Turkey in the
name of and on behalf of foreign commercial enterprises having no business center or
branch office within the country (Comm. C. Article 103). Because of this agency
assumption stated in the Code, Turkish courts will assume jurisdiction against foreign
persons entering into transactions through an acente within Turkey. Agreements to
exclude such a jurisdiction are not binding (Comm. C. Article 105 I and II).
[2]
The Contractual Relationship between the Acente and the Principal
Although the acente is an independent person, a confidential relationship involving a

certain degree of trust exists between the acente and the principal. An acente is obliged
to act as a prudent businessman in order to protect the interests of the principal. Unless
there is an agreement to the contrary, the principal may not appoint at the same time
more than one acente in the same locality or area for the same branch of business, and
the acente may not act as intermediary on behalf of several commercial enterprises in
competition with each other in the same locality or area (Comm. C. Article 104). Since
the agency contract gives exclusive power to the acente within a certain area, the
principal is no longer entitled to enter into the same kind of transactions with third
persons, personally or through other agents. If he does, he must pay a commission to
the exclusive agent as if those transactions were transacted by the agent (Comm. C.
Article 113 II).
The parties usually agree on the manner of the payment to be made to the agent
for his work. Normally an agent gets a commission on a percentage basis. If there is no
mention in the agreement, the amount of the commission is determined according to
the prevailing usage at the place of the agent (Comm. C. Article llS).
[3]
Termination
An agency contract is terminated when the time period stated in the contract expires.
When the contract is entered for an indefinite period of time (in contrast to the normal
agency relation) the acente contract may be terminated by giving a notice of three
56
Chapter 4: Agency
4.06[D]
months. If there are justifiable grounds the contract may be terminated at any time by
sending a notice (Comm. C. Article 121). When the contract is terminated third persons
also must be informed that the power of representation is ended (C.O. Article 42). If the
parties continue to work after the end of the agreed fixed term, it is assumed that the
relation is prolonged for an indefinite time (Comm. C. Article 121 II).
The principal is obliged to compensate the agent for losses due to the termination
of the contract without giving the required notice or without any justifiable ground
(Comm. C. Article 121 IV). Furthermore, the acente may demand payment for
transactions concluded after the termination of the contract (Comm. C. Article 113). If
the agency contract is terminated without a justifiable ground or without giving a three
months notice, the party who terminates the contract is obliged to pay compensation
for damages caused to the other party for unfinished work (Comm. C. Article 121 IV).
The acente may also demand, if it is equitable, a reasonable amount of compensation,
if the principal gets considerable benefits out of clientele gained by the acente
("goodwill compensation"), if the acente has not acted negligently (Comm. C. Article
122). The amount of this compensation should not exceed the average commission
received during the last five years. Waiving this right beforehand is not binding
(Comm.C. Article 122).
[D]
Sole Distributor
A distributor is another type of business arrangement whereby the distributor makes

efforts, as an independent intermediary, to market the products of the manufacturer
continuously and within a certain'territory as an exclusive distributor.
There are two main types of distributorship. The distributor may sell products in
the name of the manufacturer in which case he is acting as an acente. The distributor
may also sell in his own name but on behalf of the manufacturer. It is, however,
common practice in import trade that the distributor buys products himself and re-sells
them to customers. In this situation, the distributor is subject to the code provisions
governing sales contracts. He has no representative power that might cause the
application of the code provisions governing agency contracts. But, since the peculiarities of the exclusive distributor (sole distributor) relationship are not regulated by
special provisions in Turkish law and since the continuous relationship between the
manufacturer and the exclusive distributor resembles the exclusive acente, it has been
suggested that the code provisions on acente should also be applied to the exclusive
distributor.
One of the problems which most frequently arises on the termination of an
exclusive distribution relationship is the payment of compensation due to the loss of
expectations arising out of the established network of customers. This "clientele
indemnity" or "goodwill compensation" may be demanded under conditions similar to
the acente relationship (Comm.C. Article 122 V).
,1
4.06[D]
Aral, F. & Ayranc1, H., Bon;lar Hukuku, Ozel Bon; jli$kileri, 9th ed., Ankara 2012.
Arkan, S., Ticari j$Zetme Hukuku, 17th ed., Ankara 2012.
Kocayusufpa~aoglu, N., Bon;lar Hukukuna Giri$, Hukuki hlem, Sozle$me, 4th ed.,
istanbul 2008.
Tandogan, H., Bor9lar Hukuku, Ozel Bor9 jzi$kileri, vol. II, 5th ed., istanbul 2010.
58
CHAPTER
Secured Transactions (Securities and

Seuretyship)
A. Lale Sirmen *
A security is an instrument furnished to a creditor to resort to if a debtor fails to fulfill

his obligation. Securities (teminatlar) can be classified in terms of the rights created
thereby as personal securities and real securities.
Personal securities create rights in personam. Therefore, such rights can be
asserted only against persons who have given the securities. Unlike personal securities,
real securities create rights in rem~ which can be asserted against any third person. If
the debtor fails to fulfill his obligation, the creditor whose debt has been assured by a
real security can request from the appropriate Execution Office a foreclosure whereby
the mortgaged property is sold in satisfaction of mortgaged debt. In this procedure, the
mortgagee creditor takes priority over other creditors and exercises his right to the
exclusion of other ordinary claims.
A personal security can be given in the form of suretyship, guarantee or simply by
assuming the obligation as a co-debtor. On the other hand, real security is provided for
by mortgages or pledges.
5.01
[A]
PERSONAL SECURITIES (~AHSI TEMINA TLAR)
Suretyships (Kefalet)
Suretyships are governed by special provisions set out in Articles 581-603 of the
Turkish Code of Obligations (C.O.).
* Professor of Law, ihsan Dogramac1 Bilkent University, Ankara.
59
5.0l[A]
{l]
A. Lale Sirmen
Introduction
A suretyship is a contract in which the surety assumes the obligation to the creditor of
the principal debtor for the payment of the latter's debt (C.O. Article 581). It is a
unilateral contract, in which only the surety promises to perform without receiving any
promise of performance from the other party. The principal debtor does not take part
in the contract; his consent is not even required for the validity of the contract.
Although a contract of suretyship is a surety's own separate contract, its validity
depends upon the existence of a valid principal obligation.
Because the obligation arising from a suretyship is an accessory obligation,
(incidental to the principal obligation) its performance cannot be requested unless the
principal obligation has become mature and enforceable. For the same reason, the
creditor can assign his accessory claim in question only with the principal claim and the
assignment of the principal claim includes also the transfer of this accessory claim
{2]
Requisites for a Valid Suretyship
[a]
A Principal Obligation
A legally valid suretyship requires the existence of a' principal obligation. However, it
is not essential that the principal obligation should exist when the contract is formed.
Thus, payment of a future or conditional debt may be assumed by the surety, provided
that it becomes effective at the time the creditor asserts his rights against the surety
Contracts containing provisions that are impossible, illegal or contra bonos mores
are void (C.0. Article 27 I), and they cannot create enforceable obligations. Therefore,
if the principal obligation is void by reason of incapacity of the principal debtor, the
contract made to secure such a debt is unenforceable. The same rule applies when the
debtor rescinds the contract that created the principal obligation due to mistake, fraud
or duress. However, if the surety assumes an obligation knowing it arises from a
contract which is void as against the principal debtor due to mistake or incapacity, the
surety becomes liable for the obligation (C.O. Article 582 II).
[b]
Capacity of the Surety
Only persons who have full contractual capacity are able to give securities by entering
into contracts of suretyship. The appointed representative of a person without legal
capacity cannot bind the person without capacity to a suretyship contract. Likewise, an
agent requires special authority to establish a suretyship in the name of the principal.
However, a commercial representative who is authorized to conduct business by the
owner of a commercial enterprise may establish a suretyship that obligates the
principal as surety for the debt of another (C.O. 548).
60
chapter 5: Secured Transactions (Securities and Seuretyship)
5.0l[A]
A married person may validly become a surety in favor of third persons only with
the written consent of the other spouse given in advance, or simultaneously, unless the
spouses are separated by a court decision or the joint household is suspended (C.O. 584
I). However, the consent of the other spouse is not required in exceptional cases
mentioned in the third paragraph of Article 584 of the Code of Obligations. For
example, if the suretyship is provided by the owner of a commercial enterprise or the
partner of a business association in connection with the business activities of the
commercial enterprise or the business association, there is no need for the consent of
the other spouse.
To be valid, a contract of suretyship must be in writing and contain a declaration
of intent to create a suretyship, the maximum amount of suretyship liability, the date
of the suretyship and the identity of the creditor, the principal debtor and the principal
obligation (C.O. Article 583 I). It is essential that the principal obligation be either
identified or formulated in such a way that it is capable of being identified. If a surety
assumes a number of debts arising from a single contract, they must be sufficiently
defined by means of a statement about their origin. The surety must indicate the
amount for which he is liable, the date of the suretyship and the existence of joint and
several liability, if any, in his own handwriting in the surety document itself. The
formal requirements applicable to the contract of surety also apply to subsequent
amendments where the total liability of the surety is increased (C.O. Article 583 III).
{3]
Kinds of Suretyship
[a]
Ordinary Suretyships (Adi Kefalet)
In an ordinary suretyship, the promise of the surety is entirely collateral to the principal
obligation and does not impose primary liability on him. Therefore, the creditor must
first sue the principal debtor. He cannot demand payment from the surety unless he has
made a reasonable effort to exhaust proper remedies against the principal debtor.
Otherwise, the surety is entitled to plead as a defense against the creditor that the
security agreement is not enforceable. However, there are four cases in which the
surety cannot plead this defense. The creditor can demand payment from the surety
first if after the date of formation of the suretyship the debtor is the object of debt
enforcement proceedings initiated with due diligence by the creditor which have
resulted in the issue of a definitive certificate of loss. This is also true when the debtor
has become bankrupted, obtained a debt restructuring moratorium or litigation in
Turkey has become impossible or significantly difficult as a consequence of the debtor
moving his residence abroad (C.O Article 585 I).
If a real security which secures an obligation was created before the date of or
concurrently with the suretyship, the surety may require that the creditor satisfy his
claim first from such real security, provided the debtor has not been declared bankrupt
or obtained a debt restructuring moratorium (C.O. Article 585 II).
61
A. Lale Sirmen
5.0l[A]
[b]
Joint Surety ships (Miiteselsil Kefalet)

0
If a surety promises as a joint surety or as a co-debtor or by similar expressio ns, the

creditor may have recourse against the surety before the principal debtor and before
realizing the mortgaged property provided that the principal debtor has defaulted or is
manifestly insolvent.
The creditor may resort to the surety before realizing pledged chattels and claims
only to the extent that these are deemed by the court unlikely to cover the debt or where
such sequence was agreed or where the debtor has been declared bankrupt or obtained
a debt restructuring moratorium (C.O. Article 586).
[c]
Co-suretyships (Birlikte Kefalet)
Several sureties who jointly ensured the payment of the same divisible claim are liable
for their part as ordinary sureties and for the parts of the others as secondary sureties.
If they have, together with the principal debtor or among themselves, assumed liability
as joint sureties, each of them is liable for the whole debt and may han:: recourse
against the others up to the amount of their share for payment made to the creditor
(C.O. Article 587).
[d]
Secondary Suretyships (Kefile Kefalet)
A secondary surety guarantees to the creditor the performance of the obligation

assumed by a primary surety and has, therefore, the same liability for the obligation
of the primary surety as the ordinary surety has for the principal debtor (C.O. Article
588 I).
[e]
Counter Suretyships (Rucua Kefalet)
The counter surety is responsible to the surety who paid the debt, and may have
recourse for payment against the principal debtor (TCO Article 588 II).
[4]
Liability of the Surety
The surety is liable only to the extent of the maximum amount stated in the surety
document (C.O. Article 589 I). Unless otherwise agreed, the surety is liable up to the
limit of this maximum amount, including the legal consequences of any fault and
default on the part of the principal debtor. The surety is also liable for costs of debt
enforcement proceedings and legal action brought against the principal debtor, provided that the surety was given timely opportunity to avoid them by satisfying the
creditor. In addition, where it is applicable, the following costs fall on the account of
the surety: delivering pledges and transferring liens, interest at the contractually agreed
rate up to a maximum of the interest payable for the current year and the previous year,
62
Chapter 5: Secured Transactions (Securities and Seuretyship)
5.0l[A]
and annual payments due for the current year and the previous year (C.O. Article 589
II). The surety is not liable for damage resulting from the extinction of the contract and
any contractual penalty. Unless otherwise provided by the contract or dictated by the
circumstances, the surety is liable only for the principal debtor's obligations that are
created after the conclusion of the surety contract (C.O. Article 589 III).
[5]
Defenses for the Surety against the Creditor
The surety is entitled and obliged to plead against the creditor the defenses to which
principal debtor or his heirs are entitled to (C.O. Article 591 I). The surety can allege
that the principal debt is not binding on account of incompetency of the principal
debtor, or that the collection of the principal debt is barred by lapse of time, or that the
principal debt has been discharged. In an ordinary suretyship, the surety can demand
that the creditor ask for payment first from the principal debtor or first have recourse
to the pledge. Where the principal debtor waives a defense that is open to him, the
surety may still invoke it (C.O. Article 591 II). Where the surety fails to plead defenses
open to the principal debtor, he forfeits his right of recourse to the extent that such
defenses would have released him from liability, unless he can prove that he was
unaware of them through no fault of his own (C.O. Article 591 III). A person who
stands surety for an obligation that is not actionable because it stems from gambling or
betting may plead the same defenses as are open to the principal debtor even if he was
aware of that defect (C.O. Article 591 IV). A surety cannot use the insolvency of the
principal debtor as a defense against creditors.
[6]
Proceedings against the Surety
Proceedings to collect on the principal debt cannot be instituted against the surety
before the date fixed for its payment, even if the principal debtor has become bankrupt,
which would otherwise cause the principal debt to become actionable before its due
date (C.O. Article 590 I). Under a contract of surety of any type, in exchange for
furnishing real security, the surety may request that the court suspend the debt
enforcement proceedings against him until all pledges have been realized and a
definitive certificate of loss has been issued against the principal debtor or a composition agreement has been concluded with the creditors (C.O. Article 590 II). If notice
from the creditor is required for the maturity of the principal debt, the surety must be
given notice. The notice period begins to run against the surety on the day he receives
notice (C.O. Article 590 Ill). Where the obligation of a principal debtor residing abroad
is annulled or restricted by foreign legislation, such as by provisions relating to clearing
systems or a ban on currency transfers, a surety resident in Turkey may also rely on
such legislation unless he has waived this defense (C.O. Article 590 IV).
63
5.0l[A]
[7]
A. Lale Sirmen
Duties of the Creditor
Where liens, preferential rights and other securities are furnished when the contract of
surety is concluded or subsequently obtained from the principal debtor for the specific
purpose of securing the claim under surety are reduced by the creditor to the detriment
of the surety, the latter's liability is decreased by an equal amount unless it can be
proven that the damage is less. Claims for restitution of the over-paid amount are
unaffected (C.O. Article 592 I).
On being satisfied by the surety, the creditor is required to furnish him with such
documents and information as are required to exercise his rights. The creditor must
also release liens and other securities furnished when the contract of surety was
concluded or subsequently obtained from the principal debtor for the specific purpose
of securing the claim under surety, or must take the requisite measures to facilitate
their transfer. This does not apply to liens and rights of pledge held by the creditor in
relation to other claims where they take precedence over those of the surety (C.O.
Article 592 III). Where the creditor refuses without just cause to take such measures or
has alienated the available evidence or the pledges and other securities for which he is
responsible in bad faith or through gross negligence, the surety is released from his
liability. In this case, he may demand the return of sums already paid and seek
compensation for any further damage incurred (C.O. Article 592 IV).
In the case of bankruptcy or composition proc~edings concerning the principal
debtor, the creditor must register his claim and do everything to safeguard his rights.
He must inform the surety of the bankruptcy or debt restructuring moratorium as soon
as he himself learns of it. Should the creditor fail to take any of these actions, he forfeits
his claims against the surety to the extent of any damage to the latter resulting from
such failure (C.O. Article 594 II).
[BJ
Right to Demand Acceptance of Payment
As soon as the principal obligation becomes due, even as a result of bankruptcy of the
principal debtor, the surety may at any time demand that the creditor accept payment.
Where several persons stand surety for an obligation, the creditor is obliged to accept
even a part payment, provided it at least equals the share of the surety offering payment
Where the creditor refuses without just cause to accept payment, the surety is
released from his liability. In this case, the liability of all other jointly and severally
liable sureties is decreased by the amount of his share (C.O. Article 593 II). If the
creditor is prepared to accept satisfaction, the surety may pay him even before
the principal obligation is due. However, the surety has no right of recourse against the
principal debtor until the obligation becomes due (C.O. Article 593 III).
64

[9]
5.0l[A]
Relationship between the Surety and the Principal Debtor
The surety may require that the principal debtor furnish security and demand his
release from liability once the principal obligation becomes due where the principal
debtor breaches the agreements made with the surety, and in particular his promise to
release the surety by a certain date, or the principal debtor is in default or has relocated
his domicile abroad and legal action against him in foreign courts has been made
substantially difficult, or the surety faces substantially greater risks than when he
agreed to offer the surety because of a deterioration in the principal debtor's financial
situation, a decrease in the value of the security furnished or the fault of the principal
debtor (C.O. Article 595).
[10]
Surety's Right of Recourse
The surety is subrogated to the creditor's rights to the extent that he has satisfied him.
The surety may exercise these as soon as the obligation becomes due (C.O. Article 596
I). Secondly, the surety may also exercise the right of recourse that results from his
relationship with the principal debtor (C.O. Article 596 III).
However, unless otherwise agreed, he is subrogated only to those liens and other
securities which had been furnished when the contract of surety was concluded or
were subsequently obtained from the principal debtor for the specific purpose of
securing the claim. Where a pledge securing a claim under surety is realized or the
owner of the pledge pays voluntarily, he may only have recourse against the surety for
such payment where an agreement to this effect was reached between the pledgor and
the surety or the pledge was given subsequently by a third party (C.O. Article 596
IV). The limitation period for the surety's right of recourse commences on satisfaction
of the creditor by the surety. The surety has no right of recourse against the principal
debtor for payment of any obligation that is not actionable or not binding on the
principal debtor as a result of mistake or incapacity to make a contract (C.O. Article 596
VI).
[11]
Surety's Duty to Notify
Where the surety pays the principal obligation in full or in part, he must notify the
principal debtor. If he fails to do so and the principal debtor pays it again because he
was not and could not be expected to be aware of the surety's payment, the surety
forfeits his right of recourse against the principal debtor (C.O. Article 597 II). In this
case, the surety may bring an action for unjust enrichment against the creditor (C.O.
Article 597 III).
[12]
Termination of the Contract of Surety
The surety is released by the extinction of the principal debt in whatever way it occurs
(C.O. Article 598 I). There are also other grounds for the termination of a contract of
65
_J
5.0l[B]
A. Lale Sirmen
suretyship, which originate from the contract itself. Any surety given by a natural
person is extinguished once 10 years have elapsed from the date on which the contract
was entered into. At the end of this period, the creditor may not resort to the surety
even when a longer duration was agreed for the contract of surety, unless the surety
has previously extended the contract or replaced it with a new one. The contract of
surety may be extended by means of a written declaration by the surety for an
additional period of no more than 10 years. However, the written declaration is valid
only if done no earlier than one year before the contract expires (C.O. Article 598 V).
Where a contract of surety is concluded for a definite period, the surety's liability
is extinguished at the end of such period (C.O. Article 600). In a suretyship for an
indefinite period, the surety is entitled to demand that the creditor enforce the claim
against the principal debtor within a month after the date of maturity of the principal
debt, start proceedings to realize any existing pledges and pursue his action without a
substantial delay (C.O. Article 601 I). If the maturity of the debt depends on notice
given by the creditor, the surety is entitled to a period of one year after the conclusion
of the contract of surety to demand that the creditor give notice. After the debt becomes
mature, he must enforce his right within a month and pursue his cause of action
without a substantial delay (C.O. Article 601 II). If the creditor fails to give notice the
surety is discharged (C.O. Article 601 III).
[13)
Revocation
A contract of surety for a future obligation may be revoked by the surety at any time by
means of a written declaration to the creditor, provided that the obligation has not yet
arisen, where the principal debtor's financial situation has substantially deteriorated
since the contract was conclud_ed or where it subsequently transpires that his financial
situation is substantially worse than the surety had in good faith assumed (C.O. Article
599 I). The surety is liable to compensate the creditor for any damage resulting from the
fact that he relied in good faith on the contract of surety (C.O. Article 599 II).
[B]
Joint and Several Liability (Miiteselsil Bon;luluk)
Another way of creating a personal security is to have a third person assume the debt
as a co-debtor, making him jointly and severally liable with the debtor.
The main difference between a joint suretyship and joint and several liability is
that the legal basis of joint and several liability is the same for all the debtors, whereas
the legal basis of the joint surety is only to provide security.
Unless it is stipulated in the contract, joint and several liability may only arise by
law. However, according to a principle prescribed in the Turkish Commercial Code
(Comm. C.) as a "presumption of solidarity," signatories of a contract regarding an
obligation of a commercial nature are presumed to be jointly liable to the creditor
(Comm. C. Article 7).
66
[C]
5.0l[C]
Guarantees (Garanti)
A guarantee is another form of creating personal security. It is a contract that some

particular thing will be done as agreed, whether or not there is a prior or principal
obligation. In practice a distinction is made between pure guarantees and other
contracts which are also known as guarantee contracts.
[1]
Pure Guarantees
A pure guarantee is used essentially to guarantee against the losses of an investor or to

assure a fixed ratio of profit in the course of his business regarding his enterprise. Pure
guarantees do not benefit from special legal provisions and are governed by the general
conditions applicable to all contracts.
[2]
Collateral Guarantees
The second type of guarantee is a contract that requires the existence of a primary
obligation and by which the guarantor undertakes, in case the primary debtor fails to
do what he has promised to do, to pay damages for such failure. It is widely accepted
that this type of guarantee is covered by Article 128, paragraph 1 of the TCO, which
reads as follows: "A party who promises to the other party performance by a third
person becomes liable for damages resulting from non-performance of the obligation
by the third person."
It is not always easy to make a distinction between a suretyship and a collateral
guarantee. The main difference is that the obligation of a surety is an accessory
undertaking, and it is therefore not binding where the principal obligation is not valid.
A contract of guarantee is an independent contract creating a principal obligation.
Furthermore, contracts of surety must be made in writing, whereas there is not any
form that must be observed for the validity of a guarantee contract.
Collateral guarantees are usually given by banks in the form of letters of
guarantee. The Unified Chambers of the Court of Cassation, in its decision for the
unification of contradictory precedents 1 set out criteria to distinguish between suretyship and contract of guarantee regarding bank guarantees as follows: a contract of
guarantee exists if the bank:
(a) assumes totally or partially the risk that the beneficiary may face, and the
contract;
(b) contains clauses stipulating that it is an independent undertaking whereby
the bank is the principal debtor; and
(c) includes clauses regarding:
1. Dated Jun. 11, 1969, 69/4-6: OG Oct. 3, 1969, Nr. 13317.
67
5.02
A. Lfile Sirmen
(1) the acceptance of the punctual payment of a due debt without any prior
notice or action against the main debtor whose performance is
guaranteed, and
(2) the waiver of the guarantor to raise a defense that the main debtor may
have under the contract from which the guaranteed claim has arisen.
Because contracts of guarantee create principal obligations for guarantors, a guarantor,

unlike a surety, cannot plead against the creditor defenses to which the principal debtor
is entitled. However, the guarantor may assert that the guaranteed obligation has
already been fulfilled. He can also plead defenses arising from the contract of guarantee
itself.
Unlike a contract of suretyship, an indication of the maximum amount of the
guarantor's liability is not required for the validity of a contract of guarantee. In
addition, unless there is a contract of counter-guarantee, a guarantor is not entitled to
a right of recourse against the debtor whose performance was guaranteed.
A contract of guarantee can be made for a definite or indefinite time period. If it
is made for a definite period, according to the C.O., it is valid if the parties agree that
the promise of the guarantor shall become null and void if there is no written demand
from the guarantor before the expiration of the period specified (Article 128 II).
[DJ
Avals (Bill of Exchange Guarantees)
An aval guarantees, wholly or partly, the payment of the amount of a Bill of Exchange.
This type of guarantee can be given not only by a third person, but also by a person
whose signature already appears on the bill.
The Turkish Commercial Code prescribes the form required for avals (Article
701). Accordingly, an aval must be written on or attached to the Bill of Exchange and
expressed by the words "it is for aval" or equivalent words and signed by the
guarantor. Any signature on the face of the bill operates as a valid aval, unless it is the
signature of the drawer or the drawee. If there is no statement about the person on
whose behalf it is given, it is presumed to be given on behalf of the drawer.
The extent of the liability of the guarantor is the same as that of the person for
whom he has guaranteed (Comm.C. Article 702 I). His assumption of liability is binding
even if the obligation that he has guaranteed is void for any reason other than a defect
in regard to form (Comm.C. Article 702 II).
When the guarantor pays the bill, he acquires all rights attaching to the bill
against the person guaranteed and against others who are liable on the bill to that
person (Comm. C. Article 702 III).
5.02
REAL SECURITIES (A YNI TEMINA TLAR)
The Civil Code classifies real securities according to the nature of the property charged
as real security over immovable and real security over movable property.
68

[A]
Securities on Immovable Property
{1]
Kinds of Securities on Immovable Property
5.02[A]
The Turkish Civil Code (C.C.) provides for three types of real securities that may be
created over immovable property; the mortgage, the mortgage certificate and the land
charge note.
Unlike the mortgage, mortgage certificates and land charge notes are freely
transferable negotiable instruments issued to the order of the creditor or to the bearer
without specifying the basis of liability. However, the mortgagor remains liable for the
secured debt for both mortgages and mortgage certificates. This is significant when
realization does not lead to full recovery of the debt because the land charge note does
not create any personal liability in the debtor.
Among these three types of securities, only the mortgage is used frequently.
[2]
Mortgage (ipotek)
Upon the creation of a mortgage, the mortgagor acquires a real right in the mortgaged
property which is accessory (incidental) to the debt secured thereby. Therefore, the
validity of a mortgage requires the existence of a valid debt. However, it is not essential
that the debt should exist at the time of the formation of the contract. A mortgage can
be created as security for a present, future or conditional debt provided it becomes
effective at the time of the enforcement of the right of the creditor against the
mortgagor.
[a]
Mortgage Burden
According to the, C.C., a mortgage can only be created to secure a liquidated debt, and
the amount must be stated in the Land Register in Turkish currency (Lira, Article 851
I). However, the C.C. makes it possible for parties to create a foreign currency mortgage
in order to secure only a credit which is granted in foreign currency or a loan which is
linked with to a convertible foreign currency (Article 851 II).
When the sum of a debt to be secured is not certain at the time of the creation of
the mortgage, the parties must fix a sum to represent the maximum amount for which
the property in question will be subject to mortgage debt.
A mortgage can be created for a single debt or for several debts on the same
property, provided it does not impose any unlawful restriction on the prospective
economic activity of the mortgagor.
69
5.02[A]
[b]
A. Lale Sirmen
Subject Matter
A mortgage can be created on immovable property only if it is entered in the Land

Register. Immovable property includes land, independent and permanent rights,2 and
independent parts of a building subject to flat ownership. In addition, a mortgage can
be created on the shares of co-owners of land.
Mortgaged property may belong to the debtor or a third person who secures the
debt in favor of the debtor. A mortgage does not create personal liability in the owner
of the real property unless he is also the principal debtor. He is liable only to the extent
of the mortgaged property. Moreover, he can redeem the mortgage under the same
conditions as the debtor. If he pays the debt in full, he acquires all the rights of the
mortgagee against the debtor (C.C. Article 884).
Several properties can be mortgaged for the same debt. When the properties
belong to the same owner or to debtors who are jointly and severally liable, each
property would be charged with the whole debt. In all other situations where several
properties are given as security for the same debt, each property is charged with a
specified part of the debt (C.C. Article 855).
A mortgage is a burden on the property and all its integral parts and accessories.
Thus, if a mortgage is created on a piece of land, it covers all buildings and trees on the
ground which are considered as integral parts of the mortgaged land. When at the time
of the creation of a mortgage certain things such as machines and hotel furniture are
expressly mentioned as accessories and this is declared in the Land Register, they are
held to be accessories unless it is shown that they cannot legally be considered as such
(C.C. Article 862 II).
[c]
Creation of Mortgag?s
Subject to special exceptions provided by law, mortgages become operative only when
entered in the Land Register. The prerequisite for the registration of a mortgage is a
contract between the creditor and mortgagor that constitutes the underlying legal basis
for acquisition of rights in rem. This contract does not create the mortgage, but conveys
the right (and obligation) to enter the mortgage in the register.
Contracts which convey the right (and obligation) to create a mortgage must meet
formal requirements as a prerequisite to their validity. In principle, public authentication must be undertaken, that is the contract must be drawn up and signed by the land
registrar in the appropriate Land Registry. However, when the lender is a bank, a public
institution or a credit and guarantee cooperative for craftsmen and artisans, the
conclusion of a credit agreement alone is sufficient for the mortgage to be entered in the
Land Register. On the other hand, in some cases the creditor is entitled to the creation
of a mortgage even without an agreement. Thus, for example, workmen or contractors
who are employed in the construction of buildings and supply material and/or labor
2. Permanent and independent rights are alienable personal servitudes that can be entered in the
Land Register as immovable property. Thus, if a right in a building is created for at least twenty
years, it can be entered as an immovable in the Land Register.
70
chapter 5: Secured Transactions (Securities and Seuretyship)
5.02[A]
are entitled by law to the creation of a mortgage if entered in the Land Register (C.C.
Articles 893, 895).
There are also some exceptional cases where a mortgage is created by law
without being entered in the Land Register. For example, when the creditor has paid
insurance premiums that were to be paid by the owner of the property, he can include
such expenditure with the debt under the same security without an additional entry in
the Land Register (C.C. Article 876).
The assignment of a debt secured by a mortgage includes also the transfer of the
mortgage (C.O. Article 189). The assignment of the debt and the transfer of the
mortgage are valid without being entered in the Land Register.
[d]
Extent of Security
When the sum of the debt to be secured is certain at the time of the creation of the
mortgage and this sum is entered in the register as the amount of security, the creditor
is secured to the extent of the primary debt and secondary claims, including the cost of
realizing the security, the interest due for delay in payment, and for interest for three
years preceding the institution of proceedings in bankruptcy. If for instance, A
mortgages his land to B to secure a loan which amounts to TRY 500 million and has the
sum of the debt recorded as TRY 500 million. in the register, B has the right to be paid
in full out of the proceeds of the property even though secondary claims exceed the
primary debt. However, if a mortgage is entered for a maximum amount, the mortgage
will secure secondary claims only within the maximum amount. Therefore, if A
mortgages his land to B for a maximum of TRY 500 million B can be paid only up to this
amount even if his primary debt and secondary claims exceed this amount.
[e]
Order of Priority between Mortgages
The owner of mortgaged property cannot deprive himself of the right to create further
mortgages on the same property. However, the amount realized on the sale of the
mortgaged property will be paid to creditors in the order of priority. The order of
priority among mortgages on the same property will be determined in accordance with
the principles of the "fixed ranks" system, which ensures that mortgages on the same
property will acquire an order of priority according to the rank of the place in which
they are entered in the Land Register.
According to the fixed ranks system, the mortgagor may divide the value of the
property into fractional portions, each of which is represented by a place. The right
furnished by the mortgage is permanently assigned to the place in the Land Register in
which it is entered and further mortgages in the second or any other place may be
created provided that a fixed amount is expressly reserved for the preceding vacant
place (C.C. Article 870 II). Even if a loan secured by a first place mortgage is paid off,
the next in order of priority will not automatically move up to that vacant place (C.C
Article 871 I). The owner of the property is entitled to create another mortgage in the
place of the one that is paid off (C.C. Article 871 II). Thus, if A mortgages his land in
71
5.02[B]
A. Lale Sirmen
favor of B in the first place and in favor of C in the second place, and later B's mortgage
is repaid, C cannot move up to the first place. He will always retain the second place.
A can mortgage the land to D and give him the first place. D then has priority over C
even though his mortgage was created at a later date.
However, parties may agree that a creditor may move up to a vacant place. When
such an agreement is noted in the Land Register, the right to move up can be asserted
against every new owner of the property and other creditors (CC Article 871 III).
[fJ
Alienation of the Mortgaged Property
The alienation of mortgaged property does not affect the personal liability of the debtor
unless otherwise agreed. However, if the new owner takes over the liability for the
mortgage debt, the former debtor is discharged unless the mortgagee creditor gives the
former debtor written notice of his intention to maintain rights against him within one
year from alienation (C.C. Article 888).
If property that is acquired is mortgaged beyond its value by a person who is not
personally liable for the debts secured by mortgages, the new owner is entitled to
redeem the mortgage by paying over to the creditors either the purchase money or, if
he acquired the property gratuitously, the amount of money at which "he values it."
However, the creditors may demand the sale of the mortgaged property by public
auction provided that they pay the cost of the sale in advance. If a larger sum is
obtained in this sale, the mortgage is redeemed at that higher price (C.C. Articles
885-886).
[g]
Foreclosure of Mortgages
Where the debt is paid off, the owner of the mortgaged property is entitled to demand
from the creditor that he consent to remove the mortgage from the Land Register. On
the other hand, if the debtor fails to pay his debt, the creditor may demand the sale of
the property. There is no statute of limitations for an action on a debt secured by a
mortgage. Any agreement made before the maturity of the mortgage debt and providing that the creditor will become the owner of the mortgaged property is null and void
(C.C. Article 873 II).
Foreclosure proceedings begin upon the request of the creditor. The Execution
Office will sell the property in accordance with the provisions of the Code on Execution
and Bankruptcy and distribute the proceeds of the sale among the secured creditors in
their order of priority without regard to the vacant places.
[B]
Securities on Movable Property
The C.C. provides for the creation of the pledge as a contractual security in rem over
movable property, claims and other assignable rights. There are also special legal
provisions regulating the creation of real securities regarding valuable movables, such
72
1I
5.02[B]
as ships and aircraft that are subject to mortgage. Pledges on commercial enterprises
and rights in mines are regulated by special laws.
In addition, the C.C. regulates liens as a statutory security in rem over movables
and negotiable instruments.
[1]
Pledges
[a]
Pledges on Movables (Ta~mir Rehni)
With certain exceptions provided by law, movable property can be given in pledge only
by delivery of possession of the property to the pledgee (C.C. Article 939). In practice,
this makes pledges unattractive.
Additional pledges can be created to take effect upon the same property by a
written notice to the prior pledgee notifying him of the subsequent pledge and
demanding that he pass the property to the second pledgee when his own rights in it
have been satisfied (C.C. Article 941). Pledgees, whose claims have not been fully
satisfied, have a right to be paid out of the proceeds of the sale of the property pledged
according to their order of priority. The main difference between the principles
governing mortgages and pledges is that the order of priority of pledges created on the
same property is determined by the date of their creation (C.C. Article 948 II). But,
unlike mortgages, the creation of a pledge does not require a statement of the amount
of the claim to be secured if the amount can be otherwise determined. Another
difference between mortgages and pledges as to their legal effects is that the statute of
limitation does apply to claims that are secured by a pledge. A creditor may enforce
rights under a pledge even though he can no longer bring an action to enforce his
original claim (C.O. Article 159).
According to the Civil Code, cattle can be pledged without delivery of possession
by means of an entry in a public register and a notice lodged at the Execution Office for
debt (C.C. Article 940 I). This is allowed in order to secure advances and a supply of
credit by public institutions or by cooperative societies which have been empowered
for this purpose by the competent authorities. Furthermore, movable property which is
required to be entered in a register can be given in pledge without delivery of
possession by means of an entry in its own register. This is important especially for the
pledge of motor vehicles entered in the traffic register.
[b]
Pledges on Claims and Other Rights
A pledge on assignable claims and other rights is created by way of a wri'.tten agreement
and if there is any deed or document evidencing the claim, transfer of the possession
thereof (C.C. Article 955 I).
In the event of failure of payment by the debtor, the creditor may request the
Execution Office to initiate foreclosure. If the debtor of the claim pledged is notified of
the pledge, he cannot make any payments to either party without the consent of the
other. In the absence of such consent, he must deposit his payment in accordance with
73
5.02[B]
A. Lale Sirmen
the decision of a judge. However, the parties may agree that only the creditor may
collect the claim. This is considered as another way to "realize" a pledge.
[c]
Pledges on Negotiable Instruments
Negotiable instruments made out to bearer are treated as movable property, and
therefore, can be given in pledge by transfer of the possession of the instrument (C.C.
Article 956 I).
Both the Civil Code and the Commercial Code have provisions allowing the
creation of pledges on negotiable instruments in specific names and negotiable
instruments to order (C.C. Article 956 II; Comm. C. Articles 647 and 689). Accordingly,
the creation of a pledge on any negotiable instrument requires the delivery of the
possession of the instrument and, in addition, instruments to order require pledge
endorsement. Those in specific names need a written declaration of pledge that may
not appear on the instrument itself.
[d]
Pledges on Commercial Enterprises 3
Pledges on commercial enterprises are created in accordance with the Law of Pledges
On Commercial Enterprises. In order to pledge a .commercial enterprise, the Law
requires a notarized contract between the parties and the entry in the Commercial
Register where the enterprise is registered (Articles 4-5). The pledge covers all material
assets other than immovable property and supplies, including intangible assets, such
as firm-names, trade names, trade marks, patents and licenses (Article 3).
However, according to the third paragraph of Article 11 of the Commercial Code,
it seems possible to pledge the assets of a commercial enterprise including immovable
property by a written contract between the parties and entry in the Commercial
Register where the enterprise is registered.
It is also possible to pledge assets of a commercial enterprise separately in
accordance with relevant code provisions, i.e., movables by delivery, rights by a
written contract.
[e]
Pledges on Mines 4
In accordance with the Law on Mining, 5 extracted mine ores can be pledged without
the pledgor transferring possession, by a written request of the licensee who has been
granted the privilege to search for and extract the ores, followed by a registration in the
Mining Register (Article 39).
3. Law Nr. 1447, OG Jul. 28, 1971, Nr. 13909.

4. Mines are not subject to private ownership due to a constitutional principle (Art. 169) that
declares that they are public property.
5. Law Nr. 3213, OG Jun. 15, 1985, Nr. 18785.
74
I
[2]
5.02[B]
Mortgages on Ships and Aircra~
Although ships and aircraft are considered as movable property under the provisions of
the Civil Code, they are subject to mortgage. A ship may be mortgaged by an agreement
of the parties for the creation of a mortgage and the entry thereof in the Ship Register
(Comm. C. Articles 1014-1016). Under the provisions of the Law on Turkish Civil
Aviation 6 (Article 70), mortgages on aircraft can be created in the same way, by
registration of the relevant agreement of mortgage in the Civil Aviation Register.
{3]
Liens
A creditor who is in possession of movable property or negotiable instruments can,

with the consent of the debtor, retain possession of them until his claim is satisfied,
provided that the claim in question is enforceable and by its nature closely connected
with the movable or negotiable instrument retained (C.C. Article 950 I). Such connection is always held to exist when the parties are in trade and possession and the claims
arise out of their business relations (C.C. Article 950 II).
When the debtor fails to fulfill his obligation, the creditor, if he is not sufficiently
secured, can, after notice to the debtor, demand the sale of the property retained by the
Execution Office, just as if the property had been pledged to him (C.C. Article 953).
Oguzman, M.K., Selic;i, b. & Oktay-Ozdemir, S., E~ya Hukuku, 15th ed., istanbul 2012.
Reisoglu, S., Garanti Mukavelesi, Ankara 1963.
Reisoglu, S., Banka Teminat Mektuplan ve Kontrgarantiler, Ankara 2003.
Sirmen, A. L., E~ya Hukuku, Ankara 2013.
Tandogan, H., Bon;lar Hukuku, Ozel Boni; jzi~kileri (Akdin Muhtelif Nev'ileri), vol. 2,
4th ed., Ankara 1989.
6. Law Nr. 2920, OG Oct. 19, 1983, Nr. 18196.
75
CHAPTER
Tugrul Ansay & Firat Oztan *
6.01
[A]
INTRODUCTORY REMARKS
General
As a rule, rights, such as creditors' rights, are transferred by way of assignment of

rights and duties, by delivery of the goods transferred or by accomplishing detailed
formalities for transferring shareholder rights in a corporation. Practical needs and
legal creativity have led to the introduction of a device under which rights have been
replaced by documents. That is, if negotiable instruments are issued, those original
rights are embodied in the instrument and thereafter those rights may be used,
transferred and disposed of by way of such instruments. In our age of electronic
commerce negotiable instruments may also exist without any written instrument.
The term "negotiable instrument" (kiymetli evrak) is not the counterpart of
Turkish "kiymetli evrak" (nowadays, klymetli ka@.tlar) which covers all types of
documents or instruments representing rights and where these rights are embodied in
these instruments. The closest term for "kiymetli evrak" is "securities". Negotiable
instruments describe only some securities in which rights are easily transferable
through the transfer of documents.
The Turkish Commercial Code gives the following definition of negotiable
instruments:
A negotiable instrument is a document through which a right is embodied in such
a manner that it may not be exercised or transferred to another without the
document (Comm. C. Art. 645).
* Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Ko<; University, School of
Law, Istanbul. Prof. Dr. Ftrat Oztan: Emeritus Professor, University of Ankara. We would like to
express our gratitude to Dr. Cumhur Boyac10glu for his valuable comments.
77
6.01 [D]
Tugrul Ansay & Firat bztan
[B]
Classification of Negotiable Instruments
[1}
According to the Right Represented by the Document
Some documents represent a debt. Such documents are called commercial papers, like
promissory notes, bills of exchange or checks, as well as bonds, convertible bonds and
others. Papers representing rights in goods are called documents of title (emtea
senetleri), like bills of lading (Koni~mentolar, Comm. C. Article 1228 et seq. and
Nakliye senetleri, Comm. C. Article 850 et seq.), warehouse receipts (makbuz senetleri)
and warrants (rehin senetleri, Comm. C. Articles 832-849). Furthermore, there are
papers, which represent shareholder rights. These are share certificates in a business
corporation (See chapter on Business Associations).
[2]
According to Transferability
There are instruments issued to a named person (nama, isme yazzli senetler), which
might also be registered certificates, and carry the name of the holder of rights. Some
papers may not be issued to a named person. Certificates to order (emre yazzlz senetler)
include the name of the right' s owner, but additional words like "to the order of" make
the instrument negotiable, that is, easily transferabl~. A promissory note is an order
paper due to a statutory provision. There are also "bearer certificates" (hamiline
senetler), where the rights represented by such instruments may be transferred only by
the simple delivery of the instrument. Bonds and bills of exchange may not be issued
as bearer certificates (But see blank endorsement below at section 6.03 [CJ).
[C]
Commercial Papers (Ticari Senetler or Kambiyo Senetleri)
Commercial papers are those which represent a claim in a specified amount of money
and are used as a means of credit (bills of exchange and promissory notes) or provide
a means of exchange that can be used in lieu of money (checks).
[D]
Sources
Commercial papers are regulated by the Commercial Code (Articles 645-831). These
provisions are almost word for word adaptations of the rules approved by the 1930-31
Geneva Conventions. Therefore, they are basically similar to the laws of the Continental European countries and especially of Switzerland. The Commercial Code regulates
bills of exchange in greater detail than promissory notes and checks and the rules on
bills of exchange are applied to a great extent to promissory notes and checks.
There are also provisions in various chapters of the Commercial Code on other
types of negotiable instruments. Other special laws also have provisions regarding
negotiable instruments. The Civil Code regulates debt certificates secured with mortgages (hypothek).The Capital Market Law regulates various types of securities.
78
6.02[B]
TYPES OF COMMERCIAL PAPERS
[A]
General
(1) Bills of Exchange (Draft, poli<;e]: A bill of exchange is an unconditional order

in writing addressed by one person (drawer, diizenleyen, ke~ideci) to another
(drawee, muhatap) for paying a third person (payee, lehdar) a sum of money.
There are at least three persons involved in a bill of exchange: The drawer is
the one who issues the instrument and therefore orders payment. The drawee
is the person to whom the instrument is addressed, and therefore it is to be
paid by him. The payee is the person to whom the instrument is made
payable. The payee and the drawer might be the same persons.
(2) Check (Cheque, <;ek) is basically similar to a bill of exchange in which the
drawee is a bank or a financial institution. It is payable and may be drawn to
the bearer too. Normally it is not an instrument of credit, but of payment. A
check presupposes a provision, that is, a fund in the form of a deposit in the
bank or as a bank credit for the purpose of complying with the order to pay.
(3) Promissory Note (Emre yazill senet, bona): A promissory note is an unconditional promise in writing which is made by one person to another and
signed by the maker to pay a certain sum of money. Unlike to a bill of
exchange or a check, there are basically two persons involved, namely the
one who makes the promise to pay (maker, bor<;lu, senedi diizenleyen) and
the one who is entitled to the payment (payee, lehdar).
There are special types of promissory notes, such as those issued by the Treasury,
which are called bonds (Dev let tahvili, bonosu). Business corporations may also issue
bonds (tahviller. Also mortgage notes are regulated in the Civil Code, Articles 819-912).
They are, however, not commercial papers in the strict sense.
[B]
General Characteristics of Commercial Papers
(1) Presumptive Consideration or Causa: An abstract nature is recognized for

commercial papers. If the instrument is properly issued, the law presumes that
it is given for a consideration. In other words, unlike the procedure in an
action for an ordinary money claim, the holder of the instrument is not
required to allege and prove that a consideration has been given, since every
negotiable instrument is deemed prima facie to have been issued for a
valuable causa. Nevertheless, the bills issued without a cause are also valid
(C.O. Article 18).
(2) Negotiability: As a rule, when a person transfers his rights, the assignee gets
almost the same rights as those held by his predecessor. Therefore, the
assignee is ordinarily subject to all the defenses that might have been set up
79
6.03(A]
(3)
(4)
(5)
(6)
6.03
[A]

against his assignor. Under the law of commercial paper, the one to whom a
commercial paper is transferred acquires a title free from legal defenses which
were good against the previous holder. This increases its credibility and
therefore its negotiability. It is this quality of the document which permits a
right to pass freely from hand to hand as a credit instrument or substitute for
money.
Strictly required form: If the instrument is not prepared in the legally required
form, it loses validity as a negotiable instrument.
Joint liability: All persons who have signed a commercial paper are jointly and
severally liable to the holder in due course (Comm. C. Article 724). This is not
a separate, but a sequential liability.
Independence of signatures: There might be various signatures on the face or
on the back of an instrument. Each may carry a different meaning, according
to their location. The invalidity of a signature does not affect the validity of
other signatures and does not free the others from the liability.
The Code of Execution and Bankruptcy allows an accelerated execution
process for commercial paper. 1
BILLS OF EXCHANGE
The Required Form
In order to be a valid instrument, a bill of exchange must be issued in accordance with

the formal requirements described in the Commercial Code:
(1) It must be in written form: There is no oral bill of exchange under the
Commercial Code. The instrument need not be any particular kind of material. Any convenient substitute for paper will suffice (a cigarette package was
held as a proper material). The text must be hand-written or mechanically
written, it may be printed or engraved. The document must also be signed and
the signature must be in hand-written form. The hand-written signature
cannot be rendered by mechanical device or marks by hand, even if legalized
or officially attested (Comm. C. Article 668). Electronic signatures are not
allowed (Comm.C. Article 1526).
(2) It must include the Turkish word "poli<;e" in the text of the instrument, or if it
is written in a foreign language an equivalent of this word in that language.
(3) The sum to be paid must be a definite amount of money:
(a) If the order is not for the payment of a certain amount of money, there will
be no valid bill of exchange. A clear-cut definition of "money", however,
does not exist. The negotiable character of an instrument will not be
affected by the fact that it designates a particular kind of currency in
l. Code of Execution and Bankruptcy, Arts 168-170 b.
80
6.03[A]
Chapter 6: Negotiable Instruments
(4)
(5)
(6)
(7)
(8)
which payment is to be made. An instrument which is payable in specific

foreign currency is also negotiable. "Where a bill of exchange is made
payable in a currency which is not legal tender in the place of payment,
the amount to be paid will be calculated according to the rate of exchange
on the date of maturity" (If there is no rate of exchange, see Article 711 II,
currency clause, Article 711 III, also see Article 711 IV).
(b) The amount due at maturity must be definite and the sum to be paid must
be determined from the face of the instrument. A statement such as, "pay
the amount you owe me" is considered as an uncertain amount of money.
Where the sum payable on a bill of exchange is stated both in letters and
numbers, the sum expressed by letters will be accredited. If there is discrepancy between letters and numbers, then the smaller sum is the amount
payable (Comm. C. Article 676).
A provision on the document in respect to interest is deemed not to be
written. However, where a bill is payable at sight or at a fixed time after sight,
a stipulation of interest may be added by the drawer. The rate of interest must
be stated definitely on the bill; otherwise the stipulation is considered not to
be written. Where no other date is stated, interest starts to run from the date
of issue of the bill (Comm. C. Article 675).
An unconditional order to pay a certain sum of money: The bill of exchange
must contain an order upon a third person to pay. The word "pay" or another
word indicating the same is necessary. By giving an order the drawer
authorizes the drawee to pay the stated amount to the bearer.
The name of the drawee (Comm. C. Article 583/3): The name and family
name of the drawee must be stated on the bill. This will be the trade name in
cases when the drawee is a legal person. The bill may be addressed to two or
more drawees jointly; it may, however, not be addressed to two or more
drawees as alternatives or in succession. This is to enable the holder to make
only one presentation for acceptance or payment.
A drawee may be a fictitious person or the drawee may be the drawer
himself.
The name of the person to whom or to whose order payment is to be made
(Comm. C. Article 671): As a rule, bearer bills of exchange are not recognized
by Turkish law. The instrument must include the name of the payee or may
be drawn to his order. A bill of exchange, however, becomes payable to the
bearer when there is a blank endorsement, that is, where the holder merely
puts his signature on the back of the instrument (Comm. C. Article 683 II).
The instrument may be drawn to the order of two or more payees jointly,
or on one or several payees alternatively.
The date of issue (Comm. C. Article 671/7): The date of issue should be stated
in order to enable determination of the maturity date in some cases. The legal
capacity of the drawer must exist at that moment.
The signature of the drawer: The signature of the drawer must be on the face
of the paper. An agent may also sign a bill of exchange in the name of his
principal, if he is authorized.
81
6.03[C]
Tugrul Ansay & FITat Oztan
(9) The place where the payment is to be made (Comm. C. Article 671 I e): If
this place is not stated on the bill, then the address of the drawee is deemed
as the place of payment (Comm. C. Article 672 III).
(10) Additional non-compulsory information may only exceptionally be stated
on the document.
[B]
Consequences of Omissions (Comm. C. Article 672)
Generally speaking, omissions of the required information make the bill of exchange
null and void. Some missing parts are not decisive because the Code will presume that
information. If only the word "poli<;e" is missing, then the instrument is legally
considered an order paper (emre yazili havale), to which some provisions of the bill of
exchange are applicable (Comm. C. Article 826).
[CJ
Endorsement (Indorsement, Ciro)
(1) Endorsement is the transfer of rights represented by a negotiable instrument
issued to the order of the payee, to a third person by declaring the intention to
transfer, signing the document and by delivery. An instrument may be
endorsed for the purpose of collecting money or for the purpose of a
mortgage. It may also be endorsed for the purpose of transferring the title
represented by the instrument. This transfer is called negotiation. An instrument is negotiated every time it passes from one person to another. A mere
surrender of the instrument is not negotiation (See below at 2, blank endorsement). Delivery is only the operative fact which signifies the intention of
transfer.
By endorsing, the endorser acts like a new drawer of a bill of exchange, as
he orders the payment to a new person. The endorser gives power to the
endorsee to demand the right and authorizes the drawee to pay the amount
stated on the instrument.
The endorsement is generally written on the back of the instrument; but
this is not essential. It may also appear anywhere on the instrument. A person
is deemed an endorser, when his intention while signing is not clear. If he
signs in the place where the drawer customarily signs, this will be considered
a guaranty (aval) to the drawer and he will be bound as a drawer.
An endorsement may also be written on a paper attached to the instrument,
if there is no room on the instrument itself (This paper is called allonge, alonj,
Comm. C. Article 682).
(2) Kinds of endorsement: In addition to the ordinary endorsement, which is
described above, there are other types:
Where solely the signature of the endorser, without anything more,
appears on the back the an instrument it is a blank endorsement (beyaz ciro,
82
Instruments
6.03
if it is on the face, then it is aval). The bill may then be negotiated as if it is a

bearer instrument; that is, by delivery only.
Conditional endorsements shall be disregarded. Partial endorsements are
null and void (Comm. C. Article 682). Nevertheless, a qualified endorsement
is possible. As a rule, the endorsement has a guaranty function (Comm. C.
Article 685 I), which means that all persons who have signed the instrument
as indorsers impliedly warrant the payment of the amount stated on the
instrument. By a qualified endorsement the endorser may limit his liability by
adding the words "without recourse" (bila mesuliyet) or equivalent wording.
Or he may as well prohibit new endorsements (Comm. C. Article 685 II).
Endorsements to allow the endorsee only to collect the money (endorsement of collection, tahsil cirosu) or endorsement to establish a mortgage
(rehin cirosu) are also possible.
(3) There are three functions of an ordinary endorsement in a negotiable instrument:
First of all, it shows the true right owner. If all endorsements are proper and
there is no break in the chain of endorsers, the last holder is the right owner.
Furthermore, with the endorsement all rights and powers deriving from the
instrument are transferred to the endorsee.
The endorsement additionally has a security function. The endorser guarantees the payment of the stated amount to the endorsee, if the drawee does
not pay.
[D]
Aval
A guaranty given on a commercial paper is called an aval. If a person gives an aval to
a person whose name is stated on the instrument, he guarantees payment. If the aval
clause does not specify for whose account it is given, it is assumed that it is given for
the drawer (Comm. C. 700 et seq.)
[E]
Maturity (Vade)
The date of maturity is the day when the payment should be made by the drawee.
Interest starts to run from this moment on (Comm. C. Article 725 I b); a period of
limitation of three years from the maturity date also starts to run (Comm. C. Article
749). The bill must be presented for payment within two working days following the
date of maturity (Comm. C. Article 708 I).
There are different dates of maturity recognized for bills of exchange (Comm. C.
Article 703). Any of them may be stated on the instrument. It may be a fixed date, like
June 15, 2016 or at a fixed period after the issue of the bill, like 30 days after issuance.
The bill may be mature "at sight". This is expressed with words like "on demand" or
"on presentation". Such a bill must be presented for payment within one year after the
date of issue (Comm. C. Article 704). When no time of payment is specified on the bill
83
6.03[H]
Tugrul Ansay & FITat Oztan
of exchange, it is payable "at sight" (Comm. C. Article 672 II). Finally, the bill may be
mature at a fixed period after sight (30 days after sight).
[F]
Presentment
A bill of exchange may be presented for acceptance (kabule arz) and/or presented for
payment (tediye i<;in ibraz):
Presentment for acceptance must be made in order to establish the liability of the
drawee as a primary obligor. The mere drawing of a bill of exchange and its delivery to
the payee puts the drawee under no obligation to the payee to pay the amount stated
on the bill. Upon the acceptance the drawee becomes the primary obligor. When the
acceptance is refused, then the payee is entitled to apply to the other signatories of the
bill before the maturity date.In some cases presentment for acceptance is necessary.
When a bill of exchange is payable within a certain period after sight, it must be
presented within one year after it is issued (Comm. C. Art. 693 I). The bill may also
expressly stipulate that it shall be presented for acceptance or it may completely
prohibit presentment for acceptance. Where a bill is drawn payable at the address of a
third party or somewhere other than the residence of the drawee, the bill must be
presented for acceptance (Comm. C. Art. 692 II).
As a rule, presentment for acceptance must be .made to the drawee. If another
person is also authorized to accept, the holder must present the bill to such persons
when acceptance is refused by the original drawee (Comm. C. Art. 735). The holder or
any person having mere physical possession of the bill of exchange may also present
the bill for acceptance (Comm. C. Art. 691).
The acceptance must be in writing and it must be signed by the drawee. Even the
mere signature of the drawee on the face of the bill is a valid acceptance (Comm. C. Art.
695 II). Acceptance must be unconditional; it may, however, be limited to a part of the
full am.aunt for which the bill is drawn. Otherwise all statements operate as a refusal of
acceptance. The acceptor is nevertheless bound according to the wording of his
acceptance (Comm. C. Art. 696 II).
[G]
Payment (Odeme)
By accepting the bill, the drawee binds himself to pay the amount stated on the bill at
maturity. Before the acceptance he is only a person authorized to pay. Yet, in order to
charge a person secondarily liable in the event that the bill is not paid, it must be
presented for payment. If the acceptance is refused there is no further obligation of
presentment for payment.
[H]
Protest and Notice of Dishonor (Pmtesto ve jhbar)
When a bill which is presented for acceptance or payment is dishonored a formal

protest should be issued, except those which should be paid within a specified period
after sight or those which should be presented for acceptance.
84
6.04[A]
In order to turn to the other obliges stated on the bill, when the drawee refuses
payment, the last holder must have issued a protest of non-payment. The protest must
be issued within two workdays following the day of payment (Comm. C. Article 714).
For such a purpose, the bill will be delivered to the notary public. The notary officially
presents the bill for acceptance of payment. A certificate or protest must be issued by
notary if necessary (Comm. C. Article 715 et seq.)
Upon the issuance of the certificate of protest by the notary, a notice of dishonor
should be given to the parties secondarily liable for payment. A bill need not be
presented for payment when it has been dishonored by non-acceptance. An accepted
bill, however, must be presented to the primary obligor for payment and a notice of
dishonor must be given to persons who are secondarily liable when the payment is
refused. The object of giving notice of dishonor is twofold: On the one hand, it informs
the persons secondarily liable that the maker or acceptor, as the case may be, has failed
to meet his engagement; on the other hand, it advises such persons that they will be
required to make payment.
The holder must notify his immediate predecessor and the drawer of the
non-acceptance or non-payment, within four working days following the date of
protest. And each indorser must, within two working d.ays after receipt of such notice
inform his immediate predecessor.
The notice may be given only through a notary or by return of the bill (Comm. C.
Article 723). A person failing to give proper notice does nevertheless not lose his right
against other endorsers or the drawer; yet he is liable for damage caused by his
negligence up to the limit stated in the bill of exchange (Comm. C. Article 723).
6.04
[A]
CHECKS
General Characteristics
A check, as mentioned earlier, is a kind of bill of exchange drawn on a bank and

payable on demand. New varieties of checks, such as bank checks or travelers checks
are being used in practice and increasingly even non-merchants have checking
accounts in Turkey. Due to the misuse of checks, however, check criminality has
became an important issue. This caused the development of special legislation in
addition to the provisions of the Commercial Code (Check Law, Law No. 5941 Official
Gazette, dated December 20, 2009. Amended with the Law Nr. 6273, Official Gazette,
dated February 3, 2012, Mtikerrer).
Because of the similarities of bills of exchange and checks the rules applicable to
bills are also applicable to checks (Comm. C. Article 818). However, certain differences
exist between these two types of commercial paper.
Checks are payable at sight (Comm. C. Article 795). The time within which
checks must be presented for payment is shorter than for bills. A check which is
payable at the same place where it is drawn must be presented for payment within 10
days. This period is one month within Turkey and longer for interstate checks (Comm.
C. Article 796).
85
6.05
Besides being drawn on a bank (Comm. C. Article 782), checks are not presented
for acceptance (Comm. C. Article 784). Instead of acceptance, checks may be certified
by the Bank. They should be certified before delivery to the holder. Certification is
legally not as strong as ace "tance. It does not make the drawee bank primarily liable
to the holder. It merely warrants that funds on deposit are sufficient to pay the check
and are being set aside for such purpose. It is not necessary that the drawer of a bill of
exchange have funds in the hands of the drawee; but in order to issue a check a fund
in the bank is required. For such a purpose the drawer and the bank make a checking
agreement. If there is not a sufficient amount of money in the bank, then the check is
not covered. Consequently the drawer is bound to pay the holder 5 % of the stated
amount and all other damages caused by issuing such a check (Comm. C. Article 783
III). The Check Law contains additional provisions and imposes other sanctions to
discourage the issuing of uncovered checks.
The drawer of a check may stop payment, but only after the expiration of the time
limit for presentment.
Liability for damage caused by paying a forged or falsified check falls upon the
drawee, unless the drawer named on the check has acted negligently, such as not
keeping the check book properly (Comm. C. Article 812).
Checks payable to bearer may be issued (Comm. C. Article 785 I c). A stipulation
for interest written on the check is disregarded.
[B]
Formalities
Like other commercial papers, checks are subject to strict formalities. A valid check
must contain the term "r:;ek" in the language in which it is drawn; the name of the bank;
the date and place of issue and the signature of the drawer. The amount to be paid must
be unconditional (Comm. C. Article 780).
In practice, the drawee bank issues printed checks prepared according to the
requirements of the law.
6.05
PROMISSORY NOTES (BONOLAR)
In contrast to a bill of exchange and a check, there are only two main persons on a
promissory note. These are the maker (ke~ideci) and the payee (lehdar). With the
promissory note the maker or issuer promises to pay to the payee or to his order the
amount stated on the instrument.
Generally the provisions on bills of exchange are also applicable to promissory
notes (Comm. C. Article 776).
A promissory note is also subject to strict form requirements. It must contain the
term "emre muharrer (yazili) senet" or "bona" or its equivalent in the language of issue;
the name of the person to whom or to whose order payment is to be made; and the
signature of the drawer. The date of maturity must also be stated. A promissory note
without the date of maturity is deemed to be payable at sight (Comm. C. Article 777 II).
86
6.06[C]

6.06
DOCUMENTS OF TITLE (EMTIA SENETLERl)
A document of title is one which confers upon the holder the right of ownership (or
mortgage rights) in respect to merchandise therein specified. It entitles the holder to
demand the delivery of the stated goods on the document. Two common examples of
documents of title are bills of lading and warehouse receipts. These are regulated in the
Commercial Code. Documents of title for air carriage or carriage by railroad are
regulated separately.
[A]
Bill of Lading
A bill of lading is a receipt issued by a carrier for merchandise shipped (t(l.$ima senedi).
Bills of lading which are given to represent merchandise on land transportation must be
in accordance with the requirements of the Commercial Code.
Koni$mento (sea bill of lading) is a bill of lading given by the carrier to the shipper
to describe the goods received (Comm. C. Article 1228). It must contain certain
information required by the Code (Comm. C. Article 1229).
[B]
Warehouse Receipts (Makbuz Senetleri)
A warehouse receipt is an instrument issued by a warehouseman against goods

accepted for storage. It represents the goods. The instrument may be indorsed for the
purpose of transferring the ownership only or for the purpose of recognizing mortgage
rights on the merchandise (this is called varant]. A warehouse receipt must comply
with the strict form prescribed by the law (Comm. C. Article 832 et seq.)
[C]
Function of Documents of Title and Negotiation
Documents of title operate in such a manner that the owners of goods are enabled to
retain control of them while they are in possession of a carrier or warehouseman.
When a sea bill of lading is issued to the bearer,.it may be negotiated by delivery
alone. An order bill of lading and an order warehouse receipt may be negotiated by
indorsement and delivery. However, there are functional differences between indorsement ofa bill of exchange (check and promissory note) and a document of title. In
general, the law of negotiable instruments imposes the duty upon the indorser of a bill
to pay the instrument, if, on certain conditions, the primary person failed to do so. The
same is not true of an indorser of a document of title. The indorser of a document of title
does not guarantee performance. Therefore, the indorser will not be liable if the bailee
fails to perform. The only remedy which the holder of a document of title has is to bring
an action against the bailee, which is the transporter or the warehouseman. Furthermore, the document of title does not guarantee the truth of the content stated in the
document.
87
6.06[C]
Bazer, A. & GOle, C., Kiymetli Evrak Hukuku, 3rd ed., Ankara 2013.
Oztan, F., Kiymetli Evrak Hukuku, 17th ed., Ankara 2012.
Paray, R. & Tekinalp, U., Kiymetli Evrak Hukuku Esaslan, 21st ed., Istanbul 2013.
88
CHAPTER
Tugrul Ansay *
7.01
OVERVIEW
The simplest form of business enterprise is the single proprietorship. However, for
numerous reasons, including the complexity of business transactions, demands of
competition, need for capital and skill, and the desire for limitation of liability, persons
cooperate in the form of associatii:ms. When two or more persons combine their capital
and skills to achieve a common economic purpose, there exists a business association.
Nevertheless, new legislations allow the formation of one-man companies.
Business associations are of various types and can be classified by differing
characteristics. They either have or do not have legal personality. An ordinary
partnership (simple partnership, adi $irket) has no separate legal personality, whereas
general partnerships (kollektif $irketler), limited partnerships (komandit $irketler),
limited partnerships in which capital is divided into shares (sermayesi paylara boliinmii$ komandit $irketler), business corporations (joint stock companies, anonim $irketler), partnerships with limited liability (limited liability company, limited $irketler)
have separate legal personality (Comm. C. Article 125). Another type of business
association with legal personality is the cooperative (kooperatif) (Comm. C. Article
124).
As legal persons, business associations have rights and obligations similar to real
persons, except for legal rights which real persons hold because of their gender, age or
family relations. Thus, as a legal person, a business association has legal capacity to be
a party to a contract or may issue negotiable instruments, commit torts, own property,
and sue or be sued in a court of law. The legal capacity of a business association to do
business is limited by the purpose clause contained in its formation agreement.
* Emeritus Professor, Krn;: University, School of Law, Istanbul.
89
7.01
Tugrul Ansay
Business associations are merchants and are subject to legal provisions applicable to
merchants (Comm. C. Articles 16, 18). They must, therefore, have a trade name
registered in the commercial registry, and they must keep commercial books required
by the law. Although ordinary partnerships do not have separate legal personality, they
may carry a name and conduct business in the partnership name. Under certain
circumstances, an ordinary partnership may have legally recognized rights of its own.
For example, a partnership operating a ship (donatma i~tiraki) is allowed to enter certain contracts in the name of the partnership (Comm. C. Article 1064 I et seq.
Article 17) .
Foundations and associations (clubs) have legal personality, but because they are
not allowed to operate a business enterprise as their main purpose, they are not
suitable for most businesses.
Business associations may also be differentiated according to the extent of
liability of the partners. In ordinary partnerships and general partnerships, the partners
have unlimited liability for the debts of the partnership, although the liability of
partners in a general partnership is secondary. These risks may be acceptable to
individual partners if the number of partners is small and the partners know and have
confidence in each other. All partners normally participate in the administration of the
partnership personally and the transfer of partnership rights to outsiders is difficult.
The death of a partner causes, as a rule, the termination of the partnership.
In other business associations, such as corporations, the liability of the shareholders or partners is limited and not personal. Only the assets of the business
association are subject to liability to third persons and the shareholders are personally
liable to the extent of the unpaid portion of their capital undertakings. For third persons
dealing with a corporation, the financial strength of the corporation, rather than of its
shareholders, is therefore .important. In publicly held corporations, there are many
shareholders that may not know each other. Shareholders usually do not participate
directly in the administration of the corporation so there is no need to restrict the
number of shareholders. Shareholder rights are easily transferred. The bankruptcy or
death of a shareholder has no significant effect on the existence of the corporation.
From a practical point of view, business associations can also be classified
according to the degree the government regulates their formation formalities, business
activities and, through taxation its revenues. Some types of business associations can
be created with less formality than others. General partnerships are formed when a
written agreement is signed by the partners, a notary notarizes their signatures and the
partnership is registered in the commercial registry. The formation of an ordinary
partnership requires no written agreement. To form a corporation, on the other hand,
may necessitate, among other formalities, the approval of a government ministry.
Establishing a publicly held corporation requires more formalities than to form a
closely held corporation. Unlike other business associations, corporations, partnerships with limited liability, partnerships in which capital is divided into shares and
cooperatives are subject to the Corporate Tax Law (Kurumlar Vergisi Kanunu). This
can result in profits being taxed once when earned by the business association and
again when distributed to owners.
90
Chapter 7: Business Associations
7.02[B]
Businesspersons take into account the advantages and disadvantages of establishing and operating different types of business associations in choosing the most
suitable form for their purposes. For example, a small group of persons may choose to
form a closely held family corporation rather than a publicly held one. Or, they might
prefer to create an undisclosed (secret, silent) ordinary partnership. For those business
associations in which the partners or share holders have limited liability, the provisions
on auditing are stricter than for those in which partners have unlimited liability. More
transparency is required in the case of corporations. For some businesses, the law
prescribes a particular form of business association. For example, banking may only be
done by corporations.
7.02
[A]
ORDINARY PARTNERSHIP (ADi $iRKE1J
General
The simplest type of business association is the ordinary partnership. It is regulated by

the Code of Obligations (C.O. Articles 620-645). It is a basic type of association which
fits business and non-business purposes. Legal provisions that govern ordinary
partnerships can also be applied to other business associations in situations where
there is no particular code provision applicable to them (Comm. C. Articles 126, 214).
Similarly, if a business association does not have the characteristic elements of one of
the associations described in the Commercial Code, it will be subject to the provisions
governing ordinary partnerships (C.O. Article 620 II). Also, if a business association or
society does not acquire legal personality for any reason, the provisions on ordinary partnerships will be applied to them (Comm. C. Article 214 I). Silent partnerships
(gizli $irketler), in which the partners are not known to third persons, do not have any
external existence but are subject to the provisions on ordinary partnerships for
relations between the disclosed and undisclosed partners (gizli ortaklar).
An ordinary partnership is defined in the Code of Obligations as an association in
which two or more persons unclertake by contract to bring their capital or labor
together to attain a common goal (C.O. Article 620). Any business which may be
operated by an individual may be carried on in the form of an ordinary partnership.
Thus an ordinary partnership can be created to conduct manufacturing, transportation,
farming or commerce. Because of its simplicity of formation, an ordinary partnership is
a suitable form of association for temporary activities including joint ventures.
[BJ
Characteristics
The purpose of an ordinary partnership is to achieve a common purpose, which is

usually the economic gain of the partners. The creation of an ordinary partnership
requires at least two persons who may be either real or legal persons. Each partner
must contribute money, credit, property or labor to the partnership. Unless otherwise
agreed, contributions shall be equal and of the kind and amount necessitated by the
object of the partnership (C.O. Article 621).
91
7.02[C]
Tugrul Ansay
There are generally no formal requirements for the creation an ordinary partnership. The partnership agreement may be written or oral or it can be implied from the
circumstances. Exceptionally, when for example real property is contributed by a
partner, there must be a special written partnership agreement.
The liability of partners of an ordinary partnership to third persons is unlimited.
An ordinary partnership has no legal personality recognized by law. The liability of
partners is, therefore, direct, primary, joint and unlimited. Creditors of a partnership
may sue each of the partners directly for payment of the entire amount of partnership
debt.
[C]
Partners
Partners are co-owners of the capital they contributed to, and of assets acquired by, the
ordinary partnership (C.O. Article 638 I). Each partner has a proportional right to all
assets, but each share is subject to the ownership rights of other partners. Therefore, no
partner is entitled to assign his rights in partnership property without the consent of
other partners. Neither is partnership property subject to attachment or execution for
non-partnership debts of partners. The creditors of individual partners must force the
dissolution of a partnership in order to be paid from partnership assets (C.O. Article 638
II).
Ordinary partnerships are run by transactions conducted by partners. Each

partner acts as an agent of other partners. When a partner enters transactions within
the scope of the partnership business, he generally has apparent authority to bind all of
the partners. However, for extra-ordinary transactions, such as for the appointment of
a general agent or the sale of the enterprise, unanimous action of the partners is
necessary.
In meetings of the partners each partner has only one vote regardless of the
amount of capital he holds in the partnership. Partners are equal to each other in
conducting the business of the partnership, and there is no subordination among them.
Because the Code of Obligations does not confer legal personality on an ordinary
partnership, lawsuits must be brought in the name of all partners and real property
contributed to the partnership must be registered in the land registry in the name of all
partners as co-owners. However, the law may recognize that when partners act under
a common name, the partnership has, to a limited degree, legal capacity which makes
it and the partners the subject of legal rights and obligations. Nevertheless, the partners
are not the "organs" of the partnership. Consequently, partners are not liable for
tortuous acts of other partners. A special legal provision, however, makes the partners
individually liable in tort if the partnership enters into a transaction under a common
name and damage is caused to third persons by a tortuous act of a partner (Comm. C.
Article 216 II).
92
[D]
7.02[F]
Internal Relations among Partners
If they have not otherwise agreed, all partners are entitled to administer the partnership
together but usually one or several partners are entrusted with administration of the
business. Partners have a fiduciary relationship to each other. A partner, in the
discharge of his partnership duties, must exercise the degree of care, skill and diligence
which he exercises in his own business. He should not compete with the partnership.
Those partners not empowered with management of the partnership may nevertheless
have a voice in the control of the business of the partnership. All partners are entitled
to an accounting from those partners who have administrative powers (C.O. Articles
630, 631).
In the absence of an agreement to the contrary, profits and losses are shared by
partners equally, without regard to the amount of capital contribution. A partner
cannot be excluded from sharing in profits and/or losses, except those partners
contributing only their labor may be exempted from participating in losses.
[E]
External Relations
Since an ordinary partnership has no legal personality, partners must act on behalf of
other partners. To third persons, an ordinary partnership appears to be several partners
rather than a single entity. The existence of a partnership is an indication that partners
are entitled to represent each other in ordinary transactions within the scope of purpose
of the partnership.
A partner who enters into transactions with third persons on behalf of the
partnership does so in his own name and may do so without disclosing the names of
other partners. The other unnamed partners are considered silent partners and are not
legally part of the transaction unless rights and obligations deriving out of the
transactions are transferred to them (C.O. Article 637 I). Usually, however, an
authorized partner acts in the name of the partnership by stating the name of the
partnership or in the names of other partners. In this situation, the law states that
the other partners are parties to the transaction with joint and several liability, if the
transaction remains within the scope of the partnership's purpose (C.O. Articles 637,
40 et seq.) Nevertheless, for important transactions the power to act should be granted
with the unanimous consent of the partners (C.O. Article 637 III).
[F]
Changing Partners
It is difficult to change partners in an ordinary partnership. A person may be admitted
into a partnership or retire from it with the unanimous consent of all partners. Under
certain conditions a partner is entitled to retire or he may be dismissed from the
partnership (C.O. Article 633). A retiring partner remains jointly liable to creditors of
the partnership for two years after the date of announcement of his retirement (C.O.
Article 201).
93
7.03[A]
[G]
Tugrul Ansay
Dissolution and Winding-Up
An ordinary partnership comes to an end when the term for which the partnership was
created expires or if the object for which the partnership was created has been attained
or has become unattainable. The death of a partner dissolves the partnership unless the
partnership agreement specifically provides to the contrary. A partnership is also
dissolved when the liquidated share of a partner is subjected to execution, or if a
partner becomes bankrupt. A partnership may be terminated upon notice of the
partners where the partnership agreement has been entered into for an indefinite
period of time or for the lifetime of one of the partners (C.O. Article 640). If there are
justifiable grounds, any partner may demand the dissolution of the partnership (C.O.
Article 639 Nr. 7).
Upon dissolution of a partnership, debts of the partnership are paid first. If assets
remain, credit extended to the partnership and expenses paid on behalf of the
partnership by the partners will be reimbursed. Lastly, partners will be reimbursed for
their capital contributions. A partner may not, however, demand the return of the same
property contributed as capital (C.O. Article 642). Losses of the partnershir -"e divided
among the partners. Even after dissolution, partners continue to be liable to third
persons for breach of contract until the expiration of the statute of limitations
applicable to those contracts (C.O. Article 645).
7.03
[A]
GENERAL PARTNERSHIP (KOLEKTjF $jRKET)
Definition and Characteristics
A general partnership is, in a way, an advanced form of the ordinary partnership. It is

regulated in the Commercial Code. Like an ordinary partnership, it is formed between
two or more persons who undertake to contribute capital or labor to achieve a common
purpose. But, unlike an ordinary partnership, a general partnership has legal personality under Turkish law. Transactions of a general partnership are conducted in the
name of the partnership, not in the name of partners. Assets belong directly to the
partnership and are not co-owned by the partners. Immovable property is registered in
the Land Registry in the name of the partnership. Lawsuits can be brought against the
partnership without including the names of the partners. A general partnership is a
merchant, but its partners are not. General partnerships must, as a merchant, have a
trade name and are subject to bankruptcy laws (Comm. C. Article 239).
Although a general partnership has legal personality and has its own separate
:1ssets, the partners are also liable for partnership debts. This liability is unlimited and
joint dmong the partners, but it is secondary to the partnership assets. The creditors of
the partnership must first demand what they are owed from the partnership. They can
turn to the partners when partnership assets are not sufficient to cover the debts of the
partnership (Comm. C. Article 237).
94
I
[B]
7.03[D]
Formation
Only real persons may create a general partnership (Comm. C. Article 211). Legal
persons, such as other general partnerships or corporations, may not be founders or
become partners in a general partnership. The law requires that general partnerships
be formed only to operate a commercial enterprise (Comm. C. Article 211, and see
"Commercial enterprise" above).
To form a general partnership, partners must prepare and sign a written and
notarized partnership agreement.
The Commercial Code states that a partnership agreement should contain the
following: The names and family names, addresses and nationalities of the partners;
trade name, business center and subject matter of the partnership; names and family
names of persons entitled to represent the partnership, whether they are authorized to
sign individually or jointly; the amount of capital to be brought by each partner; the
value of capital in-kind and its method of evaluation; and, if the capital contributed is
the personal work of a partner, the nature and scope of such work (Comm. C. Article
213).
The partnership agreement must be registered in the commercial registry in the

locality that is stated as the business center in the partnership agreement (Comm.
C. Article 219). On registration the partnership acquires legal personality (Comm. C.
Article 232).
[C]
Relations between Partners
If there is no contrary agreement, partners are treated equally, without regard to their
capital contribution to the partnership. Each partner has the right and duty of
separately administering the partnership, but the administration of the partnership
may be entrusted to a majority or one or several partners. However, for extra-ordinary
transactions the unanimous consent of all partners is required.
[D]
External Relations
A general partnership is represented by partners whose names are designated in the

partnership agreement and registered in the commercial registry. Representatives are
individually entitled to represent the partnership for ordinary transactions which are
within the scope of the partnership purpose as stated in the partnership agreement
(Comm. C. Articles 233 and 223). The partnership agreement may provide for joint
representation of the partnership in transactions by, for example, requiring the
signatures of two partners to bind the partnership. This limitation, if written in
the registered partnership agreement, is effective against third persons (Comm. C.
Article 233 II). Other limitations on the power of representation are not effective to limit
the liability of the partnership as to third persons unless the third person knows of the
95
7.04
Tugrul Ansay
limitation of authority. The partnership is liable for damages caused by a partner while
he was performing his duties regarding the partnership (Comm. C. Article 234 II}.
[E]
Change of Partners
New partners may join a partnership only with the unanimous approval of the other
partners. New partners will, however, be liable to third parties for all previous debts of
the partnership (Comm. C. Article 236}.
Retirement of a partner is possible only with the unanimous approval of the
remaining partners if the partnership is to continue. However, a retiring partner may
demand the dissolution of the partnership. The partnership may also end on the death
of a partner (Comm. C. Articles 256, 253}. A partner may be expelled from the
partnership for cause, such as the partner being declared bankrupt or a partner
demanding the dissolution of the partnership. The remaining partners may expel him
and keep the partnership running (Comm. C. Article 256 et seq.}
The retirement or expulsion of a partner does not necessarily affect the existence
of the partnership, but if the name of the outgoing partner is part of the partnership
name, the partnership name must be changed and the change must be registered.
Otherwise, the liability of the outgoing partner to third persons continues. After the
change is registered in the commercial registry, the outgoing partner's liability for
future transactions of the partnership ceases, but he remains liable for transactions
which were started before his departure. He cannot demand the termination of such
previous contracts, but he has the right to obtain information from the partnership
regarding them (Comm. C. Article 263}.
7.04
LIMITED PARTNERSHIP
A limited partnership is composed of general partners and limited partners. General

partners (komandite ortaklar) administer and represent the limited partnership and
have unlimited liability. The liability of limited partners (komanditer ortaklar) is, as a
rule, limited to the amount of capital they promise to contribute to the partnership
under the partnership agreement. However, if their names are included in the trade
name of the partnership or they enter into transactions in the name of the partnership,
they may incur unlimited liability.
Normally limited partners are not entitled to represent the partnership and their
participation in the administration of the partnership is restricted. They have, however,
the right to review the affairs of the partnership.
Provisions of law which apply to general partnerships are, generally, also
applicable to the general partners of a limited partnership (Comm. C. Articles 305, 308,
311, 317 and 328}.
96
7.0S[A]

7.05
CORPORATIONS (JOINT STOCK COMPANIES)
[A]
Overview
[1]
In General
The term corporation in the general sense indicates legal personality. When a business
corporation is incorporated, it has a legal personality of its own, separate from the
participants. The term corporation indicates also a certain type of legal person, in
which the liability of the participants is limited by the amount they undertake to bring
to the organization.
In a corporation the amount of capital or assets of the association is important,
not the personal financial resources of the participants, who are called shareholders.
The agreement to incorporate, which is the articles of incorporation, must state a
legally required minimum capital. The amount of this stated capital reflects the initial
financial strength of the corporation in its external affairs with third persons. The stated
capital of a corporation is divided into shares for which share (stock) certificates are
issued. Persons, either real or legal, contribute or promise to contribute a certain
amount of capital to the corporation in return for shares. Those who own shares are
called shareholders. Shares in a corporation are easily transferred through the transfer
of stock certificates. The liability of shareholders for obligations of the corporation is
terminated when the amount represented in the shares is paid in.
There may be different types of corporations. Accordingly, they can be grouped
under different headings. Depending on the number of shareholders they can be called
publicly held or closely held corporations. A subdivision of corporations is the
partnership with limited liability. This type of business association is suitable for
investments of limited number of persons. It may not have more than SO partners.
Under the new law, a corporation or partnership with limited liability may however be
founded only by one person.
Corporations in Turkey tend to be closely held corporations with a small number
of incorporators. Founders of corporations are often family members or a small number
of business enterprises wanting to enter into a joint venture with limited liability. This
tendency has been changing recently as more Turkish corporations are offering their
shares on the stock exchange; increasing their number of share owners by going to the
public in order to raise operating capital.
Corporations may be incorporators of other corporations. By establishing a
corporation, already existing business institutions may combine their financial capacities, experience and efforts for a new joint enterprise for a long or short period of time.
Corporations can also form subsidiaries (yavru ~irketler) which are separate
corporations. The founding corporation is called the parent corporation (ana ~irket)
with separate legal personality and limited liability for the activities of its subsidiary. A
parent-subsidiary relationship may expand into a holding company, with a horizontal
or vertical structure. For holding (group) companies there are special provisions in the
Commercial Code (Articles 195-209) as well as provisions in different places in the
Code.
97
7.05[A]
[2]
Tugrul Ansay
Sources of Law
Corporations are regulated by the Commercial Code (Articles 329-563). The same rules
of the Commercial Code are basically applicable both to closely and publicly held
corporations. However, in 1981 the Capital Market Law (CML,), which was completely
renewed in 2012 (Law Nr. 6362, dated December 6, 2012) with the Law establishing
Capital Market Board and imposed provisions applicable to those corporations which
are registered in the Stock Exchange (CML, Article 16). Apart from the provisions in the
Commercial Code and the CML, there are provisions regarding corporations in other
special laws, such as the Banking Law or various privatization laws.
The provisions on corporations in the new Commercial Code dated July 1, 2012,
have their roots in the previous Commercial Codes of 1926 and 1957. The revisions of
1957 brought Turkish commercial law generally closer to Swiss law as found in the
Swiss Code of Obligations of 1936. The present law introduced new provisions to deal
with issues which have arisen during recent decades in domestic and international
business, particularly having to do with holding companies and mergers or partitions
as well as take-overs. The legislation of the European Union regarding corporations
was also taken into consideration during the preparation of the new Commercial Code.
Although the new Commercial Code basically protects the freedom of parties to
make agreements on their own terms, many of its provisions on corporations are
mandatory. According to the Code, the incorporators are allowed to regulate in the
articles of incorporation only those issues which are expressly allowed by the Law
(Comm.C. Article 340). There are many mandatory code provisions, which cannot be
avoided by the articles of incorporation. Mandatory rules apply to the vested rights of
shareholders such as voting rights. The incorporators may, nevertheless, choose to
regulate certain corporate matters in an agreement which is separate from the articles
of incorporation. Such an agreement is generally considered enforceable, although the
remedy of specific performance may not easily be obtained.
{3]
State Supervision
Because corporations play a significant role in the Turkish economy and may have
many shareholders with only limited liability, they are subject to closer state supervision and are regulated by more detailed legal provisions than other types of business
associations in which the partners have unlimited liability. Turkish law requires that
certain types of business activity, such as banking or leasing, be conducted through a
corporation. which need additional permission of the State.
Regardless of its type, whether closely or publicly held, and regardless of the
amount of capital involved, a corporation is subject to State intervention, starting from
the moment of formation until it ceases to exist. In some cases, the incorporators must
receive permission from the State to form a corporation, and in such corporations a
State official attends general meetings of shareholders.
98
7.05[B]
[BJ
Incorporation
The formation process of a corporation differs according to whether there is full or

partial subscription of capital by the incorporators and according to the nature of
contributed capital and the terms of the articles of incorporation (es as mukavele, ana
sozle$me). In a corporation with a limited number of founders, when the incorporators
themselves subscribe for all of the capital stock, simultaneous incorporation (ani
kurulu$) will occur. This is a simple process when compared to incorporation where
public subscription is used through the participation of intermediary financial institutions. The details of this special type of incorporation are laid down in the CML.
Simultaneous incorporation occurs in two main stages. If the permission of the
Ministry is obligatory, the first stage is completed when permission of formation is
granted by the Ministry of Customs and Trade. In order to get this permission, the
incorporators (kurucular) prepare the articles of incorporation, sign it, and have their
signatures authenticated by a notary. Under the old law, there had to be at least five
incorporators who take part in the preparation of the articles of incorporation, sign it
and contribute capital (Comm. C. Article 278). Today, one incorporator is sufficient
(Comm.C. Article 338, one-man company).
The articles of incorporation must comply with the requirements of the provisions of the Commercial Code (Comm. C. Article 340). On non-mandatory matters, the
Commercial Code provisions are applicable to the extent that the incorporators have
not stated otherwise in the articles of incorporation. Articles of incorporation must
include the following basic information in addition to that which may be stated by the
incorporators:
(1) The object, type, nature and kind of transactions constituting the subject
matter (scope of business) of the corporation. The extent of the scope of
business must be specified (Comm. C. Article 339 II). The internal legal
capacity of a corporation is determined according to its stated scope of
business, which indicates the extent of the power of representation of
corporate administrators (Comm. C. Article 125). External limitations on
power of representation will not be effective against third persons acting in
good faith (ultra-vires).
(2) The amount of the basic capital, the value of each share, and the means and
conditions of payment for shares. The minimum amount of stock capital must
be TRY 50,000 (appr. USD 25,000 as of September 2013). The required capital
is much higher for corporations which are active in certain businesses, such
as banking or insurance. Capital stock is divided into shares with at minimum
value of TRY 0,01 each. In a simultaneous incorporation all stock must be
subscribed at the time of formation. If a capital contribution is to be money,
at least one fourth of the value of each share must be paid in cash before the
formation is completed and the rest should be paid-in within 24 months after
the registration of the corporation. If capital in-kind is to be contributed, the
entire asset must be provided. The articles of incorporation must, furthermore, state the nature of capital in-kind and the amount of shares to be given
99
Tugrul Ansay
7.05[B)
in consideration of capital in-kind (Comm. C. Article 339 II). Experts must

evaluate the worth of the capital in-kind (Comm. C. Article 343).
(3) The central location of the business must be given (Comm. C. Article 339 II).
This can be any location within Turkey. The corporation must be registered in
the commercial registry at its stated center of business. Courts in that location
basically have jurisdiction over legal conflicts involving the corporation.
(4) A trade name which indicates the purpose of the corporation and which
includes the Turkish equivalent of the word "corporation" (anonim $irket,
A.$) (Comm. C. Article 339 II).
(5) The number of directors, the names of the first directors and those who will
be entitled to sign in the name of the corporation (Comm. C. Article 339 II and
III). Basically there is no restriction on foreigners becoming incorporators or
shareholders in a Turkish corporation. In the case of a one-man company, the
domicile and nationality of the sole shareholder should, however, be registered in the commercial registry (Comm.C. Article 338 II). How shareholders
should be invited to the general assembly meetings and among others, the
voting rights of shareholders, how the announcements should be made, the
type and amount of shares should be stated in the articles of incorporation.
The accuracy of the founding formalities will be checked by person or persons
designated for such purpose (Comm. C. Article 351):
For those corporations which need the permission of the Ministry of Customs and
Trade, an application must be made by the incorporators to the Ministry. This Ministry
may refuse permission if there are provisions in the articles of incorporation against the
mandatory provisions of the Commercial Code (Comm. C. Article 333).
The formation process is completed with the registration in the commercial
register and publication of a certain part of it. This is initiated by the incorporators
making application to the commercial registrar at the stated central location of the
business. Those parts of the articles of incorporation which primarily affect third
persons, such as the purpose and subject matter of the corporation, the trade name,
business location and the amount of capital stock of the corporation, must be included
in the registration. How the corporation will be represented and the names of the Board
of Directors those who will be entitled to represent the corporation, their domicile and
nationality should also be registered (Comm. C. Article 354).
A corporation acquires legal personality upon registration in the commercial
registry. During the pre-incorporation period, the business association is subject to the
laws regulating ordinary partnerships. All incorporators have, therefore, joint and
unlimited liability for transactions conducted during the preparatory stage of incorporation. In order to be binding on the corporation, transactions entered into by the
incorporators in the name of the corporation before registration must be approved by
the corporation after it acquires legal personality (Comm. C. Article 355).
Only in exceptional cases where the interests of creditors, shareholders or the
public is severely endangered, a corporation maybe dissolved by a court decision upon
the demand of the Ministry, a creditor or shareholder (Comm. C. Article 353).
100
7.05[C]
If a corporation is to be formed by offer of shares to the public additional

formalities stated in the Commercial Code and especially in the CML should be
observed.
[C]
The Operational Structure of Turkish Corporations
The organization of a corporation consists of a Board of Administration, and the

General Assembly of Shareholders (General Meeting). These constituent parts are
called "organs" and they are necessary for the existence of a corporation. Even a
one-man company will have a symbolic Assembly of Shareholders. The non-existence
of these organs is a ground for the dissolution of a corporation (Comm. C. Article 530).
There can be additional organs if the articles of incorporation so provide. In fact, some
corporations, like banks which operate under special laws, must have additional
organs.
Auditing of a corporation was previously done by auditors attached to the
corporation continuously, who constituted another organizational part of the corporation. This is abolished by the new Code and independent auditing is introduced.
[1]
Board of Administration (Board of Directors)
(a) A corporation is administered and operated by a Board of Administration.

The Board consists of one or more members who are called administrators
(Comm. C. Article 359). They are elected by the shareholders for, at most,
three years. Reelection is possible. If a shareholder is a legal person, a real
person representative of that shareholder must be elected to the Board
(Comm. C. Article 359 II). The representation of different shareholder groups
on the Board is possible if allowed in the articles of incorporation (Cornm.C.
Article 360). The incorporators may also separately agree on the manner of
representation on the Board.
(b) Board resolutions are passed at board meetings by a majority of
members present when there is a quorum of more than half of the
Board members. Proxies are not allowed for votes of the Board (Comm. C.
Article 390 II). Nevertheless, voting by electronic means is allowed (Comm.
C. Articles 390 I and 152 7 I). Turkish law also allows resolutions to be
reached by correspondence if none of the administrators objects (Comm. C.
Article 330 II).
(c) The Board is responsible for administering the corporation. The Board
Administration may create Committees and Commissions or transfer
administration wholly or partly to other persons. If there is no transfer,
administration will be done by all administrators (Comm. C. Article
The Board has the power to administer the affairs of the corporation
matters not exclusively within the power of the General Assembly and
pass resolutions for accomplishing the aims of the corporation (Comm.
101
7.05[C]
Tugrul Ansay
Article 374) Performance of certain duties may not be delegated and are
specifically expected from the Board. It has the duty to prepare a yearly
balance sheet and a detailed report on the financial condition of the
corporation as well as to suggest a yearly dividend rate and the amount of
income to be allocated as a reserve fund (Comm. C. Article 514 et seq.) The
Board is obliged to hold shareholders meetings and to report to a court if
there is a deficit of corporate liabilities over assets (Comm. C. Article 375 I g).
There are many provisions in the Code to safeguard the assets of a corporation and to avoid their misuse for the benefit of others. Among them worth
mentioning is the prohibition of acquiring its own shares, or of taking them
as a pledge (Comm. C. Article 379). The Code also prohibits shareholders, as
a rule, from becoming debtors of the corporation (Comm. C. Article 358).
The Board must take necessary precautionary steps to be informed of possible risks as
early as possible (Comm. C. Article 378).
Since the administrators have the power to administer the assets of a corporation,
they are in a peculiarly advantageous position to use the investments of the shareholders. It is generally accepted that the relationship between administrators and the
corporation is similar to that of an agent and a principal, requiring a similar degree of
diligence and faithfulness (C.O. Article 628). More specifically, Board members must
act as prudent administrators and protect the interest of the corporation in good faith
(Comm. C. Article 369 I). An administrator must not participate in discussions with the
board of administration on matters which are related to his own interests or those of his
close relatives (Comm. C. Article 393). Administrators cannot vote on shareholders'
resolutions concerning their discharge (ibra, aklanma) (Comm. C. Article 436). The
corporation is not allowed to give security or guarantee to close relatives of Board
members (Comm. C. Article 395 II). An administrator may contract with his own
corporation in his name or in the name of others only with the permission of the
shareholders (Comm. C. Article 395). Similarly, an administrator may not enter
transactions that compete with the corporation without the permission of the shareholders (Comm. C. Article 396).
Administrators also represent the corporation in transactions with third parties.
Unless the articles of incorporation expressly allow single representation, two signatures are necessary. If the power of representation is given to other persons, at least one
Board member must have the power of representation (Comm. C. Article 370 II). The
notarized resolutions of the Board must be submitted to the Commercial Registry for
registration and for publication (Comm. C. Article 370 I). Normally the Board empowers a general manager to represent the corporation. Administrators and managers are
bound to remain within the scope of the stated purpose of the business of the
corporation when they act in the name of the corporation since this sets the broadest
limits of their representative power. However, transactions beyond the scope of the
business bind the corporation unless third parties knew or had reason to know that the
representatives were not entitled to enter such transactions. Outside of these limits
the corporation has no legal capacity. Similarly, within the declared scope of business,
the power of representation cannot be restricted except when the power is limited to
102
7.05[C]
the business center, branch office of the corporation or there is a joint representation
(Comm. C. Article 371 II and III),. Once the capacity of a corporation is stated in the
articles of incorporation by way of its "object clause," no subsequent limitation may be
placed on this capacity without amending the articles.
A corporation is also liable for torts committed by its representatives during the
performance of their duties (Comm. C. Article 371 V).
Board members and administrators are liable for damages they cause to the
corporation, individual shareholders and creditors of the corporation, if they negligently fail to perform their duties arising from law or the articles of incorporation
(Comm. C. Article 553). Lawsuits brought by individual shareholders are rather rare
due to an institution that is called "discharge" (ibra). A resolution of the general
assembly of shareholders which approves a balance sheet implies, unless otherwise
stated, that the administrators are discharged of their liabilities arising out of the
information contained in the balance sheet. However, if information is omitted from
the balance sheet or if false statements are made which prevent an understanding of the
real financial status of the corporation the administrators are not deemed discharged
upon the approval of the balance sheet. Shareholders can, of course, annul a resolution
of discharge if this violates principles of good faith (Comm. C. Article 445). Banking
Law makes the board members and general managers responsible with unlimited
liability if the bank becomes bankrupt (See Chapter on Banking Law).
[2]
Auditors (Controllers)
The new Commercial Code has made basic innovations on auditing. In contrast to the
previous law, where the auditing or controlling organization directly attached to the
corporation itself, there are now independent (outside) auditors.
The auditing is also made more stringent. First, the auditors must have certain
qualifications (Comm. C. Article 400). The work must be done professionally. The new
Code introduces provisions harmonizing the accounting system with the international
standards. There are many provisions to safeguard the impartiality of the auditors and
to avoid conflict of interests between the auditors and the corporations or their
administrators. In many stages during the operation of a corporation, auditors should
be asked to report on the economic situation.
Auditors of a corporation have duties and powers far beyond the position of a
normal auditor. They not only check the books and accounts of a corporation, they also
have a wide range of inspection and controlling functions, including the investigation
of whether administrators are acting in accordance with the law and the articles of
incorporation and the examine the general development of the business. They have
access to all documents and books of the corporation (Comm. C. Article 401). They
annually submit a written report to the general assembly of shareholders as well as a
balance sheet prepared by the board of administration (Comm. C. Articles 402 and
403).
The auditors are elected by the General Assembly of Shareholders. Upon demand
of the Board of Directors or shareholders representing one tenth of capital stock the
103
7.05[C]
Tugrul Ansay
court may appoint an auditor (Comm. C. Article 399 IV). The auditors must be
registered in the Commercial Registry (Comm. C. Article 399 I).
There are supplementary legal provisions on the auditing of publicly held
corporations.
The operations of corporations are supervised by the Ministry of Customs and
Trade, and if they are publicly held listed corporations, they are also controlled by the
Capital Market Commission.
[3]
General Assembly of Shareholder
The highest organ of a corporation is the general assembly of shareholders. It is the

supreme authority of the corporation in the sense that on certain decisive matters the
last word must come from the shareholders. Shareholder's rights are exercised in
general meetings and include the appointment of the members of the Board of
Administrators as well as Auditors, approval of the yearly balance sheet, yearly report
and on the distribution of dividends, and the right to discharge the Board (Comm. C.
Article 408). Global sale of a considerable part of the assets of the corporation requires
the approval of the shareholders (Comm. C. Article 208 II). Shareholders can decide on
modifications of the articles of incorporation, including capital increases or decreases.
Shareholders must meet at least once every year within the first three months of
the calendar year (Comm. C. Article 409). This is called an ordinary (olagan) meeting.
The required agenda (giindem) of ordinary meetings is prescribed in the Commercial
Code (Comm. C. Article 413). Other meetings are called extra-ordinary (fevkalade)
meetings. The articles of incorporation describe the procedure for invitations to general
meetings. Shareholders must be given at least two-weeks notice of a meeting. The
topics for discussion must be included in the notice. Any failure to meet formalities can
be cured if all shareholders are present or represented at the meeting and none objects
to the meeting (Comm. C. Article 416). The place of meeting is normally the stated
center of business of the corporation, but the articles of incorporation may allow
meetings in other locations. If all shareholders or their representatives are present at
the meeting resolutions may be held, without the fulfillment of the formal requirements
of invitation (Comm. C. Article 416). Electronic balloting is allowed. The voting will
then basically have the same effect as normal resolutions which are voted on in person
(Comm. C. Article 1527 V).
The general assembly of shareholders is able to meet and start discussions only
if a quorum is present. The quorum for ordinary meetings is generally the presence of
shareholders representing at least one fourth of the stated capital stock. If this quorum
is not reached, shareholders may assemble in a second meeting with those present
(Comm. C. Article 418 I). Resolutions may be adopted with a simple majority of the
votes cast (Comm. C. Article 418 II). The Commercial Code requires different quorums
for extra-ordinary meetings, especially on amending the articles of incorporation. To
adopt a resolution at an extra-ordinary meeting to amend the articles of incorporation
shareholders representing 50 % of the stated capital must be present and a simple
majority of the votes cast is sufficient (Comm. C. Article 421 I). To amend the articles
104
7.05[D]
of incorporation in certain cases unanimous approval of shareholders (to move the

business center to another country) or the votes of shareholders representing at least
75 % of the capital is required (Comm. C. Article 421).
Shareholder resolutions are binding also on all shareholders, including those who
were not present at the meeting. They may, however, be void if they are found to be
contrary to the mandatory provisions of the law. Resolutions that are contrary to law
or the articles of incorporation or objective good faith are voidable. A suit of annulment
on these grounds may be initiated by individual shareholders who claim they were not
properly invited to the general meeting, or that they were present but voted against the
resolution, or that they were not allowed to vote, or who claim that votes were cast by
persons who were not eligible to participate in the voting. A suit of annulment must be
brought within three months from the date the resolution was passed (Comm. C.
Article 445 et seq.)
A peculiarity of Turkish law requires the presence of a representative (komiser)
of the Ministry of Customs and Trade (komiser] at shareholder meetings of corporations which are incorporated with the permission of the Ministry of Customs and
Trade. The Ministry representative observes the meeting, and if the legal requirements
have been complied with, signs the minutes (Comm. C. Article 422).
[D]
Shareholder Rights
(1) Shares entitle their holders to certain rights, some of which are of a financial
nature, others administrative. Each shareholder is entitled to attend general
meetings. This includes the right to participate in discussions and vote at a
meeting. Each share gives at least one vote to its holder. Non-voting shares
are not allowed. The articles of incorporation may, however, recognize shares
with more than one vote or assign a higher limit of votes to a shareholder
(Comm. C. Article 434 II) or put a cap on a voting right (Comm. C. Article
479). In some cases, such as on resolutions of discharge of the Board of
Administration, voting rights may be frozen (Comm. C. Article 436).
(2) The primary financial right of a shareholder is the right to receive dividends.
This is part of the right of a shareholder to participate in the profits of the
corporation. Although dividends are normally equally distributed according
to share ownership, there can be different types of shares with varying rights
to dividends. Not all net profits are distributed to shareholders. The Board
proposes the amount to be distributed (Comm. C. Articles 507, 516). The
Board is bound by statutory restrictions in making dividend proposals. It must
consider requirements to establish a reserve fund found in statutory provisions (kanuni yedek akr;e) (Comm. C. Article 519) and provisions of the
articles of incorporation and laws on establishing reserve funds for the benefit
of the employees (Comm. C. Article 522). The Board may decide not to
distribute any dividends for a particular financial year or may keep the
amount very low, unless this is incompatible with good faith. The general
105
7.05[D]
Tugrul Ansay
assembly of shareholders has, theoretically, the power to refuse the suggestions of the Board on dividend distribution. In the case of publicly held
corporations, the law regulates the distribution of a certain part of the profits
(CML Article 19).
Shareholders also have a right to be informed (bilgi alma hakkl). Without
sufficient information on the affairs of the corporation a shareholder may not
be in a position to know whether to discharge the board of liability or to
approve the balance sheet or proposals of the board on dividend distributions,
and they will not be in a position to bring a suit for compensation against
administrators in case of mismanagement. Nevertheless, an individual shareholder's access to the books of a corporation is possible only with the
permission of the board of administration or the general meeting of shareholders. These organs of the corporation also decide on the extent of the right
to be informed. Shareholders holding 10 % of the stock capital of the
corporation have additional rights to be informed (Comm. C. Article 437 et
seq.)
In cases of the issuance of new shares, the existing shareholders have the
preemptive right to get the new shares, which might be rejected by the
General Assembly of shareholders with a resolution representing at least 60 %
of the basic capital of the corporation (Comm. C. Article 461).
Each shareholder may request special auditing for clarifying certain issues
(Comm. C. Article 438). If this is rejected, the shareholders constituting 10 %
of the capital or those shareholders with shares representing at least TRY 1
billion may demand the appointment of a special auditor (Comm. C. Article
439) at the General Assembly meeting of shareholders.
(3) The shareholder rights recognized by the Commercial Code also include the
rights of individual shareholders or minority shareholders. Each shareholder
has certain rights including the right to be invited to the general meeting of
shareholders and to vote there and, to participate in dividends. Rights which
may not be taken away under the articles of incorporation or shareholders'
resolutions are called vested rights (miiktesep haklar, Comm. C. Article 452).
The right to vote and to participate in dividends, as well as the right to initiate
an annulment suit against the resolutions of a shareholder's meeting or to
participate in assets remaining after dissolution of the corporation are examples of vested rights. Each shareholder may request the appointment of a
special auditor (Comm. C. Article 438). They may also initiate a lawsuit
against the board of administration for negligently causing damage to the
corporation (Comm. C. Articles 553 and 555).
Shareholders representing one tenth of the capital stock are given rights
additional to those that might be exercised by the holder of a single share.
Such shareholder or shareholders may demand the convening of a general
meeting of shareholders (Comm. C. Article 411). Similarly, shareholders
representing at least one tenth of the capital may demand the dissolution of
the corporation (Comm. C. Article 531).
106
7.05[E]
Provisions requiring a special quorum as well as a qualified majority vote

give additional protection to minority shareholders.
The new Commercial Code gives to shareholders, creditors of the corporation or to the Ministry the right to demand from a court the dissolution of a
corporation if one of the organs (Board of Directors or General Assembly of
Shareholders) fails. When there are good reasons, shareholders representing
at least 10% of the capital may also demand from a court the dissolution of the
corporation. The court, instead of ordering dissolution, may decide in favor of
a buy-out of the shareholders or for some other suitable and acceptable
resolution (Comm. C. Article 531).
[E]
Capital Structure
To protect third persons from the limited liability of shareholders, the Commercial
Code sets a minimum amount of capital to be stated in the articles of incorporation and
known by third persons. This is the stated capital. This is different than the assets of the
corporation which might be called the business capital. Numerous statutory provisions
are meant to insure that this amount of the stated capital is subscribed and paid in or
contributed as property and that there is a relationship between stated capital and the
existing assets of a corporation. If the existing assets of a corporation decrease in
comparison to the stated capital to a certain percentage, precautionary measures
should be taken and the general assembly of shareholders must be invited by the Board
to an extra-ordinary meeting (Comm. C. Article 376). As part of these measures a
corporation is allowed to acquire its own shares only in exceptional circumstances
which are enumerated in the Code (Comm. C. Article 382). Corporations are also
obliged to establish reserve funds (Comm. C. Article 519).
The capital of a corporation is divided into shares. Each share must have the
minimum nominal value of TRY 1 (appr. 0.5 cent). There can be different categories of
shares, such as ordinary shares (common shares, adi hisseler, paylar), preferred shares
(imtiyazlr hisseler, paylar), shares issued in consideration of a contribution in-kind,
and founders' shares (kurucu hisseleri, paylan).
There are different types of preferred shares which entitle holders to priority over
other classes of shareholders. The preferential right may be in regard to voting (Comm.
C. Article 434). But for some matters, such as amending the articles of incorporation,
each share, regardless of type or class, entitles the holder to only one vote. Preferred
shares may give their holders preference to dividends or the division of assets on
liquidation. Shareholders with preferential or special rights may hold their own general
meeting on matters affecting their own interests (Comm. C. Article 454).
Participation certificates (intifa senetleri) may be issued, but they are not shares
in that they do not entitle their holders to vote on corporate matters. They give rights
of income without ownership (usufructuary) to their holders. They may be issued in
favor of persons whose shares have been redeemed, or to creditors or of other persons
107
7.05[F]
Tugrul Ansay
who have some relation of interest to the corporation. The owner of a participation
certificate has the right to participate in the net profits, in the proceeds of liquidation or
in the allotment on the issuance of new shares (Comm. C. Article 502 et seq.)
The General Assembly of Shareholders may also decide to issue bonds, financial
bonds, instruments attached to assets, debt certificates and all kinds of negotiable
values (Comm. C., Article 504). The total value of the mentioned debt certificates may
not exceed the total value of the stated capital and the reserves of a corporation
(Comm. C., Article 506).
[F]
Share Certificates
Shareholders are entitled to get instruments certifying their shares. Share certificates
can be registered or bearer (for listed corporations electronic registration, C. M. L.,
Article 13 I). If there is no contrary provision in the articles of incorporation, share
certificates must be registered (nama yaz1h hisse senetleri, pay senetleri). In some
situations corporations are allowed to issue only registered shares. For example, if the
capital representing a share has not been fully paid in, the share certificate must be
registered (Comm. C. Article 484). Additionally, some statutes, such as the Law on
Foreign Direct Investment requires the issuance of registered share certificates for
foreign investors in order to make possible the transfer of dividends or proceeds
obtained from the sale of shares or from the liquidation of the corporation (See Chapter
on Foreign Investment). The name of the shareholder and other information required
by law is stated on the registered share certificates and is also registered in the
shareholder books of the corporation (Comm. C. Article 499).
The transfer of share certificates indicates the transfer of shareholder rights and
obligations. Shareholders, in general, are free to transfer their shares. The articles of
incorporation may, however, prohibit the transfer of shares or make it subject to the
approval of the corporation (Comm. C. Article 492). The approval of transfer may be
refused for serious reasons or by offering of the corporation to buy the shares for their
real value (Comm. C. Article 493). Where shares are not fully paid up, the corporation
may demand security before shares are transferred. A transfer of shares will not be
effective as against the corporation until it is registered in the shareholders' book. The
owner of a fully transferred share certificate is entitled to vote at shareholder meetings.
A written authorization (proxy, vekaletname) is necessary to vote in the name of an
absent holder of a registered share certificate.
Bearer share certificates (hamiline hisse senetleri) do not state the name of the
owner and they are not registered in the corporation's shareholder books. They are,
therefore, easily transferable by way of delivery of the certificate. The holder of the
bearer share certificate is the owner as against the corporation; he is entitled to vote at
a general meeting of shareholders. To prove shareholder status, the owner of a bearer
share deposits his share certificates with the corporation during the meeting.
108
[G]
7.06
Liability of Persons Participating in the Administration
Persons who have prepared false documents during the stage of formation or subsequently, are liable for damages suffered by a corporation. More specifically, the
founders, members of the Board of Directors and other administrators are liable if they
fail to perform their obligations deriving from the Code or from the articles of
incorporation causing damage to the corporation, to the shareholders or to the creditors
of the corporation, unless they prove that they have not acted negligently (Comm. C.
Article 553). Similar liability is foreseen for the auditors, if they perform their statutory
duties negligently (Comm. C. Article 554). A liability may cease if a General Meeting of
shareholders discharges the liability (Comm. C. Article 558). There is additionally criminal liability for acting against certain provisions of the Code (Comm. C.
Article 562).
7.06
PARTNERSHIP WITH LIMITED LIABILITY
This type of business association is very similar to a corporation. It was originally

regulated in the Commercial Code and is designed for persons who wish to limit their
liability, but do not have enough capital or partners to form a corporation. Like a
corporation, the partnership with limited liability has a stated basic capital that is
divided into shares and the liability of the partners is limited to the capital they
undertake to contribute to the company. With the enactment of the new Commercial
Code the importance of the partri-ership with limited liability will diminish, mainly
because the basic capital to be brought to corporations is lowered. The advantage of
creating a partnership will also lose its attraction mainly because both types of business
associations may be established with one shareholder/partner in the future.
Because these associations are similar, many provisions on corporations are also
applicable to partnerships with limited liability (Comm. C. Article 644).
Nevertheless, there are still differences between a corporation and a partnership
with limited liability. Although one person is sufficient to form a partnership (One-man
partnership), the maximum number of partners can be 50 (Comm. C. Article 574 I).
The basic capital must be at least TRY 10,000 (appr. USD 5,000). The value of each
share must be minimum TRY 25,000 (Comm. C. Article 583). But it must be fully
paid-in before the formation. Negotiable share certificates are not issued for shares.
The transfer of shares, if nothing contrary is stated in the articles of incorporation, is
not possible without the approval of a general meeting of partners (Comm. C. Article
595). The transfer of shares is subject to formal requirements (Comm. C. Article 595 I).
Some business activities, such as banking or insurance may not be engaged in by
partnerships with limited liability.
The formation of a partnership with limited liability is similar to the simultaneous
formation of a corporation. Here too, the founders prepare and sign the partnership
agreement, and a notary authenticates their signatures. The partnership agreement
must include basic data relevant to external transactions. It must include the subject
matter and business center of the partnership, the amount of basic capital and the
109
names, titles and nationalities of the directors (Comm. C. Article 576), Other matters
may be stated in the articles of incorporation, if they are expressly permitted by the
Commercial Code (Comm. C. Article 579). For the formation of a Partnership with
Limited Liability no permission of the Ministry of Customs and Commerce is necessary.
The partnership acquires legal personality upon registration in the Commercial Registry (Comm. C. Article 588). Additional information, such as the names of the partners,
their domicile and nationality and how the partnership will be represented should be
registered (Comm. C. Article 586).
A partnership with limited liability is administered and managed by the directors
who may be partners or outsiders (Comm. C. Article 623). The extent of representative
power is limited by the scope of business stated in the partnership agreement.
Code provisions on corporations regarding the general assembly of shareholders
are basically applicable to the meetings of partners. For a resolution to pass, partners
representing more than half of voting rights represented in the meeting (Comm. C.
Article 620) must approve it. For extra-ordinary matters a resolution needs two thirds
of votes cast, which also represent the majority of the capital of the Partnership
(Comm. C. Article 621).
The transfer of shares is subject to the approval of the general meeting of the
partners. A transfer must be registered in the books of the partnership. In order to be
valid, an agreement to transfer partnership rights must be in written form and a notary
(Comm. C. Article 595) must authenticate the signatures. If a_ transfer is not approved,
a partner may use his right to retire from the partnership for justifiable reasons or he
may demand the dissolution of the partnership (Comm. C. Article 636 III). A partner
may be expelled for reasons stated in the articles of incorporation. The dismissal must
be approved by the general meeting of the partners with the votes representing a
majority of the basic capital of the partnership (Comm. C. Articles 640 and 621 I, h).
A partner's liability is limited to the amount he undertook to contribute. When a
share is transferred to a third person, a partner is liable for five years for the unpaid part
of his assumed capital contribution (Comm. C. Article 602). A partner's liability for
taxes of the partnership is unlimited. 1
Ansay, T. & Yongal1k, Bankac1lar !c;in $irketler Hukuku Bilgisi, 20th ed., Ankara 2014.
Klfca, $ehirali <;:elik & Manavgat, Anonim $irketler Hukuku, vol. 1, Temel Kavram ve
(lkeler, Kurulu~, Yi:inetim Kurulu, Ankara 2013.
Poroy, Tekinalp & <;:amoglu, Ortakliklar ve Kooperatif Hukuku, 8th ed., Istanbul 2010.
Pula~h, $irketler Hukuku $erhi, vols. 1 and 2, Ankara 2011.
Tekinalp, tr., Sermaye Ortakliklanmn Yeni Hukuku, 3rd ed., Istanbul 2013.
1. Pulaph, Sirketler Hukuku Serhi, 1874 et seq.
110
CHAPTER 8
Unfair Trade Law

Giil Okutan Nilsson
Unfair trade practices in the broadest sense pertain to the prohibition of competition by
law or contract, unfair competition and restrictive trade practices. Depending on the
purpose, scope and function of these practices, different sets of rules will be applicable;
namely rules on the prohibition of competition, unfair competition law and the law on
the protection of competition.
8.01
PROHIBITION OF COMPETITION
Although free competition is the basis of a free market economy, in some cases the law
prohibits competition between persons who are bound by a special relationship, such
as principal and agent or employer and employee or company and directors. In such
cases, competition may harm the party who relies on the other party's conduct to
safeguard his economic interests.
Such statutory rules on the restriction of competition may be found in the Turkish
Code of Obligations ("C.O. ") and in the Turkish Commercial Code ("Comm. C. ").
[A)
General Service Contract
Under the C.O.'s provisions concerning the general service contract, an employee may
not compete with the employer during the term of employment (C.O. Article 396 (3)).
The employee may also enter into a written covenant extending the prohibition of
competition for a maximum term of two years following the termination of the
employment contract (C.O. Article 444 (1)). Such a contractual restriction of competition may only be validly adopted by employees whose scope of employment gives
them the possibility to obtain information about customers or production secrets or
* Associate Professor, Faculty of Law, Bilgi University, istanbul.
111
8.02
Giil Okutan Nilsson
business activities of the employer and if the use of such information may cause a
substantial damage to the employer (C.O. Article444 (2)). Furthermore, such covenant
may not contain clauses regarding location, term or type of work that will unfairly
prejudice the economic future of the employee (C.O. Article 445 (1)). Otherwise, the
judge may restrict the covenant in terms of scope and term after evaluating all the
circumstances and bearing in mind any consideration promised by the employer in
return (C.0. Article 445 (2)). The covenant shall terminate if it is established that the
employer has no real interest in its continuation or if the employment contract is
terminated by the employer without any just grounds or by the employee due to any
reason that may be attributed to the employer (C.O. Article 447).
[B]
Commercial Representatives or Agents
Both the C.O. and the Comm. C. contain rules on the restriction of competition of
commercial representatives or agents.
[CJ
Directors of Business Corporations and Partnerships
The directors of partnerships and corporations are under a duty of loyalty towards their
partnership or corporation, which results in a prohibition of competition with the
partnership or corporation. Such prohibition is regulated in the C.O. for ordinary
partnerships (C.O. Article 626) and in the Comm. C. for each individual type of
partnership or corporation. For general partnerships (kollektif $irket), the prohibition
of competition covers the partners, who are thus precluded from conducting competing
businesses on their own behalf or on behalf of third parties or from becoming
partners with unlimited liability in competing partnerships (Comm. C. Article 230).
The same restriction applies to unlimited liability partners of limited partnerships
(komandit $irket) (Comm. C. Article 311) and partnerships limited by shares (payll
komandit $irket) (Comm. C. Article 570), to managers of limited liability partnerships (limited $irket) (Comm. C. Article 626 (2)) and to directors of corporations
(anonim $irket) (Comm. C. Article 396).
8.02
UNFAIR COMPETITION LAW (HAKSIZ REKABET)
Unfair competition is mainly regulated in the Comm. C., which gives a definition for
unfair competition, together with a non-exhaustive list of typical cases that are covered
and lays down the conditions and scope of civil and criminal liability. The provisions
of the Comm. C. on unfair competition are modeled on the Swiss Law on Unfair
Competition of 1986, especially with regard to definition and the list of typical cases. 1
1. The unfair competition section ofthe Comm. C. Nr. 6762of1956, which is replaced with the new
Comm. C. Nr. 6102 of 2011, was based on the Swiss Unfair Competition Law of 1943. The Comm.
C. Drafting Commission did not depart from the Swiss system and took into account the changes
made to the Swiss Law in 1986 and onwards, especially with regard to the definition of unfair
112
Chapter 8: Unfair Trade Law
8.02[A]
There is also a provision on unfair competition in the C.O., which should apply
with regard to non-commercial matters. According to Article 57 paragraph 1 of the
C.0., persons who lose or are faced with the risk of losing their customers due to
disinformation or other acts which are contrary to good faith may demand the
termination of such acts. In case of fault, they may also claim compensation for their
damages. Even though this provision mentions "customers", the Code does not intend
to protect "merchants" against unfair competition, as paragraph 2 of the same article
reserves the Comm. C. for commercial matters. Therefore, this provision should apply
to non-merchants, mainly professionals such as doctors or lawyers. 2
Rules relating to unfair competition may also be found in consumer law (See the
Chapter on Consumer Protection), in intellectual property laws,3 and in antidumping
legislation. 4
This chapter explains the unfair competition provisions of the Comm. C.
[A]
Definition and Scope of Protection
According to Article 54 paragraph 2 of the Comm. C., "All acts and commercial practices
that are deceptive or otherwise contrary to good faith and that affect the relationship
between competitors or between suppliers and customers are unfair and illegal". Under
this definition, unfair competition will exist if an act or commercial practice is deemed
to be contrary to "good faith". It is further stated that goal of the Comm. C. is "to ensure
fair and undistorted competition, for the benefit of all stakeholders" (Comm. C. Article
54 (1)). These provisions clarify that the law extends protection not only to competitors
but also to consumers and other players in the market in order to ensure a fair market
place for all.
Article 55 of the Comm. C. gives a non-exhaustive list of typical cases of unfair
competition, which are classified into six groups:
(1) Unfair advertising and sale practices: This group mainly pertains to misleading or aggressive sales or promotion tactics. Acts that come under this
heading include discrediting third parties' business activities or products by
giving false, misleading or unduly offending information, or providing false or
misleading information about one's own abilities, products or services with a
view to obtaining a competitive advantage (Comm. C. Article 55 (1) (a) 1-3).
Other examples of such unfair commercial practices are (Comm. C. Article
55 (1) (a) 6, 7, 9); misleading customers about the qualities, amount,
competition and the typical cases which constitute unfair competition. However, during the more
than half a decade of application of the Comm. C., Turkish Courts have built a body of case law
regarding unfair competition, which the Drafting Commission wanted to preserve (Justifications
of Comm. C., General Explanations on Unfair Competition, prior to Art. 54). Therefore the new
Comm. C. continues on the general structure of the old provisions.
2. Uygur, T. 6098 S. Tiirk Bon;:lar Kanunu ~erhi, istanbul 2012, C. I., 446.
3. See Chapter 10 on Intellectual Property.
4. Law Nr. 3577 on the Prevention of Unfair Competition in Imports ("Ithalatta Hakszz Rekabetin
Onlenmesi Hakkmda Kanun") OG Jul. l, 1989, Nr. 20212.
113
Giil Okutan Nilsson
8.02[A]
purpose, uses or risks of products; luring customers through the act of

repeatedly selling certain selected products below cost in a misleading way,
or creating a misleading image of the real value of a product by offering
supplementary goods or services. Similarly, giving insufficient information
about the extra costs involved for payment by installments, or, in case of
consumer loans, about the total cost of the loan or other terms and conditions
of such contracts is also considered an unfair commercial practice (Comm. C.
Article 55 (1) (a) 10-12). Furthermore, aggressive sales practices that impair
consumers' freedom of choice are also listed as an example of unfair
competition (Comm. C. Article 55 (1) (a) 8).
Comparative advertising is also mentioned for the first time in the new
Comm. C. under this heading. Comparing one's business, products, services
or prices with those of others in a manner that is deceptive or unnecessarily
degrades others or takes advantage of their reputation is deemed to be unfair
(Comm. C. Article 55 (1) (a) 5). The justifications of the Comm. C. clarify that
comparative advertising per se is not illegal, but that it is the lack of
objectivity or clarity in the elements of comparison or the exploitation or
impairment of the reputation of other persons, which can render such
advertising unfair. Creating confusion with third parties' business activities,
products or services in order to benefit from their reputation is also a typical
example of unfair competitive practice (Comm. C. Article 55 (1) (a) 4). This
provision relating to the creation of confusion is intended to apply mainly to
cases that do not involve intellectual property, since confusion between
trademarks, trade-names or other intellectual property is regulated by special
laws.
(2) Inducing breach or termination of contract: Inducing third parties' customers
to breach their contract with a view to making a similar contract with them is
an act of unfair competition (Comm. C. Article 55 (1) (b) 1). Likewise,
inducing a buyer, or a person getting a consumer loan, to terminate such
purchase or loan contract in order to be able to make the same type of contract
with him/her is also deemed to be unfair (Comm. C. Article 55 (1) (b) 4).
This type of interference with third parties' contracts is regulated for the
first time under the new Comm. C. According to the Turkish Code of
Obligations, a contract is binding only upon its parties and therefore may be
breached only by its parties. However, according to Article 49 paragraph 2 of
the C.O., a person who causes damage to a third party through a willful and
immoral act is liable for such damage. Inducement of breach of contract by a
willful and immoral act is considered to be covered by this provision. Now the
Comm. C. introduces a special type of such inducement, 5 one that is directed
towards customers. There is one controversial issue with this provision,
however: Under the C.O., inducement of breach or termination of contract
will only be unlawful if it is done "wilfully" and through an act that can be
5. Lex specialis, as explained in the Justification of the Comm. C., Art. 55 (1) (b) 1.
114
.I
(3)
(4)
(5)
(6)
8.02[A]
considered "immoral". The Comm. C. on the other hand, does not require the
existence of any degree of fault or immorality in order to qualify an act as
unfair competition. Fault is only a condition for payment of damages under
the Comm. C., while the termination of unfair competition may be demanded
even where fault does not exist. Given this discrepancy, the new provision of
the Comm. C. on inducement of breach or termination of contract must be
interpreted narrowly. Bearing in mind that advertising and winning customers is a fundamental requirement of a free market system, general advertising
of products and services and exercising contractual rights of termination in
order to take advantage of better offers cannot be deemed unfair.
Also in this category is the act of offering an economic interest to third
parties' employees or agents in order to induce them to breach their contract
or to induce them to disclose trade secrets (Comm. C. Article 55 (1) (b) 2-3).
Unauthorized exploitation of third parties' business products: (Article 55 (1)
(a)) In this section, the Comm. C. aims at protecting data or other product of
businesses, such as business plans, calculations or quotations, which are not
protected by intellectual property laws. 6 The goal is to prevent the undue
exploitation of third parties' works and to ensure that competition is based on
one's own labor and efforts instead of free-riding on others.
Unlawful use or disclosure of trade secrets: (Article (1) (c) 3) The Comm. C.
protects trade secrets against unauthorized use or disclosure. Using or
disclosing to others, commercial information that is obtained secretly or
without authorization or in another unlawful manner is unfair competition.
The law however, does not define trade secrets.
Noncompliance with business mles and regulations: (Article 55 (1) (e))
Noncompliance with certain rules that apply to competitors would lead to
unfair advantages, especially if they create certain costs that are avoided by
those who do not comply with them. According to the law, not complying
with statutory rules or regulations that apply to competitors, or with usual
business conditions applicable in a business sector or a region is a dishonest
commercial practice.
Use of general conditions of contract which contradict the principle of good
faith: (Article 55 (1) (f)) General conditions of contract are regulated both
under the Comm. C. and under the C.O. The C.O. provides for, inter alia, the
sanction of nullity of general conditions of contract under certain conditions
(C.O. Article 20 et seq.), while the Comm. C. qualifies the use of general
conditions of contract contradicting the principle of good faith as an act of
unfair competition. According to the Comm. C., especially the following
constitutes unfair competition: The use of preformulated general conditions
of contract, which, in a misleading manner and to the detriment of the other
contract party, significantly deviate from the statutory provisions that would
6. Justification of the Comm C, Art. 55 (1) (c).
115
Gill Okutan Nilsson
8.02[B]
apply directly or by interpretation, or which stipulate an allocation of rights

and obligations that significantly contradicts the nature of the contract.
[B]
Types of Legal Actions and Claims
The types of legal actions and permitted claims that can be brought before a court due
to an alleged act of unfair competition are regulated by the Comm. C. (Comm. C. Article
56 (1)). An important point to underline is that the existence of fault of the person
committing unfair competition is a requirement only for the action for damages. As the
other actions or claims are directed towards the elimination of the unlawful act and the
restoration of a lawful situation, these can be claimed whether or not fault exists.
However, fault, be it in the form of willful conduct or negligence, must exist in order to
claim damages. Furthermore, in line with general principles of tort, it is also necessary
to establish causality between the act committed and the damages claimed:
(a) Action for declaratory relief: The first claim that can be put forward is one for
a declaration of the existence of unfair competition. For this, the plaintiff
must prove that the act in question is unfair, either by demonstrating that it
falls under one of the six categories of examples given in the Code, or by
relying on the general definition of unfair competition given in Article 54 and
demonstrating that the act is either deceptive or otherwise contrary to good
faith and that it affects the relationship between competitors or between
suppliers and customers. Declaratory relief is usually claimed to form the
legal basis of other claims to follow, such as prohibition of unfair competition or payment of dqmages.
(b) Action for the prohibition of unfair competition: With this action, the plaintiff
may ask for the termination of an ongoing act of unfair competition or the
prevention of recurrence of a previous act.
(c) Action for restoration of the state prior to unfair competition: This action
allows the plaintiff to ask for measures that will provide the restoration of the
plaintiff's state to what it was before the unfair competition occurred.
Depending on the type of unfair competition, such measures may include
rectification of false or misleading statements, removal of any signs or name
plates that create confusion with another party's business, or even the
destruction of any products or instruments used for production that were
effective in committing the act of unfair competition.
(d) Action for damages: In case of existence of fault of the person who committed unfair competition, the plaintiff may ask for compensation of both
pecuniary and moral damages. Pecuniary damages cover actual damage
suffered and loss of profit, the amount of which the plaintiff must prove. In
order to facilitate the calculation of damages, the plaintiff is permitted to
claim the amount of profit which is deemed to be possible for the defendant
116
8.02[C]
to obtain as a result of unfair competition. In case of any injury to personal

rights, the plaintiff may also demand moral damages.
(e) Claim for the publication of the court judgment: If the case is upheld and the
plaintiff so requests, the judge may order the publication, in a manner and
form it may deem suitable, of the final court judgment at the expense of the
defendant. This may be beneficial for the plaintiff especially in cases where
the unfair competition arises from disinformation, defamation, confusion,
unlawful advertising or similar situations that may be more effectively
rectified by a general public announcement.
(f) Precautionary Measures (Injunction): As it may take a considerable amount
of time for the court procedure to be completed and the final judgment to be
given, the plaintiff may suffer serious damages during this period. Likewise,
any changes in the situation after the initiation of legal action may render it
difficult or perhaps completely impossible to obtain the desired result at the
end of the case. In such instances, the court may grant precautionary
measures (C. Civ. Pr., Article 389 et seq.) Such provisional measures may
aim at, for example, preserving the status quo, terminating an ongoing act or
preventing its recurrence. Such measures may_be demanded either during the
legal proceedings or a maximum of two weeks before the start of the legal
action (C. Civ. Pr. Article 397). The party claiming precautionary measures
must provide security to compensate for any damages that may be caused to
the defendant or third parties if the claim is not upheld; unless the court
decides, by clearly stating the reasons, that such security is not necessary (C.
Civ. Pr. Article 392).
[C]
Persons with a Right of Legal Action
The right of action is granted to persons who have suffered, or are faced with the risk
of suffering, damage in relation to their customers, credibility, professional reputation,
commercial activities or other economic interests.
Consumers whose economic interest has been damaged or who are faced with
the risk of such damage may also start the legal actions explained above. However,
consumers may not ask for the destruction of products or instruments of production
(Comm. C. Article 56 (2)).
Furthermore, consumer associations, chambers of commerce and industry or
other professional or economic unions that are authorized by their statutes to safeguard
the economic interests of their members or public bodies may start actions for
declaratory relief, prohibition of unfair competition and restoration of the state prior to
unfair competition. In other words, such organizations may challenge the act of unfair
competition but may not claim damages.
117
8.02[F]
GUI Okutan Nilsson
Persons who have a right of legal action must start the case in one year starting
from the date they obtain knowledge about the existence of such right and in any case
in a maximum of three years starting from the date such right comes into existence. If
there are longer statutes of limitation that apply to criminal offenses of unfair
competition, these shall also apply to civil suits. The statute of limitations does not run
as long as unfair competition is ongoing.
[D]
Liability of Third Persons
A court judgment may be enforced not only against the defendant, but also against
third persons who were not a party to the case, provided they have obtained the
products subject to unfair competition directly or indirectly from the defendant for
commercial purposes.
[E]
Special Liability of Employers
Employers may be the target of all the types of actions explained above, if unfair
competition was committed by their employees during the course of their employment.
According to the C.O., employers may avoid liability if they can prove that they have
shown the necessary diligence to avoid damages in choosing, instructing and supervising the employee (C.O. Article 66 (2)). However, the Comm. C. states that the
provisions of the Turkish Code of Obligations shall apply to the action for damages,
thereby limiting the use of this provision to the action for pecuniary or moral damages
(Comm. C. Article 57 (2)). In other words, an employer can rely on this provision to
avoid the payment of damages, but not for actions for declaratory relief, prohibition of
unfair competition and restoration of the state prior to unfair competition.
[F]
Special Liability of Press, Broadcasting, Communication and

Information Technology Enterprises
Unfair competition may be committed through the press, TV or radio broadcasts or via
the Internet or other instruments of communication or information technology. In such
cases, the principle of the Comm. C. is to impose liability on the person who owns the
content that is published or broadcasted as a sound or image or displayed on the screen
or other instrument of communication. However, under certain circumstances, the
legal actions explained above may be started against newspaper editors, managing
editors of broadcasting enterprises, directors of advertising, television program producers or persons who put, or have others put, the image, sound or transmission on the
instrument of broadcasting, communication or information technology. Furthermore,
if none of these persons can be identified, the process may be initiated against the
owner of the enterprise that was instrumental in the act of unfair competition. The
enterprises mentioned in the Comm. C. are all enterprises of press, broadcasting,
communication and information technology, as well as any such enterprises that may
118
8.02[G]
become active as a result of future technological developments (Comm. C. Article SS

(1)).
The circumstances under which such persons may be the target of a legal action
are the following:
(a) if the content or advertisement constituting unfair competition was published or otherwise broadcast or communicated against the will or without
the approval of the content owner or advertiser;
(b) if it is refrained from disclosing the name of the content owner or advertiser;
or
(c) if for other reasons, the identity of the content owner or advertiser cannot be
discovered or a court case against them cannot be started before a Turkish
court.
The law provides an exemption for service providers (Comm. C. Article S8 (4)): No
legal action can be started and no injunction or other precautionary measures may be
taken against them, unless they have started the transmission or chosen or altered the
content which constitutes unfair competition. However, the court may, by also hearing
the service provider, grant an injunction or any other suitable precautionary measure,
including the temporary removal of content, in cases where the negative consequences
or damage to be caused by the alleged act of unfair competition shall be substantial. In
such cases, the precautionary measure may be applied against the service provider as
well (Comm. C. Article SS (4)).
[G]
Criminal Liability
The Comm. C. also imposes criminal liability for acts of unfair competition. Persons
who willfully commit one of the acts of unfair competition which are listed under six
groups in Article SS of the Comm. C. and specifically, persons who willfully give false
or misleading information about their own personal situation, products or commercial
activity in order to gain an advantage over their competitors, persons who deceive
employees or agents or other servants to obtain production or trade secrets of their
employers or principals, or employers or principals who find out that their employees
or agents have committed a crime of unfair competition during the course of their
employment but who do not prevent or rectify such crime, may be punished by prison
up to two years or legal fines. Criminal punishment is dependent upon the complaint
of the persons who have a right of legal action.
Guven, $., Hakszz Rekabet Kummunun Amaci ve Komdugu Menfaatler, Ankara 2012.
Ozdemir, S., Hakszz Rekabet Kavrami A<;ismdan Diiriistliik Kuralma Aykm Reklamlar,
i stanbul 2013.
119
CHAPTER
Competition Law
Kerem Cem Sanli *
9.01
BACKGROUND AND THE SOURCES OF COMPETITION LAW
The principal legal source of Turkish Competition Law is the Act on the Protection of
Competition numbered 4054 (hereinafter the "Competition Act") .1 The Competition
Act was enacted after two years of preparation in 1994. Before this date Turkey did not
have competition legislation des.pite the legal mandate in Article 167 of the Turkish
Constitution, which obliges the government to prevent cartelization and monopolization in the economy. 2
Due to the late establishment of the Competition Authority (Rekabet Kurumu),
the main enforcement body vested with investigative and lawmaking powers, effective
enforcement of the Competition Act was initiated in 1997 with the Communique
(Teblig) numbered 1997 /5. Since then the Act has been subject to several amendments 3
that mainly aimed at strengthening the operational effectiveness of the Competition
Authority and the enforcement system. Substantive rules are in place since the
enactment of the Competition Act.
Most of the provisions in the Act relate to the procedures, institutional structure
and legal powers of the Competition Authority. Few substantive rules are found in the
second section between Articles 4 and 7 and section five between Articles 56 and 59.
* LL.M, Assistant Professor, istanbul Bilgi University, School of Law, istanbul; Adjunct Professor,
Bilkent University, Institute of Social Sciences, Ankara.
1. The Act on the Protection of Competition Nr. 4054, Dec. 7, 1994. OG Dec. 13, 1994, Nr. 22140.
2. The first paragraph of Art. 167 provides that "the state shall take measures to ensure and promote
the sound, orderly functioning money, credit, capital, goods and services markets; and shall
prevent the formation, in practice or by agreement, of monopolies and cartels in the markets".
3. The Act has been subject to amendments with: Act Nr. 4971, Aug. l, 2003; Act Nr. 5234, Sept. 17,
2004; Act Nr., Jul. 2, 2005, the Act Nr. 5728, Jan. 23, 2008, Act Nr. 661, Oct. 24, 2011, Act Nr.
6352.
121
9.02
Kerem Cem Sanh
The Act is inspired by the European Community Competition Law (hereinafter "the
European Competition Law"}. Substantive rules prohibiting restrictive agreements and
abuse of dominant position are almost identical with Articles 101 and 102 of the Treaty
Functioning of the European Union (hereinafter the TFEU}. This is a consequence of
the fact that Turkey has a duty to harmonize its laws with that of the European Union.
The Turkish Competition Law including secondary legislation is in line with the
European Competition law, which has also been confirmed by European Commission
Reports.
The secondary legislation consisting of regulations, communiques, guidelines,
Competition Board Decisions and State Council decisions are other sources of the
Competition Law. Among, the most important are block exemption communiques
which give interpretive guides and extensive coverage of these rules. They cover all
vertical restraints, 4 the insurance sector, 5 R & D agreements,6 standardization agreements7 and technology transfer agreements. 8 Merger Communique numbered 2010/4, 9
which sets out the principles of merger analysis has an important function in the
control of economic concentration. Also, in order to reinforce cartel enforcement,
Leniency 10 and the Regulation of Fines, 11 have been adopted. It should be mentioned
that the vagueness of the substantive provisions of the Competition Act amplifies the
importance of secondary legislation especially the Block Exemption Communiques.
Besides secondary legislation, the decisions of the Competition Board provide
useful guidance in the interpretation of the Competition Act, which is unique for the
Turkish legal system given that the Competition Board is not a judiciary organ. It
should be emphasized that the Board not only follows the secondary legislation of the
European Competition Law, but also the decisions of the Commission and the Court of
Justice.
9.02
MAIN CONCEPTS
Turkish Competition Law deals with the problem of economic concentration (monopoly problems} and, as in many jurisdictions, there are three prohibitions in dealing
with this problem. These rules are: (i} restrictive agreements (Article 4}, (ii} abuse of
dominance (Article 6}, and (iii} merger controls (Article 7}.
4. The Block Exemption Communique on Vertical Agreements, No: 2002/2, OG, Jul. 14, 2002,
Nr. 24815.
5. The Block Exemption Communique in Relation to Insurance Sector, No: 2008/3, OG, Jan. 2,
2008, Nr. 26774.
6. The Block Exemption Communique on Research and Development Agreements, No: 2003/2, OG
Aug. 27, 2003, Nr. 25212.
7. The Block Exemption Communique on Standardization Agreements, No: 2013/3, OG Jul. 26,
2013, Nr. 28719.
8. The Block Exemption Communique on Technology Transfer Agreements, No: 2008/2, OG Jan.
23, 2008, Nr. 26765.
9. The Communique on the Mergers and Acquisitions, No: 2010/4, OG. Sept. 30, 2011, Nr. 28070.
10. The Regulation on Active Cooperation for Detecting Cartels, OG Feb. 15, 2009, Nr. 27142.
11. The Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions
Limiting Competition and Abuse of Dominant Position, OG, Feb. 15, 2009, Nr. 27142.
122
9: Competition Law
Implementing each of these requires certain knowledge regarding the main
of competition law. In that respect, generally three points should be taken into
N""'""ntc
- The relevant market, including both product and geographical markets where
the undertaking operates.
- Territorial reach which determines whether the geography of the activity is
covered by the Competition Act.
- Subject, whether the competition applies to the person or group of persons
said to be infringing the Act.
three concepts, which together constitute the scope of the Act, are also implicitly
in Article 2. According to that Article:
U'-.u"'''Lu.
Agreements, decisions and practices which prevent, distort or restrict competition

between any undertakings operating in or affecting markets for goods and services
within the boundaries of the Republic of Turkey, and the abuse of dominance by
the undertakings dominant in the market, and any kind of legal transactions and
behavior having the nature of mergers and acquisitions which shall decrease
competition to a significant extent, and transactions_ related to the measures,
establishments, regulations and supervisions aimed at the protection of competition fall under this Act.
Hereinafter, the main concepts will be observed in detail by elucidating the method of
defining relevant market, the Competition Act's territorial reach and the subject matter
of the Act.
[A]
The Relevant Market
The purpose of defining the relevant market is to identify which products and services
are close substitutes for one another in order to determine the rivals (competitors) of
the undertakings concerned. If rivals cannot be properly determined, it is not possible
to analyze competitive constraints on the undertaking whose behavior is under
investigation. Thus to decide whether there is anti-competitive conduct, defining the
market is the first issue in any legal analysis.
Relevant market is not defined in the Competition Act. However, in various
Communiques, the Competition Board has explained and set out the methods for
determining the market. For instance the Communique number 1997 /1, for the first
time, categorized the relevant market into, product and geographic markets and
provided definitions that are contained in the following Communiques and -Board
decisions. According to the Article 4 of the Communique:
In determining the relevant product market within the meaning of paragraph 1, the
market comprising the goods or services which are the subject of a merger or an
acquisition, and the goods or services which are deemed identical in the eye of
consumers in terms of their prices, intended use and characteristics is taken into
account; other factors that may affect the market determined shall also be
assessed ....
123
9.02[B]
Kerem Cem Sanh
.... The geographic market which comprises a substantial part of the country
within the meaning of paragraph 1, are areas in which undertakings operate in the
supply and demand of their goods and services, in which the conditions of
competition are sufficiently homogenous, and which can easily be distinguished
from neighboring areas, as the conditions of competition are appreciably different
from these areas.
Moreover, in order to clarify the method of determining the market, the Competition
Board also enacted a Guideline. 12 This non-binding document sets out a framework for
market definition and aims to provide clarity, objectivity and consistency in its
application. According to this Guideline, the main rationale of the market definition is
to determine the proper rivals of the undertaking whose behavior is under investigation. The key tests in this determination are demand and supply substitution.
The Competition Board, in its decisions, applies demand substitution as the main
test. In demand substitution, the preferences of consumers are taken into account by
asking which products are close substitutes with the product in question according to
intended use, characteristics, price and other factors. If consumers deem that product
(A) can be used instead of product (B), then these two different products are counted
as the same product (AB) market. In order to establish close substitution, the Board
applies a price (SSNIP) test. According to this test, consumers' reactions, faced with a
hypothetical small but significant non-transitory price increase in a given product (B)
are analyzed. Should the price increase results in loss due to the fact that voluminous
consumers switch to alternative product (A), then the product market is said to consist
of (A) and (B) products. Hence producers of these different products are regarded as
rivals.
Determination of a geographic market is similar. Every producer operates in a
certain geographic area and competition has natural geographic borders stemming
from factors like transportation costs, legal and physical barriers, and differences in
consumer preferences. Here the main question to be answered is whether consumers
can switch to alternative sources located in other geographic areas as a result of a
non-transitory increase in price increase. If consumers can buy from alternative supply
sources located in other areas, then those areas are regarded in the same geographic
market.
Many Competition Board decisions involve market definitions and determinations of both the product market and geographical market. The Competition Board
conducts comprehensive market analysis especially in the application of Article 6
(abuse of dominant position) and Article 7 (mergers and acquisitions) since application
of these provisions presupposes a market definition.
[B]
Territorial Reach
Ordinarily national laws apply within the territories of the nation. Hence there is no
doubt that the competition law applies to undertakings residing and operating in
12. Guidelines on the Definition of Relevant Market (http://www.rekabet.gov.tr/dosyalar/kilavuz/
kilavuzS.pdfJ.
124
Chapter 9: Competition Law
9.02[C]
Turkey. However, if one reads Article 2 of the Competition Act carefully, it is possible
to reach a somewhat different conclusion. The Article states that: "agreements,
decisions and practices which prevent, distort or restrict competition between any
undertakings operating in or affecting markets for goods and services within the
boundaries of the Republic of Turkey" are subject to competition law enforcement.
The point of reference to apply the Act, according to this provision, is the effects
or consequences of anti-competitive behavior in the Turkish markets. Hence it is
irrelevant whether the behavior is exercised by undertakings operating and residing in
Turkey or abroad. If, for example undertakings residing abroad fix the prices of the
products that they export to Turkish markets, then it can be said that the anticompetitive effects of this agreement take place in Turkish markets and therefore the
Turkish Competition Law applies to this agreement.
In parallel with EU Law, this approach has been named as "effects doctrine" and
the Competition Board has endorsed this doctrine in its various decisions. The main
implication of this doctrine can be observed in merger control regime as acquisitions
between undertakings residing and operating in other jurisdictions are subjected to the
notification and clearance procedures under to Communique number 2010/4, provided
that they have a turnover in Turkish markets as well (See Article 7). Articles 4 and 6
could also apply to undertakings operating abroad, however, as a technical matter, it is
problematical to enforce Turkish Law on undertakings that are only operating abroad
since the Authority has no jurisdiction to conduct investigations thereof.
[C]
Undertakings and the Associations of Undertakings
The competition law applies to the behavior of undertakings (te~ebbiis) and associations of undertakings (te~ebbiis birligi). Hence the subject of Turkish Competition Law
is the "undertaking". The Act defines this concept in Article 3. According to this
definition "an undertaking is a natural or legal person who produces and sells goods or
services in the market, and units which can decide independently and do constitute an
economic whole". Thus in order to qualify as an undertaking, two factors should be
established: "economic activity" and "independence". Explaining these factors will
assist in understanding these concepts.
The meaning of economic activity is self-explanatory. Providing a good or service
in return for a tangible benefit is sufficient to qualify as an economic activity. Profit
maximization is not required. Therefore apart from corporations even foundations and
cooperatives can be characterized as undertakings. The Competition Board endorsed
this view in several decisions including TSE13 and ASKI. 14
The second factor, independence, means that the economic unit should determine its own economic and commercial policies without decisive influence of any
other natural or legal person. So independence is an economic but not a legal concept.
13. Decision of the Turkish Competition Board dated Mar. 8, 2002, numbered 02-13/126-53.
14. Decision of the Turkish Competition Board dated Aug. 8, 2002, numbered 02-47 /587-240.
125
Kerem Cem Sanh
Ch
For example, if commercial policies of company "S" (i.e., subsidiary) are determined
by another company "P"(i.e., parent company), then despite having legal independence, company "S" is not considered as an undertaking since it lacks economic
independence. For competition law purposes these two companies are treated as a
single "economic unit" and therefore a single undertaking. The question of when and
under what conditions an economic entity is controlled by another person can be
determined on a case-by-case analysis by taking into account all relevant legal and
economic factors.
There are at least two main consequences of this "independence" element. One
is that economic relations within the economic whole are not within the scope of the
competition law. Accordingly, Article 4 is not applied to agreements between "S" and
"P" and a merger between "S" and "P" is not covered by Article 7 of the Competition
Act. There are many illustrations of this application in the Board's decisions, in
particular, with respect to merger cases. 15 A second consequence relates to the
imputation of the subsidiary's behavior to its parent. Since a subsidiary is controlled by
the parent company, a subsidiary's legal personality is disregarded and parent company is held responsible for the competition law infringement. The prarical consequence is that the aggregate turnover figures of the two companies are taken into
account when calculating substantive monetary fines. 16
As is clear from these explanations, "the undertaking" is a very broad concept
and it encompasses every entity engaged in econom.ic activity regardless of its legal
status. It is evident that an undertaking can be a natural person 17 as well as a legal
person. Also groups of persons, whether legal or natural, may well constitute an
undertaking. 18
Turkish Competition Law also applies to the behavior of associations of undertakings; however, the application is limited by Articles 4 and 5. The Competition Act
defines the concept and according to this definition: "any kind of associations with or
without a legal personality, which are formed by undertakings to accomplish particular
goals are considered as associations of undertakings". As can be understood from the
definition, association is a broad term and encompasses not only legal institutions with
separate personality but also de facto platforms and gatherings as long as they
accommodate undertakings on a lasting basis. The importance of subjecting the
association to Article 4 is that, the Board can impose fines to the association itself,
which in tum would deter cartel arrangements since these institutions facilitate cartel
formation.
9,
9.02[C]
15. Decision of the Turkish Competition Board dated Mar. 4, 2010 and numbered 10-21/264-97.
16. Although it should be said that economic unit criterion has been occasionally applied inconsistently especially with regard to imposition of fines. In some decisions the Turkish Competition
Board took the turnover figure of the subsidiary whereas in others, the entire economic unit.
17. Decision of the Turkish Competition Board dated Feb. 9, 2006 and numbered 06-11/130-32.
18. Decision of the Turkish Competition Board dated Jul. 17, 2000 and numbered 00-26/291-161.
126
Sin
sul
(iii
Ac
bel
ha
COJ
an1
ph
Th
for
in!
reE
go
no
re1
be
art
Co
un
HE
Se]
un
IDE
ne
lat
an
fet
fm
(g1

9.03
9.03[A]
OVERVIEW OF THE SUBSTANTIVE PROVISIONS
Similar to other competition laws, Turkish Competition Law has three pillars of
substantive provisions: (i) Restrictive agreements (ii) Abuse of dominant position and
(iii) Concentration control. Below these provisions will be analyzed in detail.
[A]
Restrictive Agreements
According to Article 4 of the Competition Act, agreements and concerted practices

between undertakings, decisions and practices of associations of undertakings which
have as their object or effect or likely effect the prevention, distortion or restriction of
competition directly or indirectly in a particular market for goods or services are illegal
and prohibited.
In order to apply this Article, four conditions should be present. The first is the
plurality of undertakings. There should be at least two undertakings to apply Article 4.
The second condition is collusion among undertakings. Collusion may transpire in the
form of an agreement, concerted practice or decision of an association. After establishing that there is collusion, the third condition to be met is that the collusion should
restrict competition in the relevant market. The third condition, which is in fact not
governed in Article 4, is that the efficiencies created by the restrictive agreement should
not outweigh the costs associated with the restrictive clauses. This condition is
regulated in Article 5 and it is called an exemption. Hence, restrictive agreements can
be exempted from the application of Article 4, provided that all the conditions
articulated in Article 5 are satisfied.
[1]
Collusion
Collusion can be defined as an understanding between undertakings. The level of

understanding that is required to satisfy the collusion requirement is controversial.
Hence it is appropriate to explain the issue by taking up various forms of collusion
separately.
The "agreement" simply refers to a meeting of minds (mutual consent) among
undertakings. There is no formal condition to be qualified as an agreement, so a
meeting of minds can transpire in a written or in an oral form, be explicit or implicit and
need not be legally binding on parties. Accordingly, it is broader than a contract, as the
latter refers to only legally binding agreements. The only requirement to be qualified as
an agreement is that commitments should be serious in the sense that parties should
feel as if their future freedom of action is restricted due to the agreement. Naturally
formal contracts fulfill this condition as they are binding, but non-binding agreements
(gentleman's agreements) are also of this sort.
127
9.03[A]
Kerem Cem Sanh
Agreements restricting competition are also broadly discussed by the Turkish

Competition Board. In its recent decision on Poultry Cartel, 19 The Turkish Competition
Board defined "agreement" as follows: "(The) rationale of Article 4 of no. 4054
expressly states that an agreement need not be in compliance with all the requirements
arising from contract law. The concept of agreement in competition law is used to define
any mutual consent among the parties".
The term "concerted practice" is unfamiliar to Turkish law and is not defined in
the Act. Considering the broadness of the term "agreement", one could wonder what
this concept refers to. As its literal meaning implies, it could be asserted that concerted
practices denote mere parallel behaviors where two or more undertakings, for example, increase their prices simultaneously or apply the same conditions to their
customers. Although this was once argued in competition law doctrine, it has been
now established that concerted practice does not refer to parallel behavior. In fact,
conceptually there is no difference between an agreement and a concerted practice. A
meeting of minds is necessary to establish concerted practice as well as an agreement.
The importance of this terminology lies in the fact that it can be used as an
method to prove collusions among undertakings. Given that an agreement that restricts
competition is prohibited outright, undertakings will rationally tend to hide their
collusive behavior and refrain from overt agreements. Thus it would be very hard for
any competition authority to discover collusion if hard and plain evidence is required.
Here is where "concerted practice" comes into play:jt enables competition authorities
to prove "agreement" by analyzing the market behavior of the undertakings concerned. So, if for instance, the only explanation of undertakings' behavior in the market
is that they have colluded, it is possible to conclude that Article 4 is violated.
In fact the Act in its second and third paragraphs of Article 4 explicitly governs
this possibility. According to those provisions:
In cases where the existence of an agreement cannot be proved, that the price
changes in the market, or the balance of demand and supply, or the operational
areas of undertakings are similar to those markets where competition is prevented,
distorted or restricted, constitutes a presumption that the undertakings are engaged in concerted practice.
Each of the parties may relieve itself of the responsibility by proving it has
not engaged in concerted practice, provided that it is based on economic and
rational facts.
Consequently, the presumption of concerted practice displays its effects mostly for the
burden of proof. The application of the presumption shifts the burden onto the accused
party or parties and unless the accused parties can present an economic justification,
collusion (and therefore breach of Article 4) is said to be established. It should be said
that the Competition Board has been hesitant to apply this presumption and mostly
relies on hard evidence as well as market analysis. This approach has been elucidated
19.
Decision of Turkish Competition Board dated Nov. 25, 2009 and numbered 09-57 /1393-362,
para. 2460.
128
9.03[A]
in various decisions. For instance in the Newspaper2 decision the Competition Board
has stated that:
1. There must have been positive contacts between the parties such as meetings,
discussions, exchanges of information, which are generally expressed orally

or in writing,
2. Such contacts must have been aimed at influencing the market behavior and
especially eliminating the uncertainty of an undertaking's future competitive
behavior in advance,
3. They must have influenced or changed the commercial behavior of the
undertaking concerned in a manner that cannot fully be explained with
reference to competitive effects.
Another form of collusion is the decisions of undertakings. Hence, if a decision of an
association of undertakings restricts competition, the Competition Board may initiate
an investigation and impose a fine on the association itself. This is important in cases
where the association in question has many member undertakings and decisions
thereof have binding effects on members. In these cases, in order to create deterrence,
it is vital to prohibit these decisions and impose fines on the associations.
[2]
Test of Illegality: Restriction of Competition
In order to apply an Article 4 prohibition, collusion should restrict competition in the

market. So, the illegality test under Article 4 is restriction of competition, which by
definition is an elusive concept and requires interpretation. The Act, in order to
facilitate interpretation, mentions ,some examples of restriction of competition in the
second paragraph of Article 4.
As in other modern jurisdictions, the interpretation relies heavily on economic
analysis and it is the effects rather than form or wording that is relevant. Consequently,
if collusion increases the price of the good and/or reduces the quality, innovation or
product variety, then it is accepted that competition is restricted.
In some situations a determination can be made based on the agreement without
considering its actual effects. The wording of Article 4 accommodates such an
approach since it explicitly mentions that if the purpose of an agreement is restrictive
it is therefore deemed illegal. In competition law terms, this is called per se approach,
and today cartels and agreements between rivals to restrict output and increase price,
fall within this category. The Competition Board has embraced a per se approach in its
various decisions. For instance in the Marmara Region Cement2 1 decision, it is stated
that:
If an anti-competitive aim is clearly observed in an agreement, the agreement itself
or the provisions that distort competition would form a "per se" competition
infringement. In such case, there is no need to examine the effect of the agreement
20.
21.
Decision of Turkish Competition Board dated Jul. 17, 2000 and numbered 00-26/291-161.
Decision of Turkish Competition Board dated Dec. 5, 2005 and numbered 05-81/1118 - 320.
129
Kerem Cem Sanh
9.03[A]
on competition. Restrictive agreements would form a structural case that parties

would discard their own independent competitive activities in behalf of their
common interests. Because of such reason, only being a part of a restrictive
agreement is prohibited as well, even if the agreement had not showed effect.
For other types of collusive behavior, it is necessary to examine their effects and this
approach is called rule of reason analysis. In order to comprehend this approach, it is
crucial to make a distinction between horizontal and vertical relations. Horizontal
relations refer to agreements between rival undertakings and vertical relations denote
agreements between undertakings operating in different levels of the economic chain.
For instance an agreement between an undertaking producing widgets and its distributor is a vertical relation, whereas an agreement between widget producers is a
horizontal relation.
As both horizontal and vertical relations can have restrictive effects, they fall
under the scope of Article 4 of the Competition Act; though their legal approach differs
significantly. The main rationale behind this approach is that horizontal relations pose
greater risks in terms of social costs that they create since the parties to these relations
supply substitute products or services. So they have a common incentive to restrict
competition as increasing the price or restricting the output will benefit both. Moreover, it is less likely that these agreements create efficiencies outweighing their costs.
However, undertakings party to vertical relations simply supply complementary
products and they do not have mutual incentives to restrict competition, and no one
will suffer from this arrangement. Besides they are likely to create greater efficiencies
in terms of greater service, lower price or increased variety.
Since economic effects differ, the Competition Board is more likely to interfere
with horizontal relations. As already mentioned above, the Board adopts a per se
approach to cartel agreements. Other horizontal agreements and all vertical agreements are analyzed under the rule of reason approach which requires a finding of
negative effects on the market. This, of course, makes the assessment complex and
burdensome since a case-by-case analysis is required.
The Competition Board, in order to ease the burden of this approach and simplify
the application of the Article, has issued numerous Group Exemption Communiques
and Guidelines. 22 These documents not only relieve parties and the authority from
conducting costly and ambiguous market analysis but also help us understand the
interpretation of the Article 4.
[3]
Exemption
Agreements restricting competition may enhance efficiency as well. An exclusive

vertical contract, for example, can create incentives for dealers to concentrate on the
22. For instance the Guideline on the Horizontal Cooperation Agreements dated Apr. 30, 2013 and
the Guideline on the Vertical Agreements dated Jun. 30, 2013, despite being non binding, are
important documents in understanding the interpretation of the relevant articles and the policy
of the Competition Board.
130
9.03[A]
product and to invest in promotional activities that are beneficial for consumers.
Likewise, compared to independent dealers, suppliers are more likely to make relationspecific investments to exclusive dealers. Consequently, although exclusivity is regarded as a restriction of competition, its net effects on welfare might well be positive.
So, are these contracts prohibited?
Article S of the Act answers this question. According to Article S, if a restrictive
agreement has efficiency enhancing effects outweighing the costs associated with the
restriction, the agreement is exempted from the Article 4 prohibition and legally valid.
Hence, Article 4 cannot be applied without taking into account the exemption
provision.
The conditions to qualify for an exemption are enumerated in the second
paragraph of the Article S. According to that paragraph, four conditions must be
cumulatively met:
a.
b.
c.
d.
Agreement should create economic efficiency,

Efficiency should be passed on to consumers,
Competition should not be significantly eliminated,
The restriction should be proportional to achieve the goals set out in subparagraphs (a) and (b).
In theory, each of these conditions should be assessed on a case-by-case basis.

However, given administrative costs associated with such an undertaking, the Act
empowers the Board to issue Group Exemption Communiques by which group of
agreements are categorically exempted from the Article 4 prohibition provided that
agreements comply with the conditions articulated in the relevant communique. So in
cases where agreements are covered by a group exemption communique, it is not
necessary to assess whether these four conditions exist for that agreement. It is
assumed that agreement complies with the provisions of Article S.
The Competition Board has issued various group exemption communiques, the
most important one being the Group Exemption Communique Concerning Vertical
Agreements numbered 2002/2, which covers almost all vertical agreements in the
economy. Hence, with this Communique, the Competition Board has endorsed the
view that vertical agreements are generally efficiency enhancing. Aside from vertical
agreements, research and development, technology transfer and specialization agreements are exempted with group exemption communiques.
An agreement that does not fall within any group exemption communiques or
contradicts the relevant communique, does not become automatically illegal and
unenforceable. In such cases, there is still a possibility that the agreement may satisfy
the conditions of Article S and qualify for an individual exemption. It should be
mentioned that there is no requirement to make a notification to benefit from the
individual exemption. Parties to an agreement may conduct a self-assessment and
decide not to notify. However given the ambiguity of the analysis; generally parties
tend to notify their agreements.
131
9.03[B]
[B]
Kerem Cem Sanh
Abuse of Dominant Position
Article 6 of the Competition Act prohibits abusive behavior of dominant undertakings.

According to the first paragraph: "The abuse, by one or more undertakings, of their
dominant position in a market for goods or services within the whole or a part of the
country on their own or through agreements with others or through concerted practices,
is illegal and prohibited."
As it can be observed, the wording of the article seems quite complex as it refers
to agreements and concerted practices between undertakings, which resemble that of
Article 4. However, the logic of Article 6 is very simple: it intends to controls unilateral
behavior of dominant undertakings. Holding dominance itself is not unlawful; it is the
behavior that is proscribed, and the form of abusive behavior is of no relevance. An
agreement, unilateral behavior or even inactivity could be regarded abusive since it is
the effects that matter for legal analysis.
The second paragraph of Article 6 lists some examples of abusive behavior that
aim to ease the interpretation of the term "abuse".
In order to apply Article 6 at least two conditions must be met: "dominance in the
relevant market" and "abusive behavior". There is no exemption provision in the
application of Article 6, wherefore dominant undertaking's efficiency defenses (objective justification) may be recognized under the concept of abuse. Herein below, these
two conditions will be analyzed in detail.
[1]
Dominant Position
Market dominance is an economic concept, and it merely refers to a high degree of

economic power. Article 3 of tbe Competition Act defines the concept: "The power of
one or more undertakings in a particular market to determine economic parameters such
as price, supply, the amount of production and distribution, by acting independently of
their competitors and customers". The legal definition seems to be in accordance with
the economic theory, which basically demotes the description to "power over price".
However, neither legal nor economic definitions solve the problem of determining the dominance in a particular case. Probably the main question that competition
law seeks to answer is: what degree of economic power is necessary for dominance in
a market or under what conditions does an undertaking have power over price? The
Competition Board measures dominance by looking at two factors: "market share" and
"entry barriers".
The primary filter to determine the dominance is the "market share" of the
undertaking. After defining the relevant market, undertakings' and its rivals' shares are
calculated. According to the Competition Board's precedents, market shares above
40% create risk of dominance and shares beyond 60%-70% can give rise to a
presumption of dominance. It is interesting to note that, although in theory, low market
shares may trigger the risk of dominance, when one looks at the actual practice of the
Competition Board, in the majority of cases the dominant undertaking has held market
132
I
9.03[B]
shares in excess of 70% or even 80% .23 The mere existence of a high market share is
not deemed sufficient; one should also consider the shares of its rivals. Also, high
shares should last for some time as they may have resulted from various contingencies
other than economic power.
A second factor in determining dominance is the entry conditions in the market.
It is well established that dominance does not exist without high entry barriers since if
entry is easy other firms will be able to exert competitive pressure on the undertaking
holding high market shares. The concept is broadly defined and any impediment
challenging the entrant is regarded as an entry barrier. Apparently with this definition,
one could not think of any market without entry barriers. So, the concept is a relative
one.
What are entry barriers? Case law provides an extensive list of factors that are
recognized as entry barriers. Of course. primary examples are legal barriers. Licenses,
intellectual property rights and entry and exit regulations considered as significant, if
not absolute, entry barriers. 24 Market conditions could also help an undertaking protect
its position in the market and deter entry. In that regard economies of scale and scope,
network externalities, high proportion of start-up costs also indicate high entry
barriers. Behavior and the performance of the undertaking could also make entry more
difficult for newcomers. For example a well-organized distribution system, idle capacity, advertising and brand recognition, limit pricing, product differentiation, high
quality of the product, innovation, deep pocket are also deemed to contribute to the
dominant position. 25
{2]
The Concept of Abuse
Article 6 prohibits abusive behavior. The Competition Act imposes special responsibility to dominant undertakings not to allow its conduct to impair the competition in
the market. The problem with this proposition is that the scope of the responsibility is
not entirely clear. The abuse is an elusive concept and despite the non-exhaustive list
of abusive behavior enumerated under Article 6/2, it requires interpretation. In that
regard, European case law and doctrine are primary resources in understanding the
concept and the Turkish Competition Board frequently refers to European case law.
Abuse is an objective concept. 26 It is irrelevant whether the dominant undertaking has an intention of infringing Article 6. Conduct could be abusive even, for
instance, if it harms the competitive structure in downstream markets where the
dominant undertaking has no operations and does not have a potential to do so. 27 What
matters is the harmful effect of the conduct on the market. The Turkish Competition
Board in several cases endorses this interpretation.
23.
24.
25.
26.
Sanh, 2011, 34.

Decision of the Turkish Competition Board dated Nov. 6, 2000 and numbered 00-44/472-257.
Decision of the Turkish Competition Board dated Dec. 29, 2005 and numbered 05-88/1221-353.
Decision of the Turkish Competition Board dated Aug. 23, 2002 and numbered 02-49/634-257,
p. 54.
27. Decision of the Turkish Competition Board dated Apr. 20, 2009 and numbered 09-16/374-88.
133
9.03
Kerem Cem Sanh
Taking into account its effects on the competitive process, abuse is generally
analyzed under two main categories: "exploitative" and "exclusionary" abuses. This
categorization is helpful in understanding the concept; therefore, th,e main types of
abusive behaviors are analyzed below under two categories. It should be mentioned
that there is no rigid demarcation between these categories; the same behavior may fit
in with both categories depending on the circumstances of the case.
[a]
Exploitative Abuses
The term "abuse" in fact evokes exploitation and that is normally what one expects
from dominant undertakings. A dominant undertaking exploits its customers by
charging high prices and/or by supplying poor quality products and/or by dictating
unfair terms and impairing innovation. These behaviors result in inefficiency and
directly harm consumers. Given that this is the public harm that competition law
intends to prevent, it is natural that Article 6 prohibits exploitative abuse.
The Article 6 explicitly confirms this logic; all these practices are prescribed by
the examples of abuse set out in the second paragraph. Article 6/2 (b) prohibits
discriminatory practices, 6/2 (c) bans tying and 6/2 (e) forbids impairing innovation
and restricting output.
Nevertheless, the actual practice of the Turkish Competition Board has not been
entirely compatible with this theoretical logic. Compared to exclusionary abuses, the
Turkish Competition Board has not been keen to apply Article 6 to exploitative abuses.
According to one study28 only around 1/3 of all Article 6 decisions involve exploitative
abuses and 1/5 of infringement decisions relate to exploitative abuse. So, the Turkish
Competition Board has denied the majority of exploitative abuse allegations. And the
verdict in those cases in which the Board has imposed fines generated a lot of
controversy. This practice is also in line with the European Commission's attitude. The
rationale behind this reluctance is that the market is itself can correct this failures more
effectively than the competition. authorities and it is also believed that competition
authorities are not suitable, especially, for price control. 29
When we look at the case law of the Competition Board, unfair pricing and price
discrimination have been the main types of exploitative practices that the Competition
Board has dealt with. There are almost no cases regarding dictating unfair conditions
and impairing innovation.
The cases involving price discrimination exhibit interesting features since different legal standards have been applied. In the first case, the CINE 5, besides two
conventional conditions, the Turkish Competition Board required that the discrimination should put at least one customer in a competitive disadvantage vis a vis its
competitors. 30 So, there should be a negative effect in the competitive conditions of
downstream markets in order to label the conduct as abusive. However in the
28. Sanh, 2011, 37.

29. See, generally, Sanh, 2000, 87.
30. Decision of the Turkish Competition Board dated Oct. 11, 1999 and numbered 99-46/500-316.
134
9: Competition Law
9.03
subsequent two cases, the IBOIA$ 31 and the IZOTA$, 32 both of which involve bus
station operators holding monopoly position in their markets, the Turkish Competition
Board, after deliberating on the issue, did not insist on this condition and applied
Article 6 even though there was no competitive harm. One should note that these two
cases resemble very much the practice of the European Commission where bus and
airport monopoly's discriminatory prices were found to be abusive although the
competitive disadvantage condition was missing. 33
The sole unfair pricing case involves a state owned undertaking, the BELKO,
operating in coal distribution and sales in Ankara. 34 The undertaking had a legal
monopoly, and therefore there was no prospect of entry. The Turkish Competition
Board determined that BELKO, when compared to the prices of coal sold in other cities,
was charging very high prices for coal and abused it dominance by unfair pricing. The
Benchmarking tnethod indicated that the price of coal was almost 60%-70% higher
than the prices in neighboring markets. The unusual thing about the case was that the
BELKO was incurring losses due to operational inefficiency. Nevertheless, the Turkish
Competition Board concluded that pricing was abusive on the ground that a profit is
not required for unfair (excessive) pricing. In effect, BELKO was punished due to its
inefficiency.
[b]
Anti-competitive Abuses
Article 6 covers anti-competitive abuse, since the second paragraph explicitly lists
exclusionary practices as examples of abusive behavior. In fact Article 6 has been more
frequently applied to anti-competitive practices of dominant undertakings. To be more
precise, almost 2/3 of all Article 6 decisions involve anti-competitive abuses and the
proportion of anti-competitive abuses in infringement decisions is even much higher.
These figures are in conformity with the general tendency in the EU and in the US case
law.
Anti-competitive abuse simply refers to exclusionary practices aimed at actual
and potential rivals. Here the motivation of the dominant undertaking is clear: to
exclude the rival from the market and thereby to maintain and to increase its market
share. The main concern of competition law is protecting the rival; to preserve the
competitive structure of the market. So actually the anti-competitive behavior may not
directly harm the competitive parameters (or the performance) of the market. However, if the competition authorities do not interfere in time there is a probability that the
market concentration may increase which in turn could impede market performance.
Application of Article 6 to anti-competitive abuses is not without problems. As is
clear from the definition, the behavior appears competitive on its face and it does not
produce harmful results per se. There is a likelihood that the dominant undertaking is
31. Decision of the Turkish Competition Board dated Sept. 23, 2005 and numbered 05-60/893-242.
32. Decision of the Turkish Competition Board dated Jan. 11, 2007 and numbered 07-01/1-1.
33. OJ (1999) L 69/31, (1999) 5 CMLR 103, upheld on appeal Case 163/99, Portugal v. Commission,
Apr. 29, 2001; also see Zaventem decision OJ Sept. 12, 1995, L 216.
34. Decision of the Turkish Competition Board dated Jul. 8, 2009 and numbered 09-32/703-163.
135
9.03[C]
Kerem Cem Sanh
actually competing on the merits despite its rivals being injured and even excluded
from the market as a result of its practices. So the main question here is: on what merits
are dominant undertakings allowed to compete? The jurisprudence and case law on
anti-competitive abuse seeks to answer this question by demarcating exclusionary
practices from efficient but aggressive commercial policies.
When we look at the case law of the Turkish Competition Board, it is observed
that a variety of practices fall within the category of anti-competitive abuses. Probably
pricing practices constitute the main sub-category (almost 2/3 of all cases) since it
comprises a range of pricing schemes such as "predatory pricing", "selective pricing",
"price squeeze" and "discriminatory pricing". Among them, price discrimination and
predatory pricing cases are very common. An Interesting observation is the proportion
of refusal to deal cases. The Turkish Competition Board dealt with many "refusal to
deal" cases and in five of them the refusal was found to be abusive.
[C]
Concentrations
[1]
The Concept of Concentration
In order for a transaction to fall within the jurisdiction of the Turkish merger control
regime, it should first qualify as a concentration. The term concentration has a
technical meaning and it simply refers to change in the control on a lasting basis. So
unless a transaction does not lead to any change in control structure of the undertakings concerned, there is no concentration within the meaning of the competition law.
The control of a firm or entity may be acquired by a single undertaking leading to
sole control, or jointly by two or more undertakings leading to joint control. Control
denotes the ability to exercise decisive influence on the important commercial policies
of another economic unit. So it is purely an economic concept. An acquisition of sole
control would mean that there is a concentration in the form of an acquisition or a
merger, while an acquisition of joint control means that the concentration is in the form
of a joint venture. A concentration will also arise if there is a change from sole control
to joint control or from joint control to sole control.
The legal basis of the change of control is not important, as competition law is
concerned with the economic impact rather than the legal form. Hence for instance, in
addition to asset and share purchase agreements, long-term leases and license agreements can be regarded as concentrations provided that they lead to change in control.
The second paragraph of the Article 5 of Communique number 2010/4 underlines this
point:
For the purposes of this Communique, control may be acquired through rights,
contracts or other instruments which, separately or together, allow de facto or de
jure exercise of decisive influence over an undertaking. In particular, these
instruments consist of ownership right or operating right over all or part of the
assets of an undertaking, and those rights or contracts granting decisive influence
over the structure or decisions of the bodies of an undertaking. Control may be
acquired by right holders, or by those persons or undertakings who have been
136
9.03[C]
empowered to exercise such rights in accordance with a contract, or who, while

lacking such rights and powers, have de facto strength to exercise such rights.
Even if it is not a "merger" within the narrow meaning of the concept, the assembly of
activities of undertakings under a single economic unit is also considered as a merger.
This situation is generated particularly when two or more undertakings create a joint
economic unit - a joint venture-, while maintaining their separate economic and legal
entities. In order to apply Article 7 to joint ventures, however, the newly structured
undertaking should have enough resources to carry out its commercial activities
independent from parent undertakings (full functionality). For instance, joint ventures
that are formed in order to outsource some of the tasks of parent companies do not
qualify as fully functional. If the full-function condition is not satisfied, the agreement
between parent undertakings is analyzed under Article 4 of Act as restrictive agreements and the restriction of competition test is applied.
[2]
Duty to Notify
The Authority should be notified of Concentrations in order for them to be valid and
enforceable. Unless a clearance decision (explicit or implicit) is obtained from the
Competition Board, parties cannot execute the transaction. Aside from nullity, parties
may be subjected to administrative fines of 0.1 % of their annual turnover if they
neglect to duly notify. So the Act creates a strong motivation for notification. The
question of which transactions should be notified is answered in Communique number
2010/4. According to the relevant .provision:
- Total turnovers of the transaction parties in Turkey exceed one hundred
million TL, and turnovers of at least two of the transaction parties in Turkey
each exceed thirty million TL, or
- (b) The turnover in Turkey for the acquired asset or operation in acquisition
transactions, or for at least one of the transaction parties in merger transactions exceeds thirty million TL, and at least one of the other transaction parties
has a global turnover exceeding five hundred million TL.
Hence, if one of these thresholds is exceeded, then the parties (in an acquisition, the
purchaser) should notify the Authority about the transaction. Upon notification, the
Competition Board has to decide on the case within 15 days, and if the Board does not
grant a decision within 30 days, there is a presumption that the transaction is
authorized. The Board, by requesting additional information can extend the period up
to maximum of 65 days.
If the transaction does not pose any competition problems, an authorization
decision is granted. However, if there is a risk that the transaction may create or
strengthen the dominant position in the relevant market, the Board proceeds to the
phase II inquiry and grants a final investigation decision. During this final investigation
period, the Turkish Competition Board has six months to reach a final decision, which
can be extended to one year.
9.03[C]
[3]
Kerem Cem Sanh
Illegality Test: Creating or Strengthening Dominance and Thereby

Lessening Competition
Once it is established that a concentration falls within the scope of Article 7 of the
Competition Act, the criterion under which the assessment is made, is the dominance
test. Although competition authorities of the US and EU adopted "competition test"
(also called as SLC Test) in assessing the merger cases, the Competition Board with its
new Communique numbered 2010/4, has not amended its "dominance test".
The dominance test is applied within a two-tier analysis. Firstly, the Competition
Board analyzes whether after the transaction dominance will be created or an existing
dominance will be strengthened. If it is determined that dominance is created, then it
will proceed to the second tier and assess whether dominance significantly decreases
competition in the relevant market. If both conditions are met then the Competition
Board will prohibit the transaction. Despite creating a dominant position, a transaction
could be cleared on the grounds that it will not affect competitive conditions significantly. The second tier is called an SLC test and it is particularly important in
transactions where the acquirer already holds dominance in the market. In such cases,
the test allows dominant undertakings to make acquisitions.
However in practice, the Board rarely resorts to SLC tests and generally conducts
solely the dominance test. Determining dominance is the same as in the application of
Article 6. The basic element in this test is market share and entry conditions. The
Competition Authority also examines the changes in market concentration levels (as
usually measured by HHI Tests) and uses short-cut indications to determine under
which conditions the transactions do not pose risks to competition. These indications
and the framework under which the analysis is conducted are explained in two
separate Guidelines. One relates to assessment of horizontal and the other concern
non-horizontal concentrations. These Guidelines resemble those of EU competition
legislation and create transparency and consistency in merger enforcement regimes.
When we look at the actual practice of the Board, it can be noted that the Board
rarely interferes with merger/acquisition transactions. Up until 2013 among almost
2,500 merger decisions only four transactions were prohibited and one of them was
mainly related to Article 4 of the Act. There were few transactions that qualified for
Second Phase investigation but most of them were cleared with commitments offered
by the parties. The Board has recently enacted a Guideline on merger enforcement that
clarifies the ways in which parties to a transaction can offer remedies and solutions to
the Authority in cases where the merger in question creates significant competitive
risks and therefore is likely to be prohibited. According to the Guideline on the
Remedies Acceptable by the Competition Authority on Mergers/ Acquisitions Transactions dated September 7, 2011, in order to lessen the competitive problems associated
with the transaction, parties can offer structural and/or behavioral remedies to the
Authority and, should the Authority accept them, the transaction can be cleared on the
grounds that the remedies are fulfilled. Parties have been increasingly resorting to this
solution and the Board has in its various decisions cleared mergers with structural
remedies despite very high risks resulting from the transactions. The AFM/Mars dated
i'
I
'i
138
9.03[C]
November 17, 2011 and Mey ic;:ki/Diageo dated August 17, 2011 transactions are
prominent illustrations of this policy.
Aslan, Y., Rekabet Hukuku, Ekin Kitabevi, Bursa 2007.
Ate~, M., Rekabet Hukukuna Giri$, Ankara 2013.
Giiven, P., Rekabet Hukuku, Ankara 2008.
OECD, Competition Law and Policy in Turkey, 2005.
Sanh K.C. (ed.), Dikey Anla$malar ve Rekabet Hukuku, Sorunlar ve <;:oziim Onerileri,
XII Levha Yaymlan, istanbul, 2009.
Sanh K.C. (ed.), Hakim Durumun Kotiiye Kullamlmasi: Sorunlar ve <;:oziim Onerileri,
XII Levha Yaymlan, istanbul, 2011.
Sanh K.C., Rekabet Hukukunda Tekelci Fiyatlandirma, Per$embe Konferanslan, S.10,
Rekabet Kurumu Yaymi, Ankara 2000, 75-165.
Sanh K.C., Rekabetin Korunmasi Hakkmdaki Kanun'da Ongoriilen Yasaklayici
Hiikiimler ve Bu Hiikiimlere Aykm Sozle$me ve Te$ebbiis Birligi Kararlanmn
Gec;ersizligi, Rekabet Kurumu Yaymi, Ankara 2000.
139
.I
10
Property
Giil Okutan Nilsson*
10.01
GENERAL BACKGROUND
Historically Turkey provided protection for only three types of intellectual property
(IP): Patents, copyrights, and trademarks. Patents were protected by the Patent Law of
1879, trademarks by the Trademark Decree of 1872 and copyrights by the Copyright
Law of 1910. Following the foundation of the Turkish Republic, these laws were
replaced with new ones. A new copyright law was adopted in 1951 and a new
trademark law in 1965. However, it took the old patent law more than a century to be
modernized: the Decree-Law on Patents and Utility Models was adopted only in 1995.
1995 was a turning point in the development of IP law in Turkey. That year,
Turkey and the European Communities agreed on the establishment of a joint Customs
Union. In order for the Customs Union to work efficiently, Turkey committed itself to
modernizing some of its laws and harmonizing them with EU law, including those in
the area of IP. Within that same year, four decree-laws on the protection of trademarks,
patents and utility models, geographical indications and designs were adopted, based
on the relevant European directives. Copyright law was amended to include some new
concepts such as the protection for computer programs and related rights. The
development of Turkish IP law continued in 2004 with the enactment of a decree-law
on the protection of topographies of integrated circuits and a law on plant breeders'
rights. Currently, IP law continues to be updated in order to stay harmonized with EU
legislation.
Apart from this legislation, there are rules in the Turkish Commercial Code on the
registration and protection of trade-names, which cover the names of companies and
enterprises. There is also a regulation on the registration of domain names. 1 However,
* Associate Professor, Faculty of Law, Bilgi University, istanbul.
1. Internet Alan Adlan Yonetmelig, OG, Nov. 7, 2010, Nr. 27752.
141
10.03
Giil Okutan Nilsson
as there are no laws creating absolute rights on domain names, their legal protection
can be ensured, to the extent possible, by the rules regarding unfair competition,
trademarks or trade-names.
Throughout the years, in order to keep its IP laws on a par with international
standards and to take part in international registration systems, Turkey also joined
many international treaties and conventions concerning IP protection, such as the
Treaty establishing the World Intellectual Property Organisation (WIPO), Treaty on the
Trade Related Aspects of Intellectual Property Rights (TRIPS) and the Paris Convention
for the protection of industrial property of 1883 (1967 Stockholm Act as amended in
1979). Other "international instruments" to which Turkey is a party in respect of
patents, designs, trademark and copyright are mentioned below under the relevant
headings.
Due to the wide scope of IP law, this Chapter will only explain the regulations
regarding patents, designs, trademarks and copyright.
10.02
ADMINISTRATIVE BODIES AND COURTS
The public authority responsible for registering industrial property rights in Turkey and
drafting legislation in the field of industrial rights is the Turkish Patent Institute (TPI), 2
based in Ankara. For copyright issues such as the supervision of collecting societies
and drafting legislation relating to copyright, the Copyright General Directorate of the
Turkish Ministry of Culture and Tourism is authorized.
Specialized civil and criminal IP Courts in Istanbul, Ankara and Izmir were set up
in 2001, with the goal of achieving a better legal enforcement of the law. In cities where
there are no specialized courts, the High Board of Judges and Prosecutors shall
determine the chambers of civil or criminal courts authorized to hear IP cases.
10.03
PATENTS AND UTILITY MODELS
Patents and utility models are protected by the Decree-Law on the Protection of Patents
Nr. 551. 3 There is also an implementing regulation laying down the details of
procedure. 4
In the field of patents, Turkey is a party to the European Patent Convention (as
revised in 2000), the Patent Cooperation Treaty (as amended in 1979 and modified in
1984), the Strasbourg Agreement Concerning the International Patent Classification (as
amended in 1979), and the Budapest Treaty on the International Recognition of the
Deposit of Microorganisms for the Purposes of Patent Procedure. Turkey has signed,
but not yet ratified the Patent Law Treaty.
2. www.tpe.gov.tr.
3. Patent Haklannm Korunmasz Hakkmda Kanun Hiikmiinde Karamame, OG Jun. 27, 1995, Nr.
22326 ("PatKHK").
4. Patent Haklanmn Korunmasz Hakkmda Kanun Hiikmiinde Karamamenin Uygulama ;Jeklini
GOsterir Yonetmelik, OG Nov. 5, 1995, Nr. 22454.
142
11
Chapter 10: Intellectual Property
[A]
10.03[B]
Types of Patents and Patentable Subject Matter
Turkish law grants protection to "product patents" (iiriin patenti) and "process
patents" (usul patenti). It is also possible to obtain "patents of addition" (ek patent) for
inventions which form a unity with the subject matter of the main patent and which
improve or develop the invention for which the main patent is obtained.
Under Turkish law, not all inventions can obtain patents. The law does not define
inventions but states that patent protection will not be granted to the following, since
they are not considered to be inventions:
- Discoveries, scientific theories, mathematical methods.
- Schemes, rules and methods for performing mental acts, playing games or
doing business.
- Literary and artistic works, scientific works, esthetic creations, computer
programs.
- Nontechnical methods for collecting, arranging, presenting and transmitting
data.
- Methods of diagnosis, therapy and surgery applied to humans or animals.
Furthermore, the following inventions will not be protected by patents on moral
grounds:
- Inventions contrary to public order or morality.
- Plant or animal varieties or essentially biological processes for the production
of plants or animals.
The old patent law of 1879 did not grant patents to pharmaceuticals. Patent protection
for human and veterinary pharmaceutical products and processes started on January 1,
1999, 5 in fulfillment of Turkey's obligations under the TRIPS.
[B]
Conditions for Patentability
In order to obtain patent protection, the invention must meet three criteria:
[1]
Novelty
The invention must be new; in other words, it must not be part of "prior art". Prior art
covers any publicly accessible information regarding the invention, which was disclosed in any part of the world by written or oral presentation or by use or otherwise,
before the date of filing of the application for patent.
Certain disclosures do not prejudice the novelty of the invention. These are
disclosures made during the 12 months preceding the date of filing or, where priority
is claimed, the date of priority of the application, by the following parties:
5. PatKHK Transitional Art. 4.
143
10.03[C]
Giil Okutan Nilsson
- The inventor or a third party that obtained the information directly or

indirectly from the inventor.
- An office, where the information was contained in another application filed by
the inventor and was not supposed to be disclosed by that office.
- An office, where the information was contained in an application filed without
the knowledge or consent of the inventor by a third party which obtained the
information directly or indirectly from the inventor.
[2}
Inventive Step
An invention shall be considered as involving an inventive step if, having regard to

prior art, it is not obvious to a person skilled in the relevant technical field. If an
invention lacks any inventive step, it may still obtain protection as a utility model
provided it is new and has industrial applicability.
[3}
Industrial Applicability
Finally, the invention must have industrial applicability, which will be deemed to exist
if the invention can be manufactured or is usable in p.ny industrial branch, including
agriculture.
[C]
The Right to Apply for a Patent
The right to request a patent belongs to the inventor or her/his successors or

transferees. The person who first files a patent application is considered to be entitled
to the right to request a patent, unless proven otherwise.
The inventor has the right to be mentioned as inventor in the patent registration.
There are special provisions relating to employee inventions. Employee inventions are classified as "service inventions" or "independent inventions''. Service
inventions are those inventions made by private or public sector employees during the
term of their employment, which are created either as a result of the tasks assigned to
them or which are substantially based on the experience or works of the enterprise or
public body. Independent inventions are those inventions of employees that do not fall
under the definition of employee inventions.
Employees are required to report service inventions without delay to their
employers, whereupon the employer is entitled to claim partial or full rights on the
invention in return for the payment of an appropriate compensation. Independent
inventions must also be reported to employers, in order to enable them to decide
whether or not the invention is indeed an independent invention and if so, whether it
is related to the business field of the employer, or whether the employer has made
serious preparations to start activities in the business field related to the invention; in
which case the employer will have a right of first refusal on using the invention under
144
10.03[E]
appropriate terms and conditions. Inventions made by academics at universities are

categorized by the law as independent inventions.
[D]
Rights Granted by a Patent
The patent grants its holder absolute rights on the invention that are mentioned in the
law. The holder of a product patent is entitled to prevent the unauthorized production,
sale, use or importation of patented products or their possession for purposes other
than for personal needs. The holder of a process patent, on the other hand, is entitled
to prevent the unauthorized use of or unauthorized proposals made for the use of a
patented process. Furthermore, the holder of a process patent may also prevent the
unauthorized production, sale, use or importation of products which are manufactured
directly by using the patented process, as well as the possession of such products for
purposes other than for personal needs.
Patent rights may be the subject of inheritance, pledge, seizure, transfer or
license. Licenses are non-exclusive, unless otherwise stated in the contract. Compulsory licenses may be granted by court order if the patent holder does not make use of
his invention for three years without any objective_ economic, technical or legal
grounds that prevent use. Likewise, where inventions protected by patents are not
independent of each other so that a new patent holder has to make use of a prior patent
in order to put her/his own patent into legal use, she/he may request that a court to
grant a compulsory license. Furthermore, the Council of Ministers may subject a patent
to compulsory license due to public benefit, if the patent is deemed important for public
health or security or if the nonuse or insufficient use of the patent may lead to serious
economic or technical underdevelopment of the country. Finally, if a patent owner
abuses competition while exercising the patent rights, she/he may be ordered by the
court to make an offer for a license.
[E]
The rights to a patent will be infringed by unauthorized counterfeiting of patented

products and sale, distribution, importation or possessing for commercial purposes or
putting into commercial circulation in any other way of such counterfeits where the
person conducting such acts knows or should have known that the products are
counterfeit. Unauthorized use of patented processes and sale, distribution, importation
or possessing for commercial purposes or putting into commercial circulation in any
other way of products directly manufactured in such way is also an infringement.
Where the patented process pertains to the manufacture of a product, all products
bearing the same characteristics as that product will be considered to be manufactured
by the patented process.
Other acts of infringement are; transgressing the scope of the rights granted by
the patent holder on the basis of a contractual license or granted by compulsory license
or unauthorized transfer of such rights to third parties, and refraining from declaring
145
10.03[F]
Giil Okutan Nilsson
the source of counterfeit products. Persons facilitating infringement of patent rights

will also be held liable.
In determining the scope of protection conferred by an application for patent or
a patent, all elements equivalent to the elements expressed in the claims shall be also
considered. Where the equivalent element performs substantially the same function
and performs such function in a substantially similar manner and produces the same
result as the element expressed in the claims, such element shall be generally deemed
to be equivalent to the element expressed in the claims.
In case of infringement, right holders may claim, inter alia, the prohibition and
termination of the infringement, the seizure or, if necessary, the destruction of
infringing goods and instruments used for infringement, compensation for moral or
pecuniary damages including loss of reputation and profit and the announcement to
the public of the court judgment.
Prior to 2010, infringement of patent rights also led to criminal liability. However,
the provisions of the Decree-Law on Patents and Utility Models on patent crimes were
cancelled by a decision 6 of the Constitutional Court. According to Article 38 of the
Turkish Constitution and Article 2 of the Turkish Criminal Code Nr. 523 7 that has
priority over all special codes containing criminal sanctions, crimes and punishments
may only be imposed by acts passed by the Parliament. With regard to patent crimes,
punishments were indeed stipulated by an act of Parliament. However, the" definition"
of crimes relating to patents was stipulated not by ah act of Parliament, but by the
provisions of the above mentioned Decree-Law. Decree-laws are legal instruments
issued by the Cabinet of Ministers upon authorization granted by the Parliament. 7 The
Constitutional Court decided that this was against the principle of the rule of law
enshrined in the Constitution and the general principles of the Turkish Criminal Code
on the legality of crimes and punishments and cancelled such crimes with effect from
June 10, 2010, in other words, one year after the publication of the cancellation
decision in the Official Gazette. However, since no new laws have been passed to
replace the cancelled provisions of the Decree-Law, criminal liability no longer exists in
the field of patents in Turkey.
[F]
Applications for Turkish Patents must be made to the TPI. The description and claims
may be initially filed in English, French or German, although a Turkish translation must
be filed within one month. Applications may also be made to designated offices via the
Patent Cooperation Treaty.
The date of patent application is the date and time, by hours and minutes, on
which the application form, claims, description and drawings are submitted to the TPI.
Natural or legal persons who are nationals of any state party to the Paris Convention,
6. Constitutional Court Decision dated Feb. 5, 2009, E: 2005/57, K.: 2009/19, OG Jun. 10, 2009.
7. The reason why decree-laws were chosen as the appropriate legal means was that, back in 1995
there was need for a quick reform of IP laws due to the Customs Union process and the procedure
of adopting decree-laws was faster than passing laws in the Parliament.
146
10.04[A]
or who are domiciled or have an active business in these states, shall enjoy a right of
priority of 12 months as from the date of filing an application for the grant of a patent
or a utility model certificate before the authorized bodies of these states. A priority
period of 12 months is also granted for displaying the invention at an official or
officially recognized, national or international exhibition held in the states party to the
Paris Convention.
The law allows applications with or without a request for a search on prior art. In
the former case, protection will be granted for 20 years, while in the latter case, for only
seven years starting from the date of application. Utility models are protected for 10
years, also starting from the date of application.
[G]
Termination of Patent Rights
Patent rights will terminate upon the expiry of the term of protection, by the patent
holder's written surrendering of patent rights in whole or in part, by the patent holder's
failure to pay the registration fees on time, or by a court ruling on the invalidity of the
patent. Patents may be declared invalid where it is proven that the subject matter of
patents do not fulfill the conditions for patentability,. or that the description of the
invention was not sufficiently clear and complete to enable a person skilled in the art
to apply it, that the patent protection granted exceeded the application, or that the
patent holder did not have the right to request the patent.
10.04
INDUSTRIAL DESIGNS
Industrial designs are protected by the Decree-Law on the Protection of Industrial

Designs Nr. 554. 8 There is also an implementing regulation laying down the details of
procedure. 9 The Decree-Law is based on the system of the EU Directive 98/71/EC of
October 13, 1998 on the legal protection of designs. 10
Designs may also be protected under copyright law, if they meet the necessary
criteria.
In the field of designs, Turkey is a party to the Hague Agreement Concerning the
International Registration of Industrial Designs (Geneva Act of 1999) and the Locarno
Agreement Establishing an International Classification for Industrial Designs.
[A]
Scope of Protection
An industrial design relates to the appearance of a product. According to the DecreeLaw, "design means the entirety of the various features such as lines, shape, form,
8. Endiistriyel Tasanmlann Korunmas1 Hakkmda Kanun Hiikmiinde Karamame, OG Jun. 27,

1995, Nr. 22326 ("EndTasKHK").
9. Endiistriyel Tasanmlann Korunmas1 Hakkmda Kanun Hiikmiinde Karamamenin Uygulama
$eklini Gosterir YOnetmelik, OG Feb. 7, 2006.
10. OJ L 289, Oct 28, 1998, 28.
147
10.04[B]
Giil Okutan Nilsson
color, texture, material, elasticity or other characteristics perceived by the human

senses of the appearance of the whole or part of a product or its ornamentation."
In some countries, in order to be protected under special design law, designs
must not only be technical/functional, but must also have an aesthetic value. Under
Turkish law, designs will be protected whether or not they have aesthetic value.
Designs of products which are parts of complex items shall also be protected if
and when the design of the part itself is new and has individual character.
Designs resulting from a technical function which does not leave the designer any
freedom in the design characteristics and elements fall outside the scope of protection.
Likewise, designs that must necessarily be produced in an exact form and dimension in
order to enable the product in which the design is incorporated or to which it is applied
to be mechanically assembled or connected with other products fall outside the scope
of protection. However, designs serving the purpose of allowing the connection of units
within a modular system shall be protected, provided that they are new and have
individual character.
Designs contrary to public order and general principles of morality are not
protected.
[B]
Criteria for Protection
Not all designs can obtain special protection under des'ign law. In order to be protected,
a design must have:
[1]
Novelty
A design shall be considered new if before the date of application or priority no

identical design has been made available to the public in the world. Designs differing
only in immaterial details shall be deemed to be identical.
Disclosures made by the designer or her/his successor in title or by a third person
having their approval 12 months before the date of application or priority shall not
affect the novelty and individual character of the design. Disclosures made as a result
of abuse of a relationship with the designer shall also be treated in the same way.
{2]
Individual Character
A design shall be understood to have individual character if the overall impression it

creates on the informed user is significantly different from the overall impression
created on the same user by any design, which has been made public in Turkey or
anywhere else in the world or which is still protected in Turkey as a registered design
as of the date of application or priority. In the assessment of individual character, the
emphasis of evaluation shall be on the common features of the designs and the degree
of freedom of the designer in developing the design shall also be taken into consideration.
148

[C]
10.04[E]
The Right to Apply for Design Registration
The right to apply for design registration belongs to the designer or her/his successors.
The designer has the right to be mentioned in the design application and registration.
The right to designs made by employees during the course of their employment
belongs to the employers, unless otherwise stated in the contract or unless it can be
deduced from the nature of the work. Furthermore, even if the design is not made for
the purpose of performing tasks required by the employee's duties but by using the
knowledge and tools available at the workplace, the rights on the design will still
belong to the employer. However in the latter case, the employee will be entitled to
receive an appropriate compensation.
If the design is made upon order under a freelance or similar service contract, the
design rights will belong to the party ordering the design to be made, unless otherwise
agreed by contract.
Rights on designs made by academic members of universities belong to such
persons. However, if the academic institution has made any special expenditures for
the production of the design, and if the academic member has commercially profited
from the design, the academic institution may share in the proceeds up to the
maximum amount of the expenditures made by the institution.
[D]
Rights Granted by a Design
Once a design is registered, others cannot use the design without permission. It is
especially prohibited to manufacture, import, put on sale, use or possess for commercial purposes products incorporating the design without the permission of the design
holder.
Designs may be the subject of inheritance, pledge, seizure, transfer or license.
Licenses are non-exclusive, unless otherwise stated by contract.
[E]
Exceptions to Design Rights
The rights conferred by a registered design shall not extend to:

- Acts that are limited to private and non-commercial purposes.
- Acts done for experimental purposes.
- Acts of reproduction for the purposes of making citations or of teaching,
provided that such acts are compatible with fair trade practices and do not
prejudice the normal exploitation of the design and the source of the design is
mentioned.
- The equipment on ships and aircraft registered in a third country that enter the
territory of the Turkish Republic temporarily, as well as the importation of
spare parts and accessories for the purpose of repairing such ships and aircraft
and execution of the repairs.
149
10.04[H]
[F]
Giil Okutan Nilsson
The rights to a design will be infringed by unauthorized manufacturing of products that

are the same or significantly similar to the design and by sale, distribution, importation
or possessing for commercial purposes or putting into commercial circulation in any
other way of such products. Other infringing acts are transgressing the scope of
contractual license rights or transferring such rights to third parties without permission, and refraining from declaring the source of counterfeit products. Persons
facilitating infringement of design rights will also be held liable.
In case of infringement, right holders may claim, inter alia, the prohibition and
termination of the infringement, seizure or, if necessary, destruction of infringing
goods and instruments used for infringement, compensation for moral or pecuniary
damages including loss of reputation and profit and the announcement to the public of
the court judgment.
The explanations given under patents regarding criminal liability apply also for
industrial rights. The Constitutional Court, with the same decision mentioned above 11
has cancelled the provisions of the Decree-Law on the Protection of Designs on the
definition of crimes regarding design rights.
[G]
Registration and Term of Protection
The applications for Turkish design registrations are made to the TPI. International
applications can be made under the Hague Agreement Concerning the International
Deposit of Industrial Designs.
Once the design is registered, it gives absolute and exclusive rights to its owner
for five years. The registration ean be renewed for further periods of five years for a
maximum period of 25 years. Non-registered designs may be protected by unfair
competition rules or copyright rules.
[HJ
Termination of Design Rights
Design rights will terminate upon the expiry of the term of protection, due to not
renewing the term of protection by paying the necessary fees, by the design holder's
written surrendering of rights in whole or in part, or by a court ruling on the invalidity
of the design. Designs may be declared invalid where it is proven that the conditions for
protection are not fulfilled, or that the design holder did not have the right to request
registration.
11. Supra note 6.
10.05[B]

10.05
TRADEMARKS
Trademarks are protected by the Decree-Law on the Protection of Trademarks Nr.

556. 12 There is also an implementing regulation laying down the details of procedure. 13
The Turkish Decree-Law is based on the same principles as the EU Directive 2008/
95/EC of October 22, 2008 on the approximation of laws of the Member States relating
to trade marks.
Recently the TPI has issued a set of Trademark Examination Guidelines, which
are accessible in English online at the TPI' s website. 14
In the field of trademarks, Turkey is a party to the Nice Agreement Concerning
the International Classification of Goods and Services for the Purposes of the Registration of Marks, the Vienna Agreement Establishing an International Classification of the
Figurative Elements of Marks, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks and the Trademark Law Treaty. Turkey has
also signed but not yet ratified the Singapore Treaty on the Law of Trademarks.
[A]
Concept
A trademark is a distinctive sign that helps to distinguish a good or a service from other
similar goods or services. In addition to individual trademarks identifying the commercial source of goods or services, Turkish law also protects collective marks (ortak
marka) and certification marks (garanti markasi). Collective marks are used by a
group of undertakings of producers or traders or providers of services to distinguish the
goods and services of the undertakings belonging to the group from the goods and
services of the other undertakings. Certification marks serve the purpose of the
guaranteeing the common characteristics of the undertakings, their production methods, geographical origins 15 and quality. When filing an application for registration of a
certification or a collective mark, a regulation specifying the ways and means of using
the mark must be filed.
[B]
Criteria for Protection
There are few restrictions on what can be registered as a trademark. Trademarks may
consist of words, letters, numerals, symbols, drawings, combination of colors, or threedimensional signs such as the shape and packaging of goods or even audible signs such
as music.
In order to be registered, a trademark must be able to distinguish goods or
services for which it is going to be used, from similar ones. Each trademark is registered
12. Markalann Korunmasi Hakkmda Kanun Hiikmiinde Karamame, OG Jun. 27, 1995.
13. Markalann Korunmasi Hakkmda Kanun Hiikmiinde Karamamenin Uygulama $eklini Gosterir
Yonetmelik, OG Apr. 9, 2005.
14. http://www.turkpatent.gov.tr/dosyalar/haber/TM_Guidelines_ENG. pdf.
15. It should be noted that there is also special legislation on the protection of geographical
indications, which, in practice, is preferred over certification marks.
151
Gtil Okutan Nilsson
IO.OS [CJ
for certain categories of goods or services. One is free to use a mark that is the same as
or similar to a previously registered trademark, if the mark is going to be used for a
different category of goods or services. However, if a trademark is "well-known",
protection goes beyond the category of products or services for which the trademark is
registered, if the registration of the same or similar mark would take unfair advantage
of, or be detrimental to, the distinctive character or repute of the well-known
trademark.
Trademark registration may be denied based on "absolute" or "relative" grounds
for refusal. Absolute grounds for refusal are generally objective grounds which
preclude a sign to be used as a trademark due to lack of distinctiveness, descriptive
nature, deceptive characteristic or prohibition of registration under the Paris Convention. The TPI makes an ex-officio examination based on absolute grounds of refusal.
Relative grounds for refusal are those grounds which pertain to rights owned by
third parties. The most important relative ground for refusal is the existence of
similarity between two trademarks (the likelihood of confusion). Such a similarity or
likelihood of confusion is objectionable if the trademarks are used for the same or a
similar category of goods or services. It is also objectionable if, although the categories
are different, one of the trademarks is well-known as explained above. A special type
of confusion is by "association", where the consumer may know that two products are
different, but may think that the manufacturers are associated with each other.
Trademark registration may also be opposed based on other intellectual property
rights such as designs, copyrights or trade-names. Earlier use of an unregistered
trademark may also be a ground for opposition to the registration of that trademark by
a third party.
Absolute or relative grounds for refusal also serve as grounds for invalidation of
a registered trademark.
[C]
Rights Granted
A trademark grants an exclusive right to its owner for the use of the trademark. The
trademark owner can prevent the manufacture, importation, sale or otherwise putting
into commercial use of counterfeit products; that is, products of the same or similar
category bearing the same or confusingly similar signs as the registered trademark.
In a 2009 amendment to the Decree-Law on the Protection of Trademarks (Article
9), it was also made clear that the trademark owner can prevent the use of the same or
confusingly similar signs as a domain name, keyword or code with similar functions in
a way that will create a commercial impact on the Internet, provided that the person
using the sign does not have any legitimate right on or connection to that sign.
Trademark rights may be the subject of inheritance, pledge, seizure, transfer or
license. Licenses are non-exclusive, unless otherwise stated by contract.
152

[D]
10.0S[F]
Exceptions to Trademark Rights
The owner of a trademark cannot prevent third parties from using, in the course of
trade, their own name or address, indications concerning the kind, quality, quantity,
intended purpose, value, geographical origin, the time of production of the goods or of
rendering of the services, or other characteristics of the goods or services, provided the
use is effected in accordance with fair trade practices.
[E]
Infringement of Trademark Rights
In case of infringement of trademark rights, the trademark owner can demand

protection from law courts or criminal courts. Goods violating the trademark right may
be withdrawn from the market, seized at the customs and destroyed upon the demand
of the trademark owner. The trademark owner may also demand compensation for
moral or pecuniary damages, including actual damages, loss of profit and any damage
to the reputation of the trademark.
Infringement of trademark rights can also lead to criminal punishment. Prior to
2009, the crimes were stipulated by the Decree-Law on the Protection of Trademarks.
As explained above for patent crimes, in a similar ruling, 16 the Constitutional Court
found that laying down crimes by a decree-law, in other words with an act of
government, rather than an act of parliament, was against the principle of the rule of
law. The Court cancelled the relevant provisions of the decree-law with effect after six
months following the publication of the decision, in order to leave time for the
enactment of a new law in accordance with the general principles of the Criminal Code
and the Constitution. A new law on trademark crimes was enacted in 2008, 17 according
to which legal fines and prison sentences of one to three years or two to four years
depending on the type of crime may be given for crimes committed against trademarks
registered in Turkey.
[F]
In order to register a trademark in Turkey, an application must be filed at the TPI.

Applications may also be made via the Madrid system of international registration. The
application must contain a clear reproduction of the sign filed for registration, including
any colors, forms, or three-dimensional features. The application must also contain a
list of goods or services to which the sign would apply.
The period of protection of trademarks in Turkey is 10 years from the date of
application for registration. However, a trademark can be renewed indefinitely beyond
the time limit with the payment of additional fees.
16. Constitutional Court Decision dated Jan. 3, 2008, Nr. E: 2005/15, K.: 2008/2, OG Jul. 5, 2008.
17. Law Nr. 5833 amending the Decree-Law Nr. 556 on the Protection of Trademarks, OG Jan. 28,
2009.
153
10.06[A]
[G]
Giil Okutan Nilsson

Termination
Trademark rights will terminate upon the expiry of the term of protection if the rights
are not renewed in due time through the payment of necessary fees, by the trademark
owner's written surrendering of rights in whole or in part, or by a court ruling on the
invalidity of the trademark. Trademarks may be declared invalid in whole or in part,
inter alia where it is proven that the sign is not suitable for functioning as a trademark
or due to the existence of absolute or relative grounds for refusal. Also, if a trademark
is registered but not used for manufacturing or selling goods or services for more than
five years, third parties may sue for the cancellation of trademark.
10.06
COPYRIGHT
Turkish copyright law is regulated by the Law on Intellectual and Artistic Works Nr.
5846 18 (LIA). There are numerous regulations on the implementation of various
aspects of the law. The LIA has undergone many amendments, the last one being in
2008.
In the field of copyright, Turkey is a party to the Berne Convention for the
Protection of Literary and Artistic Works (1971 Paris Act), the Rome Treaty on the
Protection of Performers, Phonogram Producers and .Broadcasting Institutions, WIPO
Copyright Treaty and WIPO Performances and Phonograrns Treaty.
[A]
Protected Works
Copyright is granted to "works" that reflect the "individual character" of the author.
This is generally taken to mean that the contribution of the author should give the work
a level of creativity that goes beyond what is ordinary or commonplace.
In order to be protected by copyright law, a work must also fall under one of the
following categories:
- Literary and scientific works (including computer programs and dramatical
works).
- Musical works.
- Works of fine art.
- Cinematographic works.
Adaptations and compilations are also protected, provided that they reflect the
individual character of their author.
Databases have two different types of protection: The creativity in the selection
and compilation of the data, in other words, the creative effort in the making of the
database is protected by author's rights. In this sense, the creator of the database is
18. OG Dec. 13, 1951, Nr. 7981.
154
10.06[B]
deemed to be an "author" if the level of creativity is found to meet the "individual

character" criterion.
Secondly, the producer of the database, i.e., the person who makes the investment for the collection, verification or presentation of the data is protected by a
so-called "sui generis" right, if such investment is deemed to be qualitatively and/or
quantitatively substantial. This right prevents the permanent or temporary transfer or
distribution, sale, rental or communication to the public in any way of all or a
substantial part of the content of the database for 15 years.
Copyright protection is not dependant on the fixation of works in a tangible
medium, except for cinematographic works. Registration is also not a precondition for
a work to be protected. The protection of the law starts as soon as the work is created.
However, there is a system of registration by the Ministry of Culture for films and
musical works, which aims at tracking the right holders in order to minimize breach of
rights. It is also possible to make a voluntary registration, which may be a useful tool
in providing evidence, albeit rebuttable, in case of a conflict regarding the real author
of a work.
[B]
Ownership of Copyright
The owner of copyright or the "author" is the person who creates the work. The
dominant view in literature is that only natural persons can qualify as "authors", since
creativity is a quality inherent to humans and not to legal entities.
There is a special rule that regulates authorship of cinematographic works. The
joint authors of such a work are the director, the script and dialogue writers and the
composer of the original music score. For cinematographic works which are produced
with the technique of animation, the animator is also among the joint authors of the
work.
In certain cases, the rights on the work are granted by law to persons other than
the author: Firstly, the rights on works created by employees during the course of their
employment belong to employers, unless otherwise stated in the contract or unless it
can be deduced from the nature of the work. Secondly, if the work is a joint work that
was created by the participation of more than one author where the work constitutes
an indivisible whole, the rights on the joint work are exercised by the natural or legal
person that has assembled the authors, provided that nothing to the contrary is
stipulated in a contract or in the terms of service or in any law that was in force at the
time of creation of the work. This rule does not apply to cinematographic works, as
otherwise the rights of the joint authors of cinematographic works mentioned above
would be undermined.
Turkish law also protects rights related to copyright. Related right holders are
phonogram (sound recording) producers, producers of cinematographic works, performers and radio and television broadcasters.
155
10.06[D]
[C]
Gill Okutan Nilsson
Rights Granted
The law grants both moral and economic rights to the author. The moral rights are the
rights to be named as author, the right to determine the time and manner of disclosure
of the work to the public and the right to prevent any modifications to the work.
Economic rights are the right to make adaptations of the work, the right to copy and
distribute the work, including by way of sale, rental and public lending, the right to
public performance 19 and the right of public communication, which covers the
communication of the work to the public by means of, inter alia, radio, television,
the internet or GSM networks. Under Turkish law, the right of making the work
available to the public at a place and time chosen by them (the so-called "making
available right") also comes under the right of public communication. Economic rights
are absolute rights, giving the author the power to authorize or prohibit said acts.
Related right holders also enjoy economic rights on the performances, productions or broadcasts which they make. These are absolute rights, which give related
rights holders the power to authorize or prohibit the copying, distribution, public
performance or communication to the public of the performance, production or
broadcast. The rights of the authors are reserved.
Performers are the only related right holders who have moral rights. They are
granted the right to be named as performers and the right to prohibit modifications of
their performances.
The economic rights on the work can be transferred or licensed, with or without
restrictions in terms of scope, territory or duration. Moral rights may not be transferred,
but the author or performer may authorize others to exercise those rights. Economic
rights can also be the subject of pledge, seizure or inheritance.
[D]
Collective Rights Management
Sometimes it is difficult for the authors and related rights holders to pursue their
economic rights by themselves. This is especially true for certain types of rights such as
public performance or broadcasting, where there are numerous right holders and
numerous users, which makes collective rights management a better option to manage
economic rights. In Turkey, authors and related right holders may establish collecting
societies authorized to make license agreements with users, collect license fees and
distribute them to their members. Music colleting societies are most active in this field.
They make annual agreements with users such as hotels, restaurants, shops or
shopping malls for public performance rights and with TV and radio broadcasters for
the right of communication to the public. According to the law, collecting societies
must set and announce payment tariffs for users. In order to reach a fair payment
system, public places such as hotels, restaurants, etc. are classified according to certain
criteria like their location, size or number of stars. Similarly, broadcasters are classified
19. The right to public performance covers the right to directly or indirectly perform, play, recite,
exhibit or otllerwise display a work in places accessible by the public, whether or not admission
is dependent on the payment of an entrance fee.
156
10.06[E]
according to criteria such as the coverage area of their broadcast or the type of their
broadcast, such as news or general entertainment. Collecting societies then set the
tariffs according to this classification. Tariffs are open for negotiation. In case of
disagreement, a non-binding mediation procedure is stipulated in the law. If parties
cannot agree, they can go to court.
Apart from licensing economic rights, collecting societies are also authorized to
initiate legal action to defend the rights of their members against infringement.
[E]
Exceptions and Limitations to Copyright
The economic rights of the author and related right holders are restricted due to reasons
of public order, public benefit and private use. The law does not have one general "fair
use" type of limitation but gives an exhaustive list of permitted restrictions.
Restrictions due to public order allow works to be used by courts, police forces or
other official authorities as evidence in disputes or for public security purposes. Also,
other laws such as the Criminal Code or laws intended to protect minors from obscene
publications may prevent authors from exercising their economic rights in full, by
imposing certain restrictions on the circulation of the work.
Restrictions due to public benefit aim at safeguarding access to information or at
promoting research and education. In this category, the law allows the use of officially
published legal documents such as the texts of laws or court judgments; the reproduction or broadcast of public speeches with the purpose of supplying information to the
public; the quotation of news items and the broadcasting of works if required by news
reporting.
Educational restrictions include the freedom to perform works in educational
institutions, during face-to-face education, without a profit motive, provided that the
name of the author and the work are declared. One of the most important restrictions
in this category is the freedom to make compilations of works for educational purposes.
The law allows publishers to incorporate parts of a work into a compilation if it is being
prepared for teaching purposes and if the incorporation is done to an extent that may
be justified by the purpose. It is also necessary that the incorporated work has been
previously published. Such freedom may not be used in a way that can unreasonably
damage the rights of the author and may not conflict with the normal exploitation of the
work. The final restriction in this category is the freedom of quotation and borrowing
provided that reference is provided to the work and author quoted.
A new addition to the restrictions for public benefit is the freedom to reproduce
copies of works for handicapped people. If written literary and scientific works that are
protected by the law do not have a version which can be used by the handicapped, then
handicapped persons themselves or associations, foundations, etc. which are set up for
helping the handicapped may reproduce those works in the form of an audio tape or CD
or by Braille alphabet or in similar formats and may lend such reproductions to the
handicapped. Such copies may not be sold or put into commercial use or used in any
other way than the intended purpose.
157
Giil Okutan Nilsson
10.06[F]
Finally, the restriction due to private use allows private copying. All intellectual
and artistic works may be reproduced for private use and without purposes of profit.
However, such use may not unreasonably prejudice the legitimate interests of the
author or conflict with the normal exploitation of the work. There are also detailed
rules on certain private use exceptions regarding computer programs.
[F]
Infringement
The infringement of author's rights and related rights may be sanctioned by legal or
criminal action.
Civil remedies aim to stop the breach, and compensate for any loss or damage
that has occurred due to the breach. The law allows the following actions for authors
and related right holders:
-
Action for establishing authorship.

Action for prohibition of infringement.
Action for the elimination of infringement.
Action for moral or pecuniary damages.
Precautionary measures.
Seizure at the customs.
Publication of the court decision.
Protection against copyright violations on the internet ("Notice and Take
Down").
The 2004 amendments have introduced a new system of protection against violation of
copyright on the Internet. According to the additional Article 4 of the law, if a copyright
holder believes that her/his works are being posted on the internet without her/his
permission, she/he can ask the content provider to take the work down. In practice, it
is deemed sufficient to send an e-mail to the administrator of the webpage to ask for the
unpermitted work to be taken down. If the content provider does not stop the violation,
then the copyright holder can go to the public prosecutor and ask the prosecutor to
order the service provider to stop giving service to the content provider. In this way,
public access to that webpage can be prevented.
As part of precautionary measures and under the action for elimination of
infringement, the author may ask pirated works to be withdrawn from the market,
seized at customs and even destroyed. The author may also demand compensation for
her/his damages up to three times the amount that could have been demanded if the
violated right had been granted by contract, or up to three times the current value of the
use of such right. This is one of the rare occasions where Turkish law provides the
award of higher compensation than the amount of actual damages.
The law contains detailed provisions about criminal penalties, which may be
triggered upon the breach of both moral rights and economic rights of the author and
of related rights. There are different penalties of imprisonment depending on the type
of the offense. For breach of economic rights, the imprisonment may be as high as up
to five years; for moral rights, up to two years. There are also heavy fines. Prosecution
158
___________......
10.07
for these offenses is conditional on the filing of a complaint, except for the crime of
selling books or CDs or DVDs without the protective hologram sticker they should carry
(bandrol). Besides the persons whose rights have been breached, the Ministries of
Culture and Education and press institutions may also file a complaint for certain
offenses. Also, collecting societies may file complaints in the fields where they are
active.
[G]
Protection Period
For authors, the protection period differs for natural persons and legal persons. For
natural persons, protection is granted during the lifetime of the author and for 70 years
following death. For legal persons, protection period is 70 years starting from disclosure to the public. Different terms apply for the work and its adaptations.
Related rights are protected for a period of 70 years, starting from the following
dates:
- For performers, from the date of first fixation of the performance, or, if there is
no fixation, from the date of first public communication of the performance.
- For producers of films and phonograms, from the date of first fixation.
- For radio and television institutions, from the date of first broadcast.
10.07
EXHAUSTION OF INTELLECTUAL PROPERTY RIGHTS
All decree-laws on industrial rights contain provisions to the effect that once goods
carrying a patent, trademark or design are put on the market with the permission of the
right holder, acts regarding such goods will not infringe intellectual property rights. In
the case of trademarks, this rule has been interpreted by the Turkish Court of Appeals
to mean that importation rights will also be exhausted. In a case regarding sunglasses
with the "Police" brand, the Turkish Court of Appeals decided that third-party
importers may import original Police sunglasses from third countries, since the
trademark owner had exhausted his right of first sale upon putting the sunglasses on
the market in Turkey. 20 The Turkish Court of Appeals has confirmed this ruling in later
decisions.
In the field of copyright, the LIA has a provision with a much clearer wording
which explicitly states that the author has the exclusive right to import copies of a work
that have been reproduced abroad with his permission and to exploit such works by
distribution.
Unal, T., Fikri Miilkiyet Hukuku, 5th ed., istanbul 2012.
20. Court of Cassation (Yargitay) 11. HD, Mar. 12, 1999 E.1998/7997 K. 1999/2098.
159
rl
1
CHAPTER
11
Labor Law
Nurhan Siiral & Mustafa Kilu;oglu *
11.01
GENERAL INTRODUCTORY REMARKS
Approaches to and expectations of labor laws are changing drastically in many

industrialized countries. How labor laws can evolve to support national economic and
employment objectives has become the major issue. To this end, the classical model of
labor legislation designed to protect the weaker party is transforming. Liberalization,
ongoing privatizations, opening up to international trade and capital flows, globalization, the process of incorporation and implementation of European Union (EU) acquis
necessitated and pressurized for modernization of the Turkish labor market. There is
now the emergence of new debates such as employment creation through flexibility,
corporate governance, corporate social responsibility, and alternative dispute resolution. Initiatives to modernize labor laws to meet challenges of the globalization of the
economy resulted in the adoption of the Labor Act 2003 (LA), 1 Social Insurances and
General Health Insurance Act 2006, 2 Code of Obligations 2011 (C.0.), 3 Occupational
Health and Safety Act 2012 (OHSA), 4 and the Unions and Collective Labor Agreements
Act 2012 (UCLAA). 5 Turkey's labor laws are evolving, but whether this evolution leads
to the creation of an adaptable workforce and a labor market responsive to the
challenges of globalization is the key concern.
* Prof. Dr. Nurhan Siiral: Professor of Law; National correspondent to the European Network of
1.
2.
3.
4.
5.
Legal Experts in the Field of Gender Equality. The authors can be reached at sural@metu.edu.tr.
Dr. Mustafa K1lu;oglu: Honorary Chamber Chief Judge of the Appeals Court; lecturer, Faculty of
Law, Baskent University, Ankara.
jP Kanunu, Law Nr. 4857, OG Jun. 10, 2003, Nr. 25134.
Sosyal Sigortalar ve Genel Safj.1k Sigortas1 Kanunu, Law Nr. 5510, OG Jun. 10, 2006, Nr. 26200.
Bon;lar Kanunu, Law Nr. 6098, OG Feb. 4, 2011, Nr. 27836.
jP Safj.1{!J. ve Giivenlifj. Kanunu, Law Nr. 6331, OG Jun. 30, 2012, Nr. 28339.
Sendikalar ve Toplu jP Sozle;;mesi Kanunu, Law Nr. 6356, OG Nov. 7, 2012, Nr. 28460.
161
11.02
Nurhan Siiral & Mustafa K1hvoglu
Turkey is a civil law country by choice. The codification processes aimed at

producing a localized system of Turkish labor law were heavily affected by the
Continental European legal system and currently by the standards laid down by the EU.
There is an indisputable impact of EU law on the evolution of Turkish labor law.
Turkey, as a country eager to join the EU, is enacting pieces of legislation with the idea
of incorporating EU law into its legal system. The incorporation and implementation of
EU acquis represents a key challenge for Turkey. Labor market legislation has its
impacts on labor market performance and the quality of its impacts will continue
triggering new laws and/or law amendments.
11.02
SCOPE AND BRANCHES OF LABOR LAW
Labor law is divided into two main parts: individual and collective labor law.
Individual labor law governs individual labor relations, i.e., labor relations between an
employer-a private person or a legal entity (legal person; corporate body) and a
private worker. Workers are wage earning employees as opposed to public officials
(staff employees), or salary-earning employees. The main statute regulating individual
labor relations is the Labor Act. In June 2001, the Ministry of Labor and Social Security
formed a tripartite commission composed of nine university professors, three appointed by the government, three by the Turkish Confederation of Employers' Association (TISK), and one by each of the three labor confederations (TURK-IS, HAK-IS,
and DISK). This technical commission was tasked with the preparation of a new Labor
Act that materialized in 2003.
Collective labor law regulates collective labor relations, i.e., relations between an
employer who might be a private person or a legal entity, and organized labor in the
form of a trade union. Trade unions constitute a countervailing power to management.
The stronger the unions are, the better will be the protection provided for workers.
Between the employer and organized labor, the constant and unending dialogue of
powers takes place at the bargaining table. Collective labor law deals mainly with the
formation, composition and functioning of unions, collective bargaining, formation,
form, content and termination of collective labor agreements, collective labor disputes
and their settlement through peaceful means or industrial action. The main statute
regulating collective labor relations is the UCLAA.
In the Turkish labor relations system the same term, "unions" (sendika), is used
to denote both the workers' and employers' occupational organizations. Throughout
this chapter, the term "trade unions" is used to denote workers' unions (labor unions)
(i$<;i sendikalan), "employers" associations' to denote employers' unions (i$Veren
sendikalan) and "unions" to denote both.
162
.I
Chapter 11: Labor Law

11.03
[A]
11.03[A]
INDIVIDUAL LABOR LAW
Basic Concepts and Coverage
Labor law excludes the self-employed (baffemszz r;ali~anlar) from its coverage because
the element of subordination is the hallmark of relations between workers and
employers. There exists the element of subordination also as regards civil servants
(memurlar) performing the fundamental and permanent functions required by the
public services but they do not work under a labor contract and they are subject to the
principles and rules laid down by the administrative law.
A worker is a real person employed in any job under a labor contract (LA, Article
2). "Any job" implies that the Labor Act covers public and private sector workers as
well as manual (bedenen r;all~anlar) and non-manual (fikren r;all$anlar) workers. For
ship crew and press workers such as journalists and photographers there are special
acts, the Maritime Labor Act 6 and the Press Labor Act. 7 However, port operations, i.e.,
loading and unloading ships and manual press workers are not covered by these
special acts but the Labor Act.
Workers not covered by the Labor, Maritime Labor, and the Press Labor Acts are
covered by Articles 393-469 of the sixth chapter of the Code of Obligations on labor
contracts. Examples are homeworkers (evde r;ali~anlar), domestic workers (ev
hizmetlerinde r;ali~anlar) such as maids, nannies, and butlers; agricultural workers in
agricultural and forestry workplaces where up to 50 workers are employed; and people
doing handicrafts at home provided that they are members of the same family or
relatives up to the third degree. Psychological harassment (mobbing) (psikolojik taciz;
mobing) (Article 417), releases of debt (ibra) (Articles 132, 420), and annual leave
boards (yilllk izin kumllan) (Articles 422-425) are important issues regulated not by
the Labor Act but by the new Code of Obligations.
An employer is a real or legal entity who employs workers (LA, Article 2). An
employer's representative (i~veren vekili) is any person acting in the workplace on
behalf of the employer and charged with the administration of a particular work(s) or
workplace. An employer's representative shall also assume obligations and responsibilities conferred upon the employer. A subcontractor (alt i$veren) is the one who
carries out work and engages workers exclusively in a certain section or subordinate
facilities of the workplace belonging to the principal employer ( asil i$veren). A
subcontractor is not an employer's representative since he conducts the work he has
undertaken independently of the principal employer. A workplace is an organizational
unit comprising workers and corporeal and incorporeal elements aiming at production
of goods or services.
Labor contract (i$ sozle$mesi) comprises work, wage, and subordination. Council
Directive 91/533/EEC of October 14, 1991 on an employer's obligation to inform
6. Deniz jP Kanunu, Law Nr. 854, OG Apr. 29, 1967, Nr. 12586.
7. Basm Meslefj.nde <;alipanlarla <;aliptiranlar Arasmdaki Milnasebetlerin Tanzimi Hakkmda Kanun, Law Nr. 5953, OG Jun. 20, 1952, Nr. 8140.
11.03[B]
Nurhan Siiral & Mustafa K1h<;oglu
employees of the conditions applicable to the contract or employment relationship 8

obliging employers to provide all employees with a document containing information
about the essential elements of their contract or employment relationship served as a
basis for Article 8 of the new Labor Act on the form of labor contracts.
[B]
Labor Contract
[1]
The Types of Labor Contracts
Since the 1980s, economic problems have become the root of the revisions of labor
laws. Labor laws are now believed to support and enhance employment creation and
development of "just-in-time management". There has been a diversification in forms
of employment in terms not only of legal status, but also of hours, periods and rates of
work. Turkey's Labor Act, trying to follow European patterns, constituted a drive
toward flexibility. Open-ended labor contracts (employment contracts of an indefinite
duration) (belirsiz siireli i;; sdzle;;mesi) remained as the general (typical) form of
employment relationship. The parties may agree on a trial period before establishing a
definite relationship, and therefore can agree to a labor contract with a trial period
( deneme siireli i;; sdzle;;mesi). A trial period may be agreed upon in contracts for
permanent employment. The trial period may not exceed two months. However, this
period can be extended up to four months through cdllective labor agreements. During
the trial period, either party, without prior notification or compensation may cancel the
contract (LA, Article 15).
In order to cope in a flexible way with the diversity of the labor market, the Act
regulated atypical (flexible) types of employment, mainly part-time (kismi siireli
9ali;;ma), fixed-term (belirli siireli 9ali;;ma), and temporary (ge9ici i;; ili;;kisi) labor
contracts that existed in practice but were devoid of legal regulation. Although the Act
tried to incorporate economic considerations, it fell short of its aims mainly due to a
distorted understanding of protectionism. The Labor Act went further beyond relevant
EU directives, the Part-time Work Directive, 9 Fixed-term Work Directive, 10 and Temporary Agency Work Directive, 11 in providing protective measures. Thus the balance
between "flexibility" (esneklik) and "security"(giivence) referred to as "flexicurity"
(giivenceli esneklik) was distorted in favor of "security". Turkey's labor regulations are
still rigid by international comparison. For example, in Turkey, temporary work as
envisaged by the Temporary Agency Work Directive is non-existent and temporary
work agencies are illegal. The legal rules on fixed-term contracts are interpreted rigidly
both by doctrine and courts as a result of which such contracts can be concluded only
in limited circumstances in the formal sector. Investment Climate Surveys show that
8. OJ L 288, Oct. 18, 1991, 32-35.
9. Council Directive 97 /81/EEC of Dec. 15, 1997 concerning the Framework Agreement on
part-time work concluded by the UNICE, CEEP and the ETUC, OJ Jan. 20, 1998, L 014, 9-14.
10. Council Directive 1999/70/EC of June 28, 1999 concerning the Framework Agreement on
fixed-term work concluded by ETUC, UNICE and CEEP, OJ Jul. 10, 1999, L 175, 43-48.
11. Directive 2008/104/EC of the European Parliament and of the Council of Nov. 19, 2008 on
temporary agency work, OJ Dec. 5, 2008, L 327, 9-14.
164
ll.03[B]
despite these restrictions, temporary and fixed-term contracts are common; hiring
informal workers is the simplest way for firms to achieve this flexibility. 12 Also, against
this backdrop, a "semi-formal" sector has emerged: formal firms register and legally
employ a core workforce, but in addition use informal workers to cope with fluctuations in business conditions. Semi-formality appears widespread in volatile manufacturing sectors (such as textiles and clothing) and in service sectors such as transportation, hotels and restaurants. 13
A part-timer is a worker whose normal number of working hours, calculated on
a weekly basis, is substantially lower than the normal number of working hours of a
comparable full-timer (LA, Article 13). In the explanatory memorandum to the article
and the Working Time By-Law, 14 "substantially less" is interpreted as "less than 2/3 of
the contracted weekly hours of work" (Article 6). Therefore, a part-time job above a
certain weekly limit is considered a full-time job. For example, if the statutory number
of weekly working hours (45) is at the same time the contracted weekly hours of work,
work beyond 30 hours a week will be deemed full-time work. The Labor Act stipulates
that a part-timer must not be subjected to differential treatment in comparison to a
comparable full-timer solely because his contract is part-time, unless there is a
justifiable cause for differential treatment. Consequently, a part-timer has access to the
all fringe benefits (e.g., bonuses, premiums, child allowances, heating allowances,
holiday pay) granted to full-time workers but only in terms of divisible amounts in
proportion to the length of his work. Employers have to give consideration to requests
by workers to transfer from full-time to part-time work and vice versa if there is such
availability in the establishment.
Call work (<;agn iizerine r;ali$ma) is part-time employment relying on a call to
work upon emergence of a work undertaken by the worker (LA, Article 14). If the
duration of the work has not been specified by the parties on a weekly, monthly or
yearly basis, it will be deemed as 20 hours a week which is at the same time set as the
minimum. Whether the worker involved actually performs work or not, he shall be
entitled to remuneration for the specified period that cannot be less than the minimum.
Unless otherwise specified, the employer concerned has to make the call at least four
days prior to the workday. If daily hours of work have not been specified by the parties,
then the employer has to utilize the worker for at least four hours in a day. When
compared with zero-hour contracts in other countries under which an employer does
not guarantee the worker a fixed number of hours per week but the worker is expected
to be on-call and receive remuneration only for hours worked, this regulation is quite
strict.
A fixed-term labor contract is one that is concluded between the employer and
the worker in written form, for work of a specified term or which is based on the
emergence of "objective conditions" such as the completion of a certain project or the
occurrence of a certain event (LA, Articles 11-12). Such a wording is interpreted rigidly
12. World Bank, Turkey Country Economic Memorandum: Informality: Causes, Consequences,
Policies, Report No. 48523-TR, Mar. 2, 2010, p. iv.
13. OECD Economic Surveys Turkey, July 2012, Paris 2012, 89.
14. jfi Kanununa llipkin <;:aliprrw Siireleri Yonetmeligi, OG Apr. 6, 2004, Nr. 25425.
Nurhan Sural & Mustafa K1lwoglu
ll.03[B]
by the judiciary and majority of the doctrine as a result of which an objective

justification is required in order to be able to conclude a first fixed-term contract. Also,
a labor contract for a definite period must not be concluded more than once, except
when there is a "substantial cause" which may necessitate repeated (chain) contracts.
Otherwise, the labor contract is deemed to have been made for an indefinite period
from the very beginning. The terms "objective conditions" for the first conclusion and
"substantial cause" for subsequent conclusion are regarded equivalent by the judiciary.15 When a fixed-term labor contract terminates upon expiration of specified
period, there shall be no severance pay for the worker. However, upon termination of
an open-ended labor contract by the employer, the worker shall be entitled to
severance pay, except being dismissed for a so-called "zero-tolerance offense" .16
Therefore, upon termination of a fixed-term contract due to expiration of its specified
period, the worker almost automatically applies to the court claiming "absence of
objective conditions/substantial cause" for its first and/or subsequent conclusion. The
rigid interpretation of the article restricts the conclusion of fixed-term contracts. It ends
up with not only a great deal of workload for the judiciary but also unwillingness by the
employers to conclude fixed-term labor contracts. Because fixed-term contracts are
authorized only under very special circumstances by the courts, they play a very
marginal role in the formal labor market. This may end with the rule on fixed-term
contracts in the new Code of Obligations that requires substantial cause not for the first
conclusion but for its renewal: If an employment relation established for a fixed-term
is tacitly continued after its expiry, it is deemed extended for an indefinite period. A
consecutive fixed-term labor contract may be concluded if there is a substantial cause
(Article 430/2).
In a temporary labor relationship, a worker employed by an enterprise may at a
certain point be seconded to another enterprise belonging to the same holding or to the
same group of undertakings for a limited period in order to work under the daily
supervision and direction of the latter firm (LA, Article 7). The worker has not been
employed in order to be assigned to another firm to work there temporarily. This is a
situation where the worker is incidentally put at the disposal of another firm. Such a
regulation is not a temporary labor relationship when viewed under the Temporary
Agency Work Directive that applies to workers with a labor contract or labor relationship with a temporary work agency (ge<;-ici istihdam biirosu) who are assigned to a user
enterprise (kullamo i~letme) to work temporarily under their supervision and direction. Temporary employment is characterized by a triangular relationship between the
temporary work agency, the user company, and the temporary worker (ge<;-ici <;-all~an).
15. K1h9oglu and Kemal $enocak, 180.

16. Immediate dismissal may occur for specified serious offenses known as gross misconduct (zero
tolerance offenses). Examples are resume fraud (CV fraud), sexual harassment ofother workers,
verbal or physical abuse directed at the employer or the members of his family, illegal drug
usage, willful neglect of duty that is not trivial, and has not been condoned by the employer,
abuse of trust such as theft, embezzlement, disclosure of trade secrets, use of employer's
equipment (e.g., vehicles and computers) to engage in non-work-related activity. Some workers
dismissed for gross misconduct may face additional consequences like criminal prosecution
(e.g., bank teller stealing money from the cash drawer) or a civil lawsuit.
166
ll.03[B]
The agency has the role of intermediary. The workers have a contract with the agency
which sends them to work as a temp for a user company needing additional staff. In
Turkey, temporary work agencies are prohibited.
Turkey's recent employment policy initiatives go in the direction of making the
labor market more flexible. According to the Ministry of Labor and Social Security,
constraints on temporary hiring force many formal firms to use overtime rather than
creating new jobs. A new law authorizing temporary work agencies and temporary
contracts was adopted by the Parliament in 2009, but, after strong trade union
opposition, the President vetoed the law. A new draft law was submitted for discussion
to the social partners in November 2011. This draft law is an important initiative, but
it appears more restrictive than in other OECD countries. 17 A stable and steady lifetime
employment system experienced for a long time especially in the public sector
constrains them. Also, developing cooperation in setting common objectives is quite
difficult in Turkey especially due to the polarization and credibility gap between the
competing labor confederations that adversely affect the bipartite, tripartite and
multi-partite relations. Unfortunately, many union executives see compromise as an
underrated virtue. Any compromising attitude is regarded as a sign of weakness
whereas being a hard-liner is equated with being a strong and influential unionist.
Consequently, there is an excessive win-lose confrontation instead of a win-win
psychology and social dialogue platforms are mainly used to "play to the gallery"
instead of as a means of reaching consensus on contentious issues. 18
[2]
Working Time
Provisions on working time were rigid in the former labor act. Due to the lack of
schemes such as flexible working time (flexitime) (esnek i~ siiresi] and annualized
hours, employers did not have flexibility in deployment of staff and lower labor costs
could not be gained by abolishing overtime. On the other hand, the workers could not
enjoy individual patterns of working time, i.e., individual derogations. 19 Working time,
as implied by relevant labor provisions, is the period during which the worker performs
work at the employer's disposal.
According to the Labor Act, the normal weekly working time cannot exceed 45
hours (Article 63). The maximum number of hours to be worked weekly is 45. This
total is to be distributed over the workdays in such a way as not to exceed 11 hours a
day. Unless agreed otherwise, 45 hours have to be distributed evenly over workdays.
Deviations are possible from an even breakdown of a certain contractual hours of work
over an equally contractual number of weekdays. There is a reference period (denkle~tirme siiresi] of two months that can be extended to at most four months through
collective labor agreements. Reference periods allow flexibility: Decreases or increases
17. OECD Economic Surveys Turkey 2012, 89.
18. Nurhan Sliral, A Pragmatic Analysis of Social Dialogue in Turkey, Middle Eastern Studies, Vol.
43, no. 1, January 2007, 143-152.
19. Nurhan Si.iral, Reorganization of Working Time and Modalities of Employment under the New
Turkish Labor Act, Middle Eastern Studies, Vol. 41, no. 3, May 2005, 407-420.
167
ll.03[B]
Nurhan Siiral & Mustafa K1h9oglu
in regular work are possible for operational reasons but in such a way as to ensure that
the average time worked over two or four months is that agreed upon. Use of
manpower can now be better adapted to wavering demand and as a result "unused"
working time does not have to be paid.
[3]
Termination of the Labor Contract (Termination of Employment)
The rules on initiation and terminations of labor relationships are known as employment protection legislation (EPL). Studies and surveys reveal that a high level of
protection has adverse effects on employment creation. 20 Unfortunately, the Labor Act
has not achieved incorporation of economic considerations in its handling of employment protection. A national perception of protection is the ethos surrounding the
making and interpretation of legal rules.
EPL and its implications for labor market dynamics have always been a muchdiscussed sensational issue in Turkey. Discussions focus mostly on job security.
Employers prefer flexibility in hiring and firing procedures, whereas the workers claim
the need for security. The challenge has been how to reconcile the employers' need for
flexibility in hiring and firing with that of the workers' for security. The stakeholders
are not in search of "greater good for all" but voice only the interests of their social
basis. In order to meet the challenges of globalization, Turkey must focus on the
productivity and competitiveness of companies and 'Should reconsider the extent of its
rules on social protection. Where laws weaken the employment flexibility of firms
against business cycle fluctuations and come up with lengthy and costly employment
terminations, the firms may tend to hire workers informally to avoid EPL as is the case
in Turkey. 21
There are various ways of terminating an employment relationship. Herein, basic
information only on unilateral terminations, i.e., dismissals and resignations, will be
provided. Dismissal is employment termination at the initiative of the employer. The
Labor Act distinguishes between causes for instant dismissal (summary dismissal,
dismissal for just cause) (hakli nedenle fesih; bildirimsiz fesih) (Article 25) and lesser
forms of dismissal (dismissal on notice) (feshi ihbarla fesih; bildirimli fesih) (Articles
17-21).
Dismissal on notice is provided by the Labor Act only for open-ended labor
contracts. Where an employer ends the employment of a worker, the employer must
provide a written notice of termination. The labor contract gets terminated not at the
20. EU Commission, Towards Common Principles of Flexicurity: More and better jobs through
flexibility and security, COM (2007} 359 final, Jun. 27, 2007, 7, http://eur-lex.europa.eu/
LexUriServ/LexUriServ.do?uri=COM: 2007:0359:FIN:EN:PDF; EU Commission, Employment in
Europe 2006, 13, 83, http://ec.europa.eu/ employment_social/news/2006/nov/employment_europa_
en.pdf.
21. For details see: Nurhan Sural, Economic Implications of Employment Protection Legislation in
Turkey: Has Turkey Found its Juste Milieu?, Comparative Labor Law and Policy Journal, Vol. 30,
no. 1, Winter 2009, 335-372.
168
11.03[B]
time of notification but with the elapse of the notice period (ihbar/bildirim siiresi). 22
The worker has to continue working during the notice period and be paid his
corresponding regular wages. The employer may fear retaliation. In some extreme
cases, dismissed workers have been known to erupt in violence against their former
employers. The employer may opt for advance termination meaning that the worker
does not get the required notice but termination pay (advance payment). Termination
pay is a lump sum advance payment equal to the wages that the worker would have
earned during the notice period had notice been given. Where notice periods are not
recognized by the employer, the worker shall be paid compensation called "notice pay"
(ihbar tazminati)equaling the worker's last basic wage plus whatever wage supplements, monetary or in kind, corresponding to the notice period.
There are two sets of workers who may be subjected to dismissal on notice:
Workers with increased job security and workers with regular job security. Workers
with increased job security enjoy greater protection against dismissal on notice. A
worker who has been working for more than six months under an open-ended labor
contract at a workplace where at least 30 (SO in agriculture) workers are employed
benefits from increased job security if he is not in the position of an employer's
representative managing the whole undertaking or workplace with the authority of
hiring and firing. Where the employer owns more than one workplace in the same
industry, the total number of the workers shall be considered. The 30-worker threshold
is to avoid imposing administrative, financial and legal constraints in a way which
would hinder the creation and development of small and medium-sized businesses
(SMEs) (kiii;iik ve orta oli;ekli i~letmeler).
A worker with regular job security may be dismissed at any time for any reason
or indeed for no reason. The employer is not under the legal obligation of specifying the
ground for dismissal. In these aspects, workers with regular job security are similar to
"at will employees" in the United States. However, workers with regular job security
have protections against "wrongful terminations" and the courts will intervene to
protect the ex-worker from allegedly unfair treatment by the employer. A wrongful
termination is a breach of "good faith and fair dealing," an implied covenant that
workers have to be treated fairly by their employers. Abusive and discriminatory
dismissals are deemed wrongful termination. For example, an abusive dismissal exists
when a worker who has reported wrongdoing in the workplace (whistle blower) or who
has not yielded to sexual advances from the employer and encounters retaliatory
termination. Dismissal as a form of sexual harassment, on the ground of sexual
orientation or gender reassignment, 23 dismissal in violation of labor laws, and individual and collective labor agreements constitute abusive dismissal. It is the worker's
burden to prove that he has been abusively dismissed. An abusively dismissed worker
shall be entitled to the so-called bad-faith pay, thrice the amount of notice pay.
22. If the length of employment at the workplace concerned is less than six months, the corresponding notice period is two weeks, four weeks for employment between six months to 1Y2 years, six
weeks for employment between l 1h years and three years, and eight weeks for employment of
more than three years.
23. K1lu;ogtu and $enocak, 240.
169
11.03[B]
Nurhan Siiral & Mustafa K1h<;oglu
Bad-faith pay (kbtiiniyet tazminati), discrimination pay (aynmcilik tazminati), and

severance pay (kidem tazminati) are the possible consequent types of compensation in
wrongful terminations.
Where a worker with increased job security is dismissed, the employer has the
legal obligation to specify the reason of dismissal clearly and precisely. The worker has
to be provided an opportunity to defend himself/herself when the allegations are
related to his/her capacity or conduct. Where no reason is specified or the reason
specified is not valid, the worker can pursue court action to protect his/her rights and
can be reinstated (i~e iade) by the court. If the employer does not reinstate him/her, as
is usual due to the fear of retaliation, the worker shall be entitled to job security pay (i~
giivencesi tazminati). The minimum amount of this compensation corresponds to the
worker's four months' basic wages and the maximum to the worker's eight months'
basic wages. There shall also be severance pay to be paid to such a worker if he/she has
completed at least one-year of service at the relevant workplace. On the basis of the ILO
C158, 24 the Labor Act on increased job security presents a non-exhaustive list of
incidents that do not constitute a valid reason for contract termination amongst which
are union membership or participation in union activities; religion, race, color, sex,
marital status, family obligations, pregnancy, confinement.
The employer has to prove the valid reason he has claimed. If the worker claims
that there was another reason for dismissal, the burden of proof (ispat yiikii) shifts to
the worker. There is no written rule that a dismissal must be ultima ratio (son <;are), but
according to the rulings of the Appeals Court, largely drawn on German law and
practices, dismissal has to be the employer's final solution. 25 The ultima ratio rule
presumes that alternatives to dismissal, such as an offer of reasonable alternative
employment, or training for another job in the same workplace or another workplace
of the same employer have been envisaged.
Instant dismissal is a means of termination at the initiative of the employer on the
basis of "just causes" specified by the law. There are four categories of just causes: Just
causes related to worker's health, gross misconduct, force majeure, and excessive
absenteeism.
Instant dismissal is possible not only for indeterminate but also for fixed-term
workers. As there is a just cause to terminate the labor contract immediately, there are
no notice periods, notice pay, bad-faith pay, unionism pay, or job security pay. As a
general rule, a worker dismissed on notice or for a just cause is entitled to severance
pay. The only exception is being dismissed for gross misconduct. There is a costly
severance pay regime. This is why many times an employer tries to base the dismissal
on worker's gross misconduct (zero tolerance offenses), 26 whereas the worker tries to
24. Convention on the Termination of Employment Relationship at the Employer's Initiative, 1982.
25. K1l!yoglu and ~enocak, 322-330.
26. Examples are resume fraud (CV fraud), sexual harassment of other workers, verbal or physical
abuse directed at the employer or the members of his family, illegal drug usage, willful neglect
of duty that is not trivial, and has not been condoned by the employer, abuse of trust such as
theft, embezzlement, disclosure of trade secrets, use of employer's equipment (e.g., vehicles
and computers) to engage in non-work-related activity. Some workers dismissed for gross
170
11.03 [B]
the most by claiming that he has been dismissed due to his union membership or
in union activities.
There is a special protection against employment terminations for trade union
(i$yeri sendika temsilcileri) provided in the UCLAA (Articles 24, 27).
union representatives are appointed by the authorized trade union from among
member workers employed at the concerned workplace. As long as the collective
agreement is in effect, trade union representatives represent the trade union in
workplace, their number varying in proportion to the number of the total
Limited to the workplace, they follow up and try to resolve workers'
requests and complaints, promote and maintain cooperation, harmony of work and
peaceful labor relations, protect rights and interests of workers and assist the enforcement of working conditions provided by labor laws and collective labor agreements.
Because the union activities of trade union representatives make them more liable to
anti-union discrimination, they enjoy special job security. An employer may not
terminate the labor contract of a trade union representative without justifiable cause
being indicated clearly and precisely. Any circumstance under which the terminating
party cannot in good faith be expected to continue the employment relation is in
particular deemed justifiable cause (OA, Article 435 /2). In case of a dismissal, the trade
union representative or his union has the right to apply to the competent labor court
demanding reinstatement regardless of the length of his service and the number of total
employed in the workplace. If not reinstated, his wages and other rights will continue
to be paid as long as he retains the title. The employer can neither change the trade
union representative's workplace nor make substantial amendments in his conditions
of work without his written consent.
A collective dismissal (toplu i$ten r;ikanna) exists where at least 10 workers out
of 20-100 total employed, or at least 10 % of the total employed between 101-300, or at
least 30 out of 301 or more workers are dismissed on notice at the same time or different
times during a period of one-month (LA, Article 29). Procedures pertaining to projected
collective dismissals include information-sharing and consultation but there is no
legally provided social selection procedure. This provision draws on the ILO Cl58 and
Council Directive 98/59/EC of July 20, 1998 on the approximation of the laws of the
Member States relating to collective redundancies. 27 Collectively dismissed workers
are given special priority by the employer when seeking rehire. A "recall right" is the
legal right of collectively dismissed workers to be called back to work by the employer.
When the employer is to employ new workers for the same jobs within a period of six
months following the collective dismissal, of the collectively dismissed those with the
qualifications for the vacancies shall have priority.
A substantial amendment made in employment conditions (r;ali$ma ko$ullannda
esasli def;i.$iklik) may lead to contract termination. According to the Labor Act, when a
substantial amendment in employment conditions established by the labor contract, or
similar sources, or consistent workplace practices is desirable by the employer, he has
to notify the worker in written form (Article 22). A substantial amendment made
misconduct may face additional consequences like criminal prosecution (e.g., bank teller
stealing money from the cash drawer) or a civil lawsuit.
27. OJ Aug. 12, 1998, L 225, 16-19.
171
ll.03[B]
Nurhan Sural & Mustafa K1hc;oglu
without a notification or a notification objected in written form by the worker shall not
be binding on the worker. If the worker objects to amendment, the employer may make
a dismissal on notice claiming that the amendment is based on a valid reason or that
there is another valid reason for termination. The worker may challenge dismissal
according to protections provided for workers with regular or increased job security. If
the worker is not paid his wage or paid a lesser wage or if the conditions of work are
not applied, then the worker shall have the right to resign for a just cause, and is
entitled to severance pay (Article 24/2 e, f). A substantial amendment in employment
conditions such as being assigned to an undesirable shift, or moved to a different
location or subjected to unfair hostility or degrading working conditions may amount
to "constructive dismissal" (contrived resignation), another form of wrongful termination. For the purposes of not being sued for termination and not to pay severance
pay, companies may wish for a worker to exit of his own accord on notice and therefore
use forms of manipulation, hoping that he will leave "voluntarily". Constructive
dismissal is not easy to prove. If the worker quits on notice as a result of such a
manipulation, he shall not be entitled to compensation including severance pay and
there is no legal rule on converting such a resignation into unfair termination by the
employer. However, when the reason for termination is unclear, it is up to the court to
find out the facts and define the type of termination.
Resignation (voluntary termination) is employment termination at the initiative
of the worker. Depending on the worker's reason, a worker may resign on notice or
make an instant resignation (resignation for just cause). Personal dissatisfaction with
job or employer, confinement, family obligations, moving to a new location, graduation, hire at a new job with better conditions, or establishing their own business are
examples of reasons for resignation on notice. A worker making an instant resignation
is entitled to severance pay but. there shall be no severance pay upon resignation on
notice. This reduces incentives not only to change employers but also to establish own
businesses. According to the OECD, severance payment can be a barrier to efficiencyenhancing labor reallocation by discouraging workers from quitting their current jobs
to move to better jobs. 28 This problem arises where high tenure workers are entitled to
significant severance payments, if they are dismissed from the current job, but lose this
entitlement if they voluntarily quit jobs. This is why in Turkey workers refrain from
resignation on notice trying to "create incidents" to be dismissed on notice.
Severance pay is equal to the last 30 days' gross wage multiplied by the years of
employment. Remaining time periods are calculated on a prorated basis. Wage
supplements of a continuous character, if any, are also added to the last monthly gross
wage. The 30-day-period may be increased through individual and collective labor
agreements. To be entitled to severance pay the worker has to have worked for at least
a year at the concerned workplace, and there has to be one of the legally specified
means of contract termination.
During the time of the employment relation and the month following its
termination, the worker may not renounce claims which arise from peremptory
28. OECD, Economic Survey of Turkey 2006, OECD Publishing 2006, 70, available at http://www.
sourceoecd.org.
172
l 1.04[A]
provisions of the law or from binding stipulations of an individual/collective labor

agreement (C.O. Article 420). For a renunciation of claims (release of debt) (ibra
senedi) to be valid, it has to be in written form, prepared at least a month after contract
termination, state explicitly the claims and their amounts, and the payment to be made
in whole through a bank.
11.04
[A]
COLLECTIVE LABOR LAW
Formation of Unions
International human rights law establishes the workers' right to organize, and the ILO
conventions, recommendations, and jurisprudence further elaborate it. In Turkey,
freedom of association (orgiitlenme ozgiirliigu) has a collective aspect in the sense that
it is a civil liberty and an individual aspect in the sense that it is recognized as the
personal right of each worker. Of the relevant international instruments, Turkey has
signed and ratified the Universal Declaration of Human Rights (UDHR), International
Covenant on Civil and Political Rights (ICCPR), International Covenant on Economic,
and Social and Cultural Rights (ICESCR). The ILO's Governing Body has identified
eight conventions as "fundamental", covering four categories that are considered as
fundamental principles and rights at work: freedom of association and the effective
recognition of the right to collective bargaining; the elimination of all forms of forced or
compulsory labor (angarya); the effective abolition of child labor; and the elimination
of discrimination in respect of emyloyment and occupation. These principles are also
covered in the ILO' s Declaration on Fundamental Principles and Rights at Work (1998).
The Declaration commits Member States to respect and promote principles and rights
in four categories, whether or not they have ratified the relevant Conventions. Turkey
has ratified these core conventions, inter alia, ILO C87 concerning Freedom of
Association and Protection of the Right to Organize, and ILO C98 concerning the Right
to Organize and Collective Bargaining.
The UCLAA conforms to the principles of freedom of association (voluntary
unionism) (ihtiyari sendikacilrk), industrial unionism (i$kolu sendikaciliffe) and multiunionism (union pluralism) (sendika <;oklugu). Freedom of association has a collective
aspect in the sense that it is a civil liberty and an individual aspect in the sense that it
is recognized as the personal right of each worker.
As regards the individual aspect of freedom of association, union security
practices such as closed shop 29 (kapali i$yeri) union shop 30 (sendikali i$yeri) or agency
shop 31 (aidat $arti) which make the employment of a worker conditional on his
29. A closed shop is a form of union security agreement under which the employer agrees to hire
trade union members only, and workers must remain members of the trade union at all times in
order to remain employed.
30. A union shop is a form of a union security clause under which the employer agrees to hire either
trade union members or nonmembers but all non-union workers must become union members
within a specified period of time or lose their jobs.
31. An agency shop is a form of union security agreement where the employer may hire union or
non-union workers, and workers need not join the trade union in order to remain employed.
However, the non-union worker must pay a fee to cover collective bargaining costs. The fee paid
by non-union members under the agency shop is known as the "agency fee."
173
ll.04[A]
Nurhan Si.iral & Mustafa K1hi;oglu
membership, either before or after recruitment, or non-membership in a trade union,

are regarded as contradictory with the principle and therefore forbidden by both the
Constitution (Article 51) and the UCLAA (Articles 17/3, 25). Everyone holding the title
of a worker is free to become a member of or withdraw from membership in a trade
union. No one may be compelled to become a member, remain a member, or withdraw
from membership in a trade union. Freedom to form or join unions is called "positive
freedom of association" and freedom not to form or not to join or to withdraw from
membership is called "negative freedom of association." Employment cannot be made
conditional on union or non-union membership.
Industrial unionism (i$kolu sendikacill[jl.) denotes unionization by industries
(work branches, branches of activity). The 20 industries in which unions may be
constituted are: Agriculture, forestry, hunting and fishing; food; mining and stone
quarries; petroleum, chemicals, rubber, plastics and medicine; textile, ready-made
clothing and leather; wood and paper; communication; press, publishing and broadcasting; banking, finance and insurance; commerce, bureaus, education and fine arts;
cement, ceramic and glass; metal; construction; energy; transportation; shipbuilding,
sea transport, warehouse and storage; health and social services; accommodation and
entertainment places; national defense and security; general services (UCLAA, Article
4/1) .32 Trade unions and employers' associations are occupational organizations with
corporate status constituted at an industrial level by at least seven workers or
employers in order to maintain and further their 'economic and social rights and
interests in labor relations (UCLAA, Article 2/lg). Trade unions must be constituted on
an industrial basis by workers employed at workplaces in the same industry regardless
of their particular trade or craft (UCLAA, Article 3). Work that is subsidiary (yardimci
i$ler) to the major activity carried out in a workplace shall be deemed to be within the
industry of the major work (UCLAA, Article 4/2). Employers' associations are also to
be constituted on an industrial basis by employers in the same industry. Public
employers' associations are an exception to the principle of industrial unionism. For
employers' associations in the public sector, the condition that these be constituted by
public employers in the same industry is not required (UCLAA, Article 3/2). According
to the principle of union pluralism, more than one union may be established in each
industry.
Industrial unions may establish local branches ($Ube) on condition that this is
specified in their regulations (sendika ir;tiiziigu) (UCLAA, Article 8 g). Confederations
(konfederasyon) are higher organizations having legal entity established by the
association of at least five unions operating in different industries (UCLAA, Article
2/lf, 1).
In Turkey, on the management side, there is a single employers' confederation
(Tiirkiye j$veren Sendikalan Konfederasyonu, TjSK) but on the labor side, there are
three workers' confederations: The Confederation of Turkish Trade Unions (Tiirkiye
j$r;i Sendikalan Konfederasyonu, TURK-j$), the Confederation of Turkish Real Trade
32. By-law on Industries {j;;kollan YOnetmeltgi), OG Dec. 19, 2012, Nr. 28502.
174
ll.04[C]
Unions (Tiirkiye Hak j$<;i Sendikalan konfederasyonu, HAK-j$], and Confederation of

Revolutionary Trade Unions of Turkey (Tiirkiye Devrimci j$<;i Sendikalan Konfederasyonu, DjSK). Turkey has had a history of militant, ideologized trade unionism
(anarchosyndicalism) especially in the 1970s. This made the gulf between labor and
management very wide. Labor disputes that would have been settled pragmatically by
listening to reason and making effective use of social dialogue took on political and
ideological overtones. To their own detriment, some of the trade unions still stage
demonstrations and strikes as a kind of nostalgic throwback to their days of militancy
perceiving themselves as opposition political parties rather than workers' organizations holding interests in common with management. On the other side, there have
been and still are some employers using tactics to outmaneuver trade unions. Despite
such a history and its repercussions, today there is a higher degree of trust in the
attitudes that labor and management hold toward each other. Social dialogue capacitybuilding projects and initiatives to foster mutual understanding are underway. The
results they are set to harvest are hoped to mobilize the potential in order to create
better social cohesion, stronger growth and more jobs.
On the basis of July 2013 labor statistics (<;ali$ma istatistikleri] issued by the
Ministry of Labor and Social Security, there are 11,628,806 workers in Turkey. The
number of trade unions is 108 and the number of unionized workers (sendikali i$<;iJ is
1,032,166 with a unionization rate (sendikala$ma oram) of 8.88 % . Representation of
at least 1 % of the total number of workers in the industry is one of the numerical
requirements of being designated as the authorized trade union. Of 108 trade unions,
only 44 fulfill this requirement. 33
[B]
Structure of Unions
The general board (genel kuml), managing committee (yonetim kumlu), auditing
committee (denetleme kumlu) and disciplinary committee (disiplin kumlu) are mandatory organs of confederations, industrial unions, and union branches (UCLAA,
Article 9/1). Unions and confederations may, in addition to these mandatory organs
(zomnlu kumllar], establish voluntary organs (ihtiyari kumllar] to meet their needs.
However, the powers, functions and responsibilities of the mandatory organs cannot
be delegated or transferred to these voluntary organs (UCLAA, Article 9/2). The
members of the managing committee are considered union executives (sendika
yoneticileri] (UCLAA, Article 2/li).
[C]
Union Membership
A worker who has completed 15 years of age is free to join a trade union. Similarly, an
employer is free to join an employers' association (UCLAA, Article 17 /1-2). As a result
of the principle of industrial unionism, a worker employed in subsidiary works
(yardimci i$ler) may join the trade union established in the industry covering his
33. OG Jul. 30, 2013, Nr. 28723.
175
11.04[C]
Nurhan Stiral & Mustafa K1hc;oglu
workplace (UCLAA, Article 17/4). Where a worker or an employer becomes a member

of more than one union in the same industry at the same time, their subsequent
membership shall be void. However, part-time workers employed in different workplaces falling under the same industry may be a member of more than one union in the
same industry (UCLAA, Article 17/3).
Union membership shall be acquired via e-State. The application for membership
shall be considered approved if it is not refused by the union within 30 days. Any
worker or employer whose application is refused without a valid reason shall have the
right to apply to the court within 30 days of receipt of the notification. The decision of
the court shall be final (UCLAA, Article 17/5).
Workers and employers cannot be forced to remain as union members; they are
free to resign from membership. Resignation is possible via e-State by means of which
the concerned union and the Ministry of Labor and Social Security shall be notified at
the same time. Resignation shall become effective with the elapse of a one-month
period following e-notification. If the resignee applies for a new union membership
within this one-month period, it shall become effective at the end of this period
(UCLAA, Article 19/1-3).
It is the general board that can take a decision to expel a member. Ministry of
Labor and Social Security shall be notified of the expulsion decision via e-State and the
expelled member via a written notification. The expelled member may contest the
decision at the court. Membership continues until finalization of the expulsion order
(UCLAA, Article 19/4).
Simplified procedures for acquisition and termination of union membership via
e-State will become effective on November 7, 2013 (By-law, Article 14/la). 34
Anti-union discrimination is deemed a violation of freedom of association. The
UCLAA prohibits anti-union discrimination at the time of recruitment, during the
course of employment, and at the time of employment termination. Employers are
prohibited from discriminating between union and non-union workers or workers who
are members of another trade union. Employers cannot discriminate against workers
involved in trade union activities outside working hours or during working hours with
the employer's permission (UCLAA, Article 25/1-3).
Where an employer makes contract termination for a union-related reason, the
worker with increased job security shall be entitled to apply to the court claiming
"unionism compensation" equal to basic annual wage and/or reinstatement (UCLAA,
Article 25/5-6). If the worker does not want to continue working at the concerned place
of work, he may ask only compensation. The court shall rule for compensation for the
worker with increased job security; this is independent from being reinstated by the
employer or not. 35 If a union-related reason is claimed as the cause of dismissal, the
34. By-law on Acquisition and Termination of Union Membership and Collecting Dues (Sendika
Uyelifjnin Kazamlmas1 ve Sona Ermesi ile Uyelik Aidatmm Tahsili Hakkmda Ydnetmelik), OG
Jul. 09, 2013, Nr. 28702.
35. Mustafa K1lu;:oglu, 6356 Say1li Sendikalar ve Toplu j~ Sdzle;miesi Kanunu Yorumu, Ankara
2013,192-200.
176
burden of proof shall shift to the employer. It shall be the employer who proves the
existence of another reason for contract termination.
A worker with regular job security may also be dismissed for a union-related
reason. Whether such a worker shall be entitled to unionism compensation like a
worker with increased job security or bad-faith compensation is a contentious issue in
the doctrine. 36
[D]
The Scope and Level of Collective Labor Agreements
Representative and institutional capacity of the social partners involved has an impact
on the efficiency and effectiveness of the national industrial relations that in turn
affects the political and economic development of the country. The UCLAA as the new
law on unions and collective labor agreements regulates framework, workplace,
undertaking, and group collective labor agreements. This means that a collective labor
agreement may be concluded at four different levels: Framework agreement (i;:en;eve
sdzle~me) is an industrial level collective labor agreement concluded between trade
unions and employers' associations which are members of workers' and employers'
confederations represented in the Economic and Social Council (UCLAA, Article 2/lb;
33). Unaffiliated industrial unions are devoid of such a right. The Turkish Economic
and Social Council (ESC) 37 is one of the main multi-party social dialogue mechanisms
comprising various social groups and the government. The chairman is the prime
minister. Apart from the government representatives, the Council has three groups of
members, those representing employers, the employed (workers and civil servants),
and tradesmen, craftsmen and farmers. ESC is to ensure the participation of the various
social partners in governmental economic and social policies, to promote consensus
and cooperation both between the government and these groups and among these
groups themselves. All three workers' confederations, TURK-i$, HAK-i$, and DiSK,
and the employers' confederation, Ti SK, are represented in the Council. A framework
agreement has a voluntary basis and it shall be concluded, upon the invitation of one
of the industrial unions and the acceptance of other, for no less than one-year and no
more than three years. A framework agreement may have provisions on vocational
training (mesleki e@tim), occupational health and safety (i~ saglr@. ve giivenli@),
corporate social responsibility (sosyal sommluluk) and employment policies (istihdam
politikalan).
When a collective labor agreement is concluded at the level of a single workplace,

it is called a workplace (local) collective labor agreement (i~yeri toplu i~ sozle~mesi)
(UCLAA, Article 34/1). A workplace agreement may be concluded between a trade
union and the employer. On the employer's side, there may be an unaffiliated employer
(sendika iiyesi olmayan i~veren) or an employers' association representing the employer.
36. Klhi;:oglu, 297.
37. Law on the Establishment and Working Principles and Procedures of the Economic and Social
Council (Ekonomik ve Sosyal Konseyin Kurulu,m, (:all,51Tla Es as ve Ydntemleri Hakkmda Kanun),
Law Nr. 4641, OG Apr. 21, 2001, Nr. 24380.
177
ll.04[E]
Nurhan Stiral & Mustafa Krhi;;oglu
A real person or a legal entity or a public entity may have more than one
workplace in the same industry. In such a case, there cannot be separate workplace
collective labor agreements for these workplaces owned by the same employer. These
workplaces in the same industry shall constitute the level of an undertaking collective
labor agreement (i$letme toplu i$ sozle$mesi) (UCLAA, Article 2/ld, 34/2). As can be
seen, the term undertaking is not used in its technical sense; the important point is
being in the same industry, an economic and technical unity between the workplaces
belonging to the same employer is not required.
A group (workplaces) collective labor agreement (grup toplu i$ sozle$mesi) is one
concluded at the level of various workplaces and undertakings in the same industry
(UCLAA, Article 2/li;;, 34/3). For various workplaces and undertakings to be grouped
together as a bargaining unit, the employers of grouped workplaces and undertakings
must be represented by the same employers' association and the majority of workers
by the same trade union. Unaffiliated employers cannot be a party to a group collective
labor agreement.
[E]
Competence and Authorization
It is for the competent and authorized trade union to conclude the collective labor
agreement (UCLAA, Article 41). Competence (ehliyet} is a prerequisite for authorization (yetki). Confederations do not have competence to conclude collective labor
agreements. A trade union has competence for those workplaces and undertakings in
the industry in which it is founded. There are two numerical requirements for
authorization. To be the authorized trade union (yetkili sendika) (majority union; the
most representative union), as well as representing at least 1 % (1 % until January 1,
2016 and 2 % until July 1, 2018 and 3 % thereafter) of all those employed in the
industry, more than 50% of the workers employed in the workplace must be represented. In an undertaking collective labor agreement, the workplaces belonging to the
undertaking shall be considered as a whole and the trade union representing more than
40% of workers shall be the authorized one.
Authorization procedures 38 for a new collective labor agreement may start 120
days prior to the termination of the existing one. However, the new agreement may not
go into effect prior to expiration of the previous one (UCLAA, Article 35 /4). The trade
union that considers itself authorized shall make an application in writing to the
Ministry of Labor and Social Security requesting that it be determined as the authorized
trade union (UCLAA, Article 42/1). In order to determine the applicant trade union as
the authorized union, the Ministry must refer to its own statistics that are published in
the official gazette in January and July each year. If the Ministry finds that the
numerical requirements have been fulfilled, a determination notice (tespit yazisi) so
specifying will be given to the applicant trade union. An unaffiliated employer or an
employers' association wanting to conclude a collective labor agreement may also
apply to the Ministry requesting the determination of the authorized trade union. The
38. K1!11;:oglu, 41-45.
178
l 1.04[F]
determination notice may be challenged by the concerned employer or employers'

association or other trade unions formed in the same industry provided that they
represent at least 1 % of the total number of workers employed in the industry (UCLAA,
Article 43). If the determination notice has not been challenged or if the competent
court has rejected such a challenge, the trade union shall be given an authorization
document (yetki belgesi) by the Ministry (UCLAA, Article 44).
[F]
Collective Bargaining
Collective bargaining (collective negotiations) (toplu pazarllk) is a condition sine qua

non of industrial relations. The essence of collective bargaining is dispute settlement,
i.e., the resolution of conflicting views into a workable compromise. In Turkey, as in
most countries, different settlement procedures apply to different types of labor
disputes (i$ uyu$mazhklan) and consequently the legislation and collective labor
agreements distinguish between these different types. The two most prevalent types of
classification are those distinguishing rights disputes (hak uyu$mazllklan) from
interests disputes (r.;ikar/menfaat uyu$mazliklan) and individual labor disputes (bireysel i$ uyu$mazliklan) from collective labor disputes (toplu i$ uyu$mazllklan). The
distinction between interests disputes and rights disputes is based on the nature and
subject matter of the dispute, whereas the distinction between individual and collective
disputes is based on the parties to the dispute. Collective bargaining is the central
concern of labor policy in collective interests disputes.
Collective bargaining is the first phase in the formation of a collective labor
agreement. This phase is compulsory in the sense that the parties have to pass through
this phase and discuss their differences trying to reach a collective labor agreement,
and voluntary in the sense that the parties are not compelled to reach an agreement.
Thus, the collective bargaining may end without an agreement.
One of the parties to collective bargaining has to invite (request) the other party
to negotiations (toplu gorii$meye r.;agn) within 15 days following receipt of the
authorization document to initiate the formation of a collective labor agreement
(UCLAA, Article 46/1). If a request is not made within the prescribed period, the
authorization document shall lose its validity (UCLAA, Article 46/2). The inviting party
must hand over all its proposals to the other party within the 15-day period. However,
the parties reserve the right of making changes in their proposals during the negotiations (UCLAA, Article 46/3). It is the parties themselves that agree upon the place, date
and time of negotiations and inform the responsible office thereof. If they cannot reach
an agreement, then it shall be the responsible office (gorevli makam) to make the
determination upon the application of one of the parties (UCLAA, Article 47 /1). The
responsible office is, in general, the local office of the Ministry of Labor and Social
Security, i.e., the Provincial Directorate of Labor and Employment Office ((;all$ma ve j$
Kurumu jzMiidiirliigu). Only when there is a group collective labor agreement covering
workplaces and undertakings that fall within the jurisdiction of different provincial
directorates, the responsible office shall be the Ministry (UCLAA, Article 2/lc).
179
I.ii
1l
Nurhan Sii.ral & Mustafa K1hc;oglu
ll.04[H]
Collective bargaining takes 60 days starting from the date of the first meeting (UCLAA,
Article 47 /3).
[G]
Mediation
The phase of mediation follows the phase of collective bargaining. Like collective
bargaining, this phase is compulsory in the sense that the parties are compelled to pass
through this phase, but voluntary in the sense that the parties are not obliged to reach
an agreement. In Turkey, the term mediation has been used in a manner consistent
with its etymological origin denoting a strong form of intervention by the third party,
the mediator (arabulucu). The mediator will expend every effort to have the parties
reach an agreement and may propose solutions to the parties.
If either of the parties fails to attend the first meeting of collective negotiations or
attends but does not start negotiations, or discontinues attending after negotiations
start, or if no agreement is reached within the period specified for collective bargaining,
either of the parties informs the responsible office of the deadlock. If the responsible
office is not informed, the authorization document shall become ineffective (UCLAA,
Article 49). The responsible office, upon being informed, shall assign a mediator from
the official list of mediators (resmi arabulucu listesi) (UCLAA, Article 50/1).
The duration of mediation is 15 days but with the consent of the parties this term
may be extended, by at most six working days (UCLAA, Article 50/3). If the mediator
obtains the agreement of the parties, mediation shall end with the formation of a
collective labor agreement. If an agreement is not reached, the mediator prepares a
record of proceedings, including his recommendations and proposals to resolve the
dispute, and submits it to the responsible office. The responsible office will forward
copies of this record to the parties and responsible office (UCLAA, Article 50/5). Now,
there may be recourse to industrial action, but if there is a prohibition of industrial
action, the dispute will be settled through private or compulsory arbitration or through
an agreement reached by the parties after mediation. Private arbitration (ihtiyari/ozel
tahkim) is a peaceful settlement procedure for collective interests and rights disputes.
The arbitrator's award is binding on the parties. The arbitrator's award in collective
interests disputes (contract arbitration) (menfaat/r;ikar uyu$mazliffe hakemligi) has the
nature of a collective labor agreement and in collective rights disputes (grievance
arbitration) (hak uyu$mazliffe hakemligi) the nature of a court decision. Although there
is no legal prohibition, the Court of Cassation does not allow private arbitration in cases
of individual rights disputes. 39
[H]
Industrial Action and Its Consequences
Strikes (grev) and lockouts (lokavt) are the only means of industrial action that may be
conducted in case of collective interests disputes with an occupational cause (mesleki
amar;). Because existence of an occupational cause is a requirement for legality,
39. K1ll<;:oglu, 294-296.
180
ll.04[H]
politically motivated strikes (siyasi grev), solidarity strikes (dayam$ma grevi), occupation of work premises (i$yeri i$gali), labor slowdowns (i$i yava$latma), decreasing
production (iiretimi/verimi azaltma) and other forms of obstruction are prohibited
The authorized trade union can call a strike following the completion of the
phases of collective bargaining and mediation with no agreement. A decision to call a
strike may be taken in 60 days following receipt of the mediator's report and put into
practice within this period, and the date of commencement of the strike shall be
communicated to the other party six working days before. If a decision to call a strike
is not taken or its date is not communicated to the other party within specified periods,
the trade union's authorization shall become invalid (UCLAA, Article 60/1). The
employer or the employers' association is to be notified of the decision to strike through
a notary (UCLAA, Article 60/5). After being notified of the decision to strike, the
unaffiliated employer or the employers' association may take a decision to order a
lockout within 60 days following the notification and have it implemented by informing the trade union of its commencement date six working days beforehand (UCLAA,
Article 60/2). Decision to strike or lockout has to be posted immediately at the struck
workplace(s) (UCLAA, Article 60/5).
Recourse to industrial action will not be possible if there is a permanent or
temporary prohibition of industrial action, postponement of industrial action, or a
no-strike decision in a strike vote. Industrial action is permanently prohibited in the
following works and workplaces: Preservation of life or property; hospitals; funeral
services and in cemeteries; urban water, electricity and gas; exploration, production,
processing and distribution of natural gas and petroleum; petrochemical work starting
from naphtha and natural gas; banking services; fire fighting; and urban sea, land and
railway and other mass transportation services on rail provided by the public sector;
workplaces run directly by the Ministry of National Defense, the General Command of
Gendarmerie and the Coast Guard Command (UCLAA, Article 62/1). In the case of a
permanent prohibition, one of the parties may refer the dispute to the Supreme
Arbitration Board (Yiiksek Hakem Kurulu) within six working days after receiving a
copy of the mediator's record of proceedings sent by the responsible office. If there is
no application, the trade union shall lose its authorization. The decision of the Supreme
Arbitration Board will have the nature of a collective labor agreement and be binding
for the parties (UCLAA, Article 51). This is called compulsory arbitration (zorunlu
tahkim). The parties may also decide, through mutual agreement, to refer the dispute
to private arbitration (UCLAA, Article 52).
A temporary prohibition of industrial action exists where the life of the community is paralyzed by a natural disaster. The Council of Ministers may, limited to such
areas and the period of effect of the case, prohibit industrial action in workplaces
deemed necessary. The lifting of the prohibition shall be subject to the same procedure.
Industrial action may be initiated within 60 days of lifting of the decision by informing
the other party six working days beforehand (UCLAA, Article 62/2). Also, industrial
action may not be conducted in sea, air or land transportation vehicles which have
started but have not completed the journey to domestic terminal points (UCLAA,
Article 62/3).
181
11.04[1]
Nurhan Sural & Mustafa K1hc;oglu
Any legal strike or lockout that has been called or implemented may be
postponed (grev ve lokavtm ertelenmesi) by a decree of the Council of Ministers for 60
days if it has the nature of endangering general health and national security (UCLAA,
Article 63). A suit for the annulment of the decree may be brought in the Council of
State and an injunction order (yiiriitmeyi durdurma karan) may be demanded.
Following the issuance of the postponement decree, the Minister of Labor and Social
Security himself or a mediator designated from the official list of mediators, shall make
every effort for the settlement of the dispute during the postponement period. If the
parties have neither reached an agreement nor referred the case to private arbitration
by the date the postponement period ends, one of the parties shall apply to the Supreme
Arbitration Board for the resolution of the dispute. Otherwise, the trade union shall lose
its authorization.
If one fourth of the workers employed in the workplace at the time of posting of
strike decision apply in writing to the responsible office requesting a strike vote (grev
oylamasi), there shall be a vote within six working days following this application
(UCLAA, Article 60/S). If an absolute majority of the voters decides against the strike,
the strike decision shall not be implemented. Here, the parties have to reach an
agreement or the trade union has to apply to the Supreme Arbitration Board. In default
thereof, the trade union shall lose its authorization.
The workers, whether members of the authorized trade union or not, are
completely free to join or not to join the strike. Freedom to work is protected and those
who refuse to join the strike or have joined but decided to abandon the strike can in no
way be barred by strikers from working at the struck workplace. Rights and obligations
emanating from the labor contracts of striking workers shall remain suspended (askiya
almma) throughout the strike.
[I]
The Duration, Effect and Termination of Collective Labor

Agreements
Either through peaceful means or industrial action, a collective labor agreement shall
finally be reached by the parties. With the formation of the collective labor agreement,
the authorized union becomes the signatory union (taraf/akit sendika). The collective
labor agreement is an industrial peace treaty and at the same time a normative treaty
between social powers: the trade union and the employer or employers' association.
The collective labor agreement is the outcome of "joint management" or "industrial
self-government." This written agreement reflects a joint understanding covering
wages, hours, fringe benefits, work rules and a number of "non-economic matters,"
such as seniority, grievance procedures or union representation.
A collective labor agreement shall be formed for a specified period of not less than
a year and not more than three years. Once it is formed, the parties to a collective labor
agreement become unable to amend its duration. Where a collective labor agreement
is to apply to work that is due to last for a period of less than a year, the agreement may
cover a period of less than a year. But, if the work is not completed, then the collective
labor agreement remains valid until the end of one-year (UCLAA, Article 35/1-3).
l l.04[I]
The date of formation and the effective date of a collective labor agreement may
be the same or different. A collective labor agreement may become valid on the day it
is formed or an earlier date may be prescribed as its effective date. The day following
the expiration date of the previous collective labor agreement may be prescribed as the
earliest effective date (UCLAA, Article 35/4).
The members of the signatory trade union benefit from the collective labor
agreement. Of these workers, those who were members on the formation date benefit
starting from the effective date; those who join the signatory union subsequently
benefit starting from the date on which the employer is informed of their membership
by the signatory union. A member worker whose labor contract gets terminated
between the formation and effective dates of the new collective labor agreement may
benefit from the agreement until termination of his labor contract (UCLAA, Article
39/3). Workers who are not members of the signatory trade union may benefit from the
agreement through paying solidarity dues (dayam?ma aidati). These workers benefit
from the agreement starting from the day on which they notify the employer of their
intention to pay dues. Benefiting starts from the day on which they notify the employer
of their intention to pay dues. Due to the principle of voluntary unionism, the approval
of the signatory union is not required. The amount of s_olidarity dues is to be specified
in trade union regulations provided that it cannot exceed the membership dues
Extension is a process of extending a collective labor agreement to workplace(s)
without one (UCLAA, Article 40). At the request of a trade union, employers'
association or an unaffiliated employer in the same industry, the Council of Ministers
may extend the collective labor a:greement concluded by the trade union representing
the majority of workers in that industry to workplace(s) in whole or in part or by
making amendments it deems necessary.
Collective labor agreements are enforced as binding contracts in accordance with
the Roman adage pacta sunt servanda. Collective labor agreements have an erga omnes
effect. A collective labor agreement is binding not only on its signatories but on the
groups they represent. A collective labor agreement has an automatic and compulsory
effect on individual labor contracts. Substantive provisions are automatically incorporated into individual labor contracts (UCLAA, Article 36). The parties are obliged to
refrain from any industrial action during the effective period of the agreement. A peace
obligation arises as a collective obligation from the "contractual function" of the
collective labor agreements. This obligation is an absolute one obliging the parties to
refrain from all industrial action for the duration of the collective labor agreement.
Interpretation and implementation of collective labor agreements are entrusted to labor
courts. Disputes may arise during the course of a collective labor agreement. There may
be a violation of the established rules or an interpretation dispute (yomm uyu?mazligi).
Such disputes are collective rights disputes, and they are to be settled through peaceful
means, adjudication (as suits over interpretation and suits for payment) (yomm
davasi; eda davasl) (UCLAA, Article 53) or private arbitration (UCLAA, Article 52).
183
l 1.04[I]
Nurhan Siiral & Mustafa Kdiyoglu
K1hc;oglu, M., 6356 Sayilz Sendikalar ve Toplu j~ Sozle~mesi Kanunu Yorumu, Ankara
2013.
K1hc;oglu, M. & $enocak, K., j~ Kanunu $erhi, 3rd ed., istanbul 2013.
Dereli, T., "Labor Law and Industrial Relations in Turkey'', in International Encyclopaedica for Labor Law and Industrial Relations, 4th ed., edited by R. Blanpain,
2012.
OECD, OECD Economic Surveys Turkey, Paris 2012.
Pennings, F. & Siiral N. (eds.), Flexibilisation and Modernisation of the Turkish Labor
Market, 2006.
Sur, M., "General Framework and Historical Development of Labor Law in Turkey".
Comparative Labor Law and Policy Journal 30, no. 159, 183-197.
Turunc;, N. & Sur, M., Turkish Labor Law, izmir 2010.
184
CHAPTER
12
Tax Law
Ahmet Kumrulu & Billur Yalti *
12.01
INTRODUCTION
The concept of tax is thoroughly studied in works on public finance. Assuming it to be

known, we shall proceed with a definition developed in view of legal theory (developed
with a legalistic approach): Taxes are compulsory contributions levied by the state
based on its sovereignty over persons, property, income, commodities and transactions. In modern state tax law, it appears as the branch of law which studies the rules
governing the tax relationship, as well as establishing a balance between the legal
interests of the parties involved.
In this chapter, after a brief look at historical developments, the basic principles,
rules and institutions underlying Turkish tax law will be discussed briefly. The
following section will contain a general analysis of the primary taxes in force today in
the Turkish tax system.
Since the founding of the Republic, the most fundamental attempts to reform the
Turkish tax system were achieved by the adoption of certain laws in 1949 which came
into force in 1950. This attempt is considered as a milestone in the modernization of the
system. The three laws passed in 1949 include the Income Tax Act (Gelir Vergisi
Kanunu, ITA); the Corporate Tax Act (Kurumlar Vergisi Kanunu, CTA) and the Code
of Tax Procedures (Vergi Usul Kanumi, CTP). This process of legislation was followed
by frequent amendments. In 1984, another major change was introduced to the tax
system by adhering to the Value Added Tax (VAT) model in the field of turnover
taxation, to begin in 1985 (Katma Deger Vergisi Kanunu, VATA). The Income Tax Act
and CTP are still in force today. However, in 2006, the Corporate Tax Act was totally
rewritten and most of its provisions were retroactively applied as of January 1, 2006,
* Prof. Dr. Ahmet Kumrulu: Faculty of Law, University of Ankara. Prof. Dr. Billur Yalt1: Faculty of
Law, Km;: University, Istanbul.
185
12.02[A]
Ahmet Kumrulu & Billur
whereas provisions on transfer pricing entered in to force on January 1, 2007. The new
Corporate Tax Act does not represent an ultimate change in corporate taxation; instead
it is consistent with the prior CTA, preserving the past applications in a coherent way,
nevertheless establishing a new legal and fiscal environment compatible with the
current needs of the globalized world economy by introducing provisions on such
matters as transfer pricing or controlled foreign company legislations.
Today the main features of the Turkish tax law system can be described as being
constructed in principle on Continental law. As for substantive law, the acts that make
up the skeleton of the system are derived mainly from German legislation and VAT can
be said to be based in principle on the present EU model. The three codes which
constitute the main legislation (CTP); Code on the Collection of Public Claims (Amme
Alacaklannm Tahsil Usulii Hakkinda Kanun, CCPC); Code on the Procedures of
Administrative Adjudication (Mari Yargzlama Usulii Kanunu, CPAA)) concerning
procedural law are based mainly on the German and French systems.
To sum up, the present tax system has the legal characteristics of a contemporary
fiscal system. Though the existing tax structure may be criticized on certain grounds,
the system as a whole may be qualified as being quite capable of adjustment with
minor changes, in view of, for example harmonization with EU legislation.
12.02
[A]
A SURVEY OF GENERAL PRINCIPLES AND INSTITUTIONS
Tax Law Classification
Tax law, per se, can be classified as general tax law and special tax law. In this
classification the latter may also be considered part of the Turkish tax system.
In its general provisions, tax law's main principles and the rules underlying this
legal discipline and pertaining to all taxes and other fiscal charges are studied together
with related institutions. Through special provisions, various taxes are studied analytically with reference to the respective laws by which they are levied. Below, in part II,
various issues of general tax law are discussed briefly, and in section 12.03 taxes are
studied within the scope of the special provisions of Turkish tax law.
Another classification may be based on the distinction between substantive tax
law and procedural tax law. In substantive tax law, such basic topics as the rules
concerning the emergence and cessation of tax liability are studied; whereas in
procedural tax law the ways and means of realizing rights, powers and liabilities are
dealt with.
Tax law may also be studied in terms of other subdivisions such as the law of
taxation procedures, the law of tax enforcement, the penal law of taxation and tax
jurisdiction. In this section while various topics of general tax law, pertaining both to
substantive law and procedural law are examined, some will be touched upon within
the scope of the above mentioned subdivisions of tax law.
Chapter 12: Tax Law

[B]
12.02[B]
Sources of Law
Turkish tax law is in principle statutory. This characteristic is a consequential

requirement of the constitutional maxim of "legality of taxes" (vergilerin kanunilif;i
ilkesi). It may therefore be easily asserted that the scope of custom and usage is almost
none, or very minor. This is also true of judge made law. Only in some cases pertaining
to procedure where the provision of the law is unclear or there is a legal gap within the
law, may the judge render a decision by taking into consideration the general principles
of law.
The sources of Turkish tax law are listed below in a hierarchical order. Most of
these sources are common to all branches of law. Here only some of them with their
characteristics pertaining to tax law will be discussed briefly.
[1]
Binding Sources
[a)
Primary Legislation
The Constitution as the fundamental source of law i$ binding on all parts of the
government. Taxes can only be raised with the assent of parliament (Const. Article 73).
This is a restriction on the power of the state to levy taxes. Laws on taxation must
conform to all the provisions of the Constitution. The maxim of the legality of taxes and
the principle of the rule of law prohibit "tax by analogy" in taxation and the
retroactivity of tax laws. The constitutional principle of legality of administration is
binding on the tax administration in all its acts of assessment. Universality and equality
in taxation are to be heeded within the principle of justice. In the context of rule of law,
the maxim of equality in taxation means the horizontal equality of taxpayers with the
same ability to pay are to be taxed equally. Another principle prescribed by the
Constitution is the principle of the "welfare state". While envisaging social justice, it
also requires people with different economic capacities to be taxed differently, with the
aim of vertical equality. These principles require progressive income tax rates and the
taxation of wealth. However, tax laws should not restrict fundamental rights and
liberties to an extent inconsistent with the requirements of a democratic order.
The Constitution prescribes judicial review of the constitutionality of laws, hence
tax laws lie within the scope of this review and they may be invalidated by the
Constitutional Court if they provide for any infringement of the Constitution.
International treaties signed and duly ratified become a part of national legislation. When their texts contain provisions contrary to Turkish law, they have priority
and their constitutionality cannot be challenged. Turkey has signed and ratified about
81 bilateral agreements for the avoidance of double taxation. In these texts as a rule the
state of residence is accepted as the state empowered for imposition and the two
methods of avoidance, relief by way of exemption and deduction, are adhered to.
Among the international multilateral tax agreements to which Turkey is a party either
as signatory or participant in preparation are the OECD Draft Double Taxation
Convention on Income and Capital (OECD Model Tax Convention) and the UN Model
187
12.02[C]
Convention for Tax Treaties between Developed and Developing Countries. Turkey's
reservations to some of the provisions of these treaties have contributed to major
changes in their texts.
[b]
Secondary Legislation
Regulations, bylaws and statutory decrees (kanun hiikmiinde karamameler) are the
ordinary forms of secondary legislation with no special characteristics as regards tax
law. On the contrary, statutory and special governmental decrees on tax issues are
instruments with some aspects particular to tax law that need to be elaborated.
In Turkish law, within the rule making power of the executive, the Council of
Ministers may have with the power to issue statutory decrees. Under the Constitution
basic rights and freedoms, including political rights, are not within the scope of the
executive's power to enact statutory decrees unless there is a declaration of martial law
and a state of emergency. Because the primary article on taxation in the Constitution
(Article 73) is situated among the provisions on political rights, tax matters cannot be
regulated by statutory decrees other than at times of martial law or a state of
emergency. Consequently, statutory decrees have a limited function as a source of tax
law.
The Constitution, on the other hand, empowers the Council of Ministers to
amend the rates, exemptions and deductions in taxes, duties and fees and similar
financial impositions within the limits prescribed by law (Article 73). This power of the
Council of Ministers is used by issuing special decrees within the scope of the said
article. The executive annually and widely uses these special governmental decrees.
[c]
Judicial Source of Law: Unifying Decisions of Courts
The unifying decisions of higher courts (i<;tihadi birle~tirme kararlari) are the only
judicial source of law among the binding sources of tax law. As regards tax matters it
is in principle the Council of State (Dam~tay) which is the high administrative court
with the authority to render unifying decisions, but in the case of tax crimes, the Court
of Appeals (Court of Cassation, Yargitay) is empowered to render decisions.
[CJ
Non-binding Secondary Sources of Law
[1]
Administrative Decisions
This category includes documents of an administrative character issued by the Ministry

of Finance which are explanatory rather than regulatory (announcements, general
circulars, etc.).
188
Chapter 12: Tax Law

[2}
12.02[D]
Court Decisions and Jurisprudence
In tax law, the non-binding decisions of courts and of scholarly publications may be of
a guiding nature.
[D]
Parties to the Tax Relationship
[1}
Taxpayer (Yiikiimlii)
The taxpayer is the debtor liable to pay the tax due, as a result of being within the scope
of any tax act. Individuals and legal persons may be liable to taxes. A person's
nationality is not the dominant factor for liability; nationals and foreigners are
generally subjected to all impositions. Turkish tax acts, as a rule, accept the principle
of territoriality, which in most cases is applied in accordance with the principle of
residence. Sometimes to be domiciled in Turkey is treated as the basis of liability,
whereas in some cases certain provisions of tax acts may follow Turkish citizens
abroad in accordance with the principle of nationality.
Persons, as subjects of rights, are liable to any tax and in this sense full capacity
is not a requirement in tax law. Individuals with limited capacity and minors may also
be subjected to any tax as a consequence of the sole basis of liability accepted in
Turkish tax law, that is the "ability to pay".
Legal persons such as societies, foundations and business associations are other
categories of taxpayers. Foreign companies are subject to Turkish legislation. Turkish
public corporate entities (public legal persons) are generally exempted from taxes.
In some cases, even being a "legal person" is not required for liability. Partnerships, joint ventures, and the economic enterprises of societies and foundations are
such taxpayers under the Corporate Tax Act.
The CTP sets forth provisions envisaging tax liability even if the chargeable event
is forbidden by law (CTP, Article 9/2). For instance, illegal trading creates tax liability
for the person involved.
[2}
Tax Claimant (Vergi Alacaklm)
The state, having the power by virtue of its sovereignty to levy taxes, is the principal
claimant in the tax relationship. The Ministry of Finance has the authority and
responsibility to collect all taxes, duties and fees that enter the general budget. Within
the Ministry, it is the General Directorate of Revenues which is the department that
engages in such collection. In this structure, Regional Directorates of Tax Offices and
local tax offices are the authorities empowered for the assessment and collection of
specific taxes.
The constitutional right of the state to levy taxes may be delegated to some public
corporate bodies. Within the principles of intergovernmental fiscal relations, the right
to assess and collect some taxes, fees and duties is delegated to local authorities. In this
12.03[A]
Ahmet Kumrulu & Billur Yalt1
context, provincial local administrations (il ozel idareleri) and municipalities

(belediyeler) are empowered to collect certain taxes.
[3]
Tax Responsibility (Ve:rgi Sommlulugu)
Besides the taxpayer, the debtor sector includes persons who, in their capacity as a
result of a certain status, are held responsible by the tax administration for the
collection of the tax debt of the real taxpayer. People in the status of responsibility
therefore are not the actual debtors, but they are required to perform the necessary acts
and pay the tax due by the taxpayer. Failure to fulfill these assignments leads to
sanctions for those held responsible in the same manner as the taxpayer.
Legal representatives of real persons and of legal persons, and in the case of
withholding taxes, employers, are persons with the responsibility to collect taxes.
[4]
Third Parties
Some people who are not the taxpayers for a specific tax debt or have the status of tax
responsibility, may, by tax law, be assigned as third parties to obey certain rules and
perform duties required for the sake of correct assessment. For example, someone who
got involved in an economic relation with the taxpaye~ may be required, though not the
real debtor of the tax in question, to yield information to the tax office concerning the
taxpayer. In such cases, a failure to obey by the assignee is a crime.
12.03
THE TURKISH TAX SYSTEM IN GENERAL
In this section some of the main.taxes in the Turkish tax system will be described with
their most general legal characteristics. The purpose of this section is to get acquainted
with these taxes without going into the intricacies of the laws.
[A]
Classification of Major Taxes
The main taxes prevailing in the present system can be enumerated in line with a
classification made according to the taxable assets or economic source on which they
are levied.
There are three taxes which, due to their relative importance in total budget
revenues and also to their nature reflecting the theoretical foundations of the tax
system, will be dealt with here: Income tax; corporations tax and VAT. However,
among these three, it is the income tax, which will be emphasized, as it constitutes the
backbone of the system.
Below the anatomy of the said three taxes, their basic elements receive further
attention: taxable matters (konu); taxable events (vergiyi doguran olay); taxpayers
(yiikiimlii); tax base (matrah); and tax rate (oran).
190
12.03[B]
Chapter 12: Tax Law
[B]
Taxation of Individual Income: Income Tax
Individual income is subjected to a tax in line with the provisions of the Income Tax Act
(ITA, Gelir Vergisi Kanunu, Nr. 193, dated 1960). Real persons earning income within
the scope of Articles 1 and 2 of ITA are liable to this imposition.
[1]
Taxable Matters
Taxable matters are transactions, profits, assets or anything else that is deemed liable
to tax according to law. The Income Tax Act defines taxable matter as follows:
"Incomes of real persons are subjected to income tax. Income is the net total of all
earnings of a real person obtained in one calendar year". Subsequent to the definition
of income in Article 1, the Income Tax Act prescribes the items to be taxed within the
concept of income (ITA, Article 2). These items are: profits from trade (ticari kazani;lar), agricultural profits (zirai kazanc;lar), wages, salaries and fees from employment
or an office (iicretler), profits ofliberal professions (serbest meslek kazanc;lan), income
from self-employed non trade activities, income from professional activities, earnings
from immovable property (gayrimenkul sermaye iratlan), income from lettings, rental
income from real property, earnings from movable capital (menkul sermaye iratlan),
interest income, dividend income and other profits and income.
The following items of income comprise earned income, investment income and
capital gains and can be categorized as business income, income from labor and
income from wealth.
The main characteristics of income may be deduced from the definition prescribed by the Income Tax Act as follows (ITA, Article 1):
(i)
(ii)
(iii)
(iv)
(v)
Income of real persons is charged under the IT A.

Income is taxed on an annual basis.
Income is charged on its net amount.
The real amount of income is subject to tax.
Income is taxed as an aggregate.
It should immediately be pointed out that the five characteristics cited above reflect the
principles underlying the concept of income. The Income Tax Act however, in its
subsequent provisions, prescribes exceptions to these principles and in some cases
these exceptions reach a scale where the principle itself becomes an exceptional
provision and the exceptions are transformed into the rule.
[2]
Taxable Event (Vergiyi Doguran Olay)
The event that creates liability is "to receive" income. For business profits (trade profits
and agricultural profits) earning income is prescribed by the Income Tax Act on an
accrual basis (tahakkuk esasi) and for other items of income on a cash basis (tahsil
esasi) as a rule.
191
12.03[B]
[3]
Taxpayer
Real persons who are recipients of income are liable for income tax. Nationality does
not, in principle, make any difference for liability. Hence foreigners, as well as Turkish
nationals, are subjected to the tax. The Income Tax Act sets forth provisions for two
sorts of liability, which pertain to the determination of the aggregate taxable income of
the taxpayer. The said two sorts of liability are not, as a rule, based on the principle of
nationality. The distinction between them aims at determining whether the items of
income earned abroad are to be included in the tax base of the taxpayer or not. Those
taxpayers considered to be in the status (capacity) of full liability are taxed on the
aggregate of their income earned within Turkey and abroad (worldwide basis).
Taxpayers with limited liability, on the contrary, are taxed only on their income earned
within Turkey (domestic basis).
The criterion used for the distinction between the two sorts of liability is not, as
a rule, the principle of nationality, but the principle of residence. Those resident (or
considered to be resident) in Turkey, either Turkish nationals or foreigners, are subject
to full liability and taxpayers non-resident in Turkey, whether of Turkish nationality or
not have limited liability.
In the case of full liability taxes paid abroad on portions of income earned in
foreign countries are deducted from the tax computed on the annual worldwide
aggregate income (ITA, Article 123).
Within the principle of territoriality, the residents to be charged as taxpayers with
full liability are those who are either domiciled in Turkey or, if not domiciled, have
been residing in Turkey for more than six months continuously in the same calendar
year.
[4]
Tax Base
As a rule the Income Tax Act charges the net amount of income on its aggregate which
is determined on a real basis (gerc;ek usul) (ITA, Article 1). As was mentioned above,
there are exceptions prescribed by the law to the principles concerning the taxation of
income as set forth in Article 1 of the Income Tax Act. For instance, the "simple
method" (basit usul) envisaged for small business profits is half way between the real
method for the determination of taxable income which is constructed on a thorough
recording and bookkeeping and lump-sum taxation. Again, instead of taxing the
income on its aggregate the rules accepted by the law for some sorts of income that
remain outside of the principle of aggregation constitute other important exceptions,
such as wages and salaries earned from various employers, and deposit interests, for
which a withholding tax is the final taxation.
[5]
Tax Rate
In line with the rule of taxing annual income as an aggregate, the Income Tax Act
adheres to progressive taxation (Article 103). The progressive rate is set as 15 % for the
192
12.03[B]
Chapter 12: Tax Law
first bracket and 35 % for the top bracket, whereafter it becomes constant at 35 % . The
rates for wages are similar; however, the third and top brackets are set higher than the
brackets applied to other income. On the other hand, the brackets of income in the
progressive tariff change from year to year.
Among the cases of exceptions from the principles prescribed by the Income Tax
Act, the provisions permitting withholding as final taxation also represent an exception
from the principle of progressive taxation.
{6]
Methods for Determining the Tax Base
The Income Tax Act as a rule adopts the principle of taxing income on its real net
amount within the scope of the real method (gen;ek usul). This implies the aggregation
of items of income on their real net amounts determined by bookkeeping and
accounting. To the end of obtaining the real amount of income, all receipts and
expenses have to be recorded. Before the amendment of 1998, the Income Tax Act also
envisaged lump-sum (gotiirii) taxation for certain items of income such as small
business and agricultural profits, etc. In its stead a new method has been accepted in
1998, named the "simple method" (basit usul) which is valid for small business profits
and some other items of income and which can be qualified as a form of taxation that
lies in between lump-sum taxation and real method of taxation. Yet, because it requires
taxpayers to keep all the documents for their purchases, sales, expenses and receipts,
the simple method may be considered more or less closer to the real basis of taxation.
Small agricultural profits are liable to withholding tax.
[7]
Techniques of Assessment (Verginin Tarm)
Taxation through withholding excepted, assessment within the Income Tax Act
depends mainly on self-assessment (beyan usulii]. As a rule taxpayers are required to
file a return for their aggregate annual income (ITA, Articles 85, 86). For taxpayers with
full liability, the time of filing the annual return (ytlltk beyanname) for the income of
the previous year and consequently the time of payment change according to the items
of income to be declared in the return. The tax due can be paid in two installments.
Two groups of taxpayers, those who engage in large commercial business and those
who carry out self-employed professional activities, are liable for an advance tax (ge<;ici
vergi] of 15% calculated and paid on the income of each three months of the current
year (quarterly income) and to be deducted from the tax calculated on the annual
return submitted the following year.
When calculating the taxable income on the annual return, relief for losses (zarar
mahsubu) and loss carry over (zarar nakli] for five years is possible (ITA, Article 88).
To avoid double taxation, the Income Tax Act provides for the deduction of withholding taxes, income tax paid abroad, and taxes paid on wages according to the simple
method of assessment from the tax calculated on the annual return (vergi mahsubu)
(IT A, Articles 121-12 3) .
193
12.03[C]
Those assigned responsibility for withholding taxes must file a monthly withholding return (muhtasar beyanname) which is the second sort of return prescribed by
the Income Tax Act (ITA, Articles 98-100) within 23 days of the end of the month and
pay the tax dues by the 26th of the following month.
A third sort of return is also to be allowed in the Income Tax Act, which is called
a "special return" (individual return) (miinferit beyanname) and which pertains to the
declaration of some items of income earned by taxpayers with limited liability. This
special return is to be delivered and the tax due thereon is to be paid within 15 days
after obtaining income (ITA, Articles 101 et seq.)
[BJ
Tax Advantages
There are several tax advantages provided for in the Income Tax Act. Among these,
those of importance are as follows: A research and development allowance granted for
new technology and information is an exempt item for income tax purposes. It is
calculated as 100 % of those expenses realized in a year (ITA, Article 89). Capital gains
obtained during one year are subjected to income tax only when they exceed a certain
amount (ITA, Article SO). Among the privileges concerning enterprises the exemption
on export earnings of taxpayers with limited liability (ITA, Article 7) and exemption for
artisans (small traders and craftsmen, esnafmuaflif;L) (ITA, Article 9) may be mentioned. It must be added that income tax rate reductions may be applicable under the
investment incentive regime.
Noncommercial earnings of individuals from stock exchange operations are
exempted from income tax.
As for personal relief an allowance for disabled wage earners (engellilik indirimi)
may be available (ITA, Article 31). A minimum living allowance (asgari gec;im
indirimi) is applied as a credit against the income tax due on employment income. The
allowance is calculated as a percentage of the minimum wage officially applied
throughout Turkey. The basic amount of the allowance is 50% of the annual gross
minimum wage for the employee. The allowance is increased by 10% of the annual
gross minimum wage for the spouse who is unemployed and has no income, and by
7.5% for the first two children and by 5% for each additional child. An amount equal
to I 5 % of the total minimum living allowance so calculated is creditable against the
income tax due from the employee (ITA, Article 32). The Income Tax also sets forth an
exemption for income earned from intellectual property rights (ITA, Article 18).
Finally, there exists a partial exemption for rents obtained from house lettings (ITA,
Article 21).
[CJ
Taxation of Corporate Income: Corporate Tax
The second tax in the Turkish system imposed on income is the corporate tax levied by
the Corporate Tax Act (Kurumlar Vergisi Kanunu, CTA). The Corporate Tax Act
charges the profits of some legal persons and of some entities.
194
Chapter 12: Tax Law
12.03[C]
Taxable Matters (Konu)
Since, as was mentioned above, the corporate tax is in the same category of taxes as
income tax, the matters that these two charges are identical. The only difference is
regarding the respective taxpayer. The Corporate Tax Act, indeed, defines the profits of
corporate bodies with reference to the Income Tax Act: "Profits of corporate bodies
consist of the items of income within the scope of the Income Tax Act" (CTA, Article
1/2). The profits of a corporate body may therefore consist of one or several items of
income. For instance a corporate body may obtain agricultural profits, wages, earnings
from lettings, etc. The only difference from income tax is that the Corporate Tax Act
considers and taxes the various items of income as the business profits of the corporate
body.
Taxation of the same economic source first as the profits of the corporate body
and then further taxation of the same profits when distributed to the shareholders as
dividends subjected to income tax creates double taxation in an economic sense. In the
tax legislation of different countries several methods for avoiding this double taxation
may be used. To this end, until 2003 a tax credit and its deduction were adopted in the
Turkish legislation. Effective from 2003, the imputation credit mechanism on dividends
received by resident individuals is replaced by a fun credit for withholding taxes
applied upon distribution. Under those rules, one half of the gross dividends is exempt
from income tax with a full tax credit for the withholding taxes on dividends, which can
be set off against the income tax calculated on the remaining half of the gross dividends
(Article ITA, 22/2).
[2]
Taxable Event (Vergiyi Doguran Olay)
The event creating liability for corporate tax is the same as for income tax. Earning
profits is the taxable event for the imposition of corporate bodies. Just like trade profits
are treated within income tax, it is the earning of income on an accrual basis that
generates the tax debt for corporate bodies.
[3]
Taxpayer (Ytiktimlti)
The corporate tax can be defined as a tax levied principally on the profits of a legal
person. Two consequences may be derived from the above qualification:
(i) The corporate tax, as a rule, is imposed on the profits of legal persons, but in
some cases this status is not required for liability. For example joint ventures,
which are treated as ordinary partnerships without legal personality in
Turkish law, are, though optional, liable for corporate tax (CTA, Article 2/7).
Societies and foundations, as nonprofit corporate bodies are not subjected to
the tax, but in the situation where they operate an economic entity, this
entity itself, with no legal personality, acquires the status of taxpayer for
corporate tax.
12.03[C]
(ii) Not all legal persons are liable for corporate tax. Only some categories of
business associations are included as taxpayers of corporate tax. As mentioned above, nonprofit corporate bodies such as societies and foundations
are not considered as taxpayers themselves.
Keeping these two points in mind, categories of taxpayers liable for corporate tax are
(CTA. Articles 1-2) business associations having limited liability (joint stock companies, partnerships with limited liability, and limited partnerships in which the capital is
divided into shares. See Chapter 7 on Business Associations), cooperatives, State
economic enterprises, business entities owned by societies and foundations and joint
ventures.
The legal policy for the liability of the second, third and fourth categories of
taxpayers is to avoid unfair competition among the enumerated economic enterprises
and other undertakings.
As with income tax, the Corporate Tax Act distinguishes two sorts of liability: Full
liability and limited liability (CTA, Article 3). This distinction is of primary importance
for foreign companies.
Those legal persons resident in Turkey are prescribed as taxpayers with full
liability. A corporate body with either its statutory domicile or place of management (i:;
merkezi) in Turkey is considered as carrying full liability. Since these conditions
require incorporation according to Turkish law, thes.e taxpayers are treated as Turkish
companies. Non-resident corporate bodies, that are companies and other juristic
persons with neither their legal center nor their central management in Turkey, are
prescribed as taxpayers with limited liability. Foreign companies are in this category.
Consequently, it can be asserted that, contrary to the provisions of income tax, in the
Corporate Tax Act the two sorts of liability are provided for completely on the basis of
nationality (on the principle of nationality). The one point which needs to be clarified
here is that a Turkish company considered in the status of full liability may possess
foreign shareholders, even if they hold the majority of the shares.
The legal and fiscal result of being subjected to corporate tax within the status of
either full or limited liability is the same as that of income tax: Taxpayers of corporate
tax with full liability are taxed on their profits on a worldwide basis although there is
the possibility for deduction of taxes paid abroad (CTA. Article 33). Taxpayers with
limited liability are taxed only on their profits earned in Turkey (domestic basis). These
non-resident companies may possess a place of business, a branch, and a permanent
representative or agency or liaison office in Turkey.
(4)
Tax Base (Matrah)
The taxable income of corporate bodies is the net profits earned in one year, which
corresponds to the period (term) of accounting. The Corporate Tax Act makes reference
to the provisions of the Income Tax Act for the determination of net business profits
(CTA, Article 6/2) which leads to the determination of the tax base according to the
balance sheet method.
196
I
Chapter 12: Tax Law
12.03[C]
Another consequence of the above mentioned reference involves deductible

expenses. Since the taxable income or net profits of corporate bodies is determined in
the same way as business profits in income tax, all the principles and rules concerning
business expenses are relevant as regards corporations tax. The Corporate Tax Act,
however, also has special provisions pertaining to taxable income liability under this
tax (CTA, Articles 8, 11). Among these rules, which may be qualified as particular
provisions pertaining to corporate tax, those regarding taxation for the distribution of
hidden profits between related companies and persons by way of transfer pricing
(transfer fiyatlandirmasi yoluyla ortiilii kazarn; da@.tlml) and the interest paid on
hidden capital (ortiilii sermaye) may be mentioned (CTA, Articles 12, 13).
A controlled foreign company (CFC) regime was included in the Corporate Tax
Act with effect from January 1, 2006. Under the regime, the profits of a CFC, whether
distributed or not, may be taxable in Turkey. The provisions apply to Turkish
companies' subsidiaries that are resident in low-tax jurisdictions. A CFC is a foreign
company (subsidiary) in which a resident company (parent company) owns directly or
indirectly at least 50 % of the share capital or voting rights or of rights to profits. Under
certain conditions, the CFC profits corresponding to the participation ratio of the
Turkish company are included in its taxable base for corporate income purposes and
taxed accordingly in Turkey (CTA, Article 7).
[5]
Tax Rate
Corporate tax is paid at one standard rate of 20% (CTA, Article 32). But the Income Tax
Act also provides for a withholding tax on distributed profits of corporations(ITA,
Article 94). In the Corporate Tax Act there exist no privileges to the benefit of the
taxation of publicly owned companies. The tax rate is the same for both close
companies and publicly owned companies.
In taxing some items of income for taxpayers with limited liability, the Corporate
Tax Act prescribes a withholding tax which usually stands for final taxation for the
mentioned taxpayers. The items of income coming into the scope of this withholding
are those which do not originate from commercial and agricultural activities. Profits of
liberal professions (including wages), income from rent, interests on bank deposits and
bonds are all examples of such items of income subject to withholding. The rate of
withholding tax is prescribed as 15% in the Act; but the government is empowered to
vary this rate according to items of income (CTA. Article 30).
[6]
Methods to Determine the Tax Base
In corporate tax, the taxable income is determined according fo the rules contained in
the Income Tax Act for trade (business) profits. The method adhered to for such
determination is the real method (gen;ek usul) where the balance sheet method is used
as a rule. As for the taxation of foreign transportation companies performing activities
both abroad and in Turkey, a sort of quasi lump-sum taxation (yan gotiirii usul) is
12.03[C]
accepted for practical reasons (CTA. Article 23) where their net profits earned in
Turkey are calculated as a percentage of their gross receipts therein.
[7]
Techniques of Assessment
The term of taxation for corporate tax is the term of accounting, which normally is one
calendar year, or another term of 12 months. The corporate tax return is filed during the
fourth month (until the 25th of that month) following the closing of the accounting
period and the tax is assessed within the same period and paid until the end of that
month. The second sort of return in corporate tax is the special return which pertains
to the declaration of certain items of income earned by taxpayers with limited liability.
This return has to be filed within 15 days after receiving the income and the tax due has
to be paid in the same period. The third and last sort of return pertains to the
declaration and payment of withholding taxes on some profits of taxpayers with limited
liability. Those responsible for withholding are required to submit the consolidated
return within 23 days following the month when such withholding has been made and
pay the tax due until the 26th of that month (CTA, Articles 15, 30).
In line with the imposition of income tax, taxpayers of corporate tax are also
required to pay an advance corporate tax (ge<;ici vergi) of 20% on their quarterly
profits, to be deducted from the tax calculated for the current year (CTA. Article 32).
Other deductions foreseen in the Act are for taxes paid abroad and for taxes withheld
(CTA. Articles 33, 34).
[8]
Tax Advantages
Profits earned from participation in other resident corporations are exempted. The
reason for this exemption is to avoid double taxation on the profits that are already
imposed when earned by the main company (CTA. Article 5/a). In addition, qualifying
foreign-source dividends and profits from foreign permanent establishments and
representatives derived by resident companies are exempt from corporate income tax
(participation exemption) under certain conditions (CTA, Article 5/b, 5/g). The parts
of the profits of cooperatives that are distributed to the partners according to the
volume of their transactions with the cooperatives are excluded from the taxable profits
of such undertakings (CTA. Article 5/i). Another exemption allowed by the Corporate
Tax Act pertains to the portfolio earnings of undertakings for collective investment in
transferable securities (UCITS, yatmm fonlan) (Article 5/d). And lastly, an exemption
which pertains to the profits obtained abroad by companies from construction projects
and technical services may be cited (CTA. Article 5/h). Furthermore, corporate tax rate
reductions are available under the investment incentive regime.
198
Chapter 12: Tax Law

12.04
12.04[C]
TAXATION OF EXPENDITURE: VALUE ADDED TAX (KATMA

DEGER VERGISI)
As regards charging expenditures with a turnover tax, the Turkish tax system has
adopted the model of VAT. The Value Added Tax Act (VATA) was, after a preparation
of about 15 years, passed in 1984, to have effect in 1985. The model accepted for VAT
is on the whole in compliance with EU legislation. The most important of the
differences that existed between the Turkish Act and EU model have been eradicated
by an amendment in 1998 which introduced completely the consumption type of tax
base in VAT.
It must be noted that several excises applied in the field of expenditure taxation
have been repealed by the introduction of a special consumption tax (ozel tiiketim
vergisi) in 2002 (Special Consumption Tax Act).
[A]
Taxable Matters (Konn)
VAT is charged on goods and services. VAT taxes expenditures for goods and services,
both domestic and imported. When the provisions of the VATA are taken into
consideration, the taxable matter of VAT may be defined as transactions performed in
relation to commercial or professional businesses such as the delivery of goods
(teslim), the supply of services (hizmet ifasi), and the importation of goods and
services.
It is important to note that all supplies, provisions and imports have to be, as a
rule, in connection with a business enterprise. Non business supplies, such as sales by
private individuals, are beyond the scope of VAT. And VAT is charged on goods and
services supplied in Turkey as well as on importation of goods and services, which also
means the place of supply is in Turkey.
[B]
Taxable Even.t (Vergiyi Doguran Olay)
Delivering goods (sales and deemed deliveries), performing services and importing
goods and services are the various legal and economic events that create liability for
VAT (VATA, Articles 1-5). The VATA taxes the mentioned events only on the condition
that the transaction is performed in Turkey. This condition requires the goods delivered
to be existent in Turkey at the time of delivery and the services to be either performed
or benefited from in Turkey (VAT A, Article 6).
[C]
Taxpayer (Yiikiimlii)
The person who is liable for VAT is legally the person who runs the business, performs
his liberal profession or imports goods and services (VATA, Article 8).
There is no distinction based on the nationality of the entrepreneur. This liability,
as formulated, corresponds to the formal imposition of the tax, namely the person who
is required by law to pay the tax.
199
12.04[F]
Ahmet Kumrulu & Billur Yaltl
Another aspect of VAT also has to be taken into consideration when liability is
examined. Since VAT is an indirect tax that can be shifted in an economic sense, the
real taxpayer is the purchaser of goods and services either as a producer or consumer
to whom the tax is transferred. If economic conditions allow, it is the consumer who
actually and finally bears the burden, that is, the consumer ends up paying the tax.
In order to secure the collection of the tax, the VATA provides for a status of tax
responsibility for those who are involved as a party to the transaction where the legal
taxpayer has no domicile, place of business, statutory domicile or place of management
in Turkey (VATA, Article 9).
[D]
Tax Base
The consideration paid for the supply of goods and services makes up the base on
which the tax is calculated (VATA, Article 20). For imports of goods, the import value
calculated on CIF basis and including all taxes, duties and fees for importation makes
up the base (VATA, Article 21). All expenses of transportation, packing, insurance, etc.
made by the seller up to the place of delivery are included in the tax base (VATA,
Article 24), whereas discounts made in line with commercial usage and the VAT
calculated are excluded from the tax base (VATA, Article 15).
[E]
Tax Rate
The rate structure of VAT is similar to that of the EU. The basic tax rate which the Act
stipulates is 10% (VATA, Article 28). The Council of Ministers is empowered to
increase the rate up to 40 % and to decrease it to 1 % , and this power may be used for
rate differentiation for goods and services. At present the standard rate is fixed at 18 % .
For goods of basic alimentation a reduced rate of 8 %, and for agricultural products,
etc., a reduced rate of l %, is in force. The increased VAT rates of 26% and 40% applied
on luxury items are abolished as from August 1, 2002 as a result of the introduction of
the special consumption tax.
[F]
Techniques of Assessment (Verginin Tarhz)
Each month of the calendar year is a separate term of assessment. Taxpayers are
required to deliver their monthly returns until the 24th of the next month and pay the
VAT due until the 26th of that month (VATA, Articles 41-46). The expenditures of the
taxpayer chargeable and therefore the VAT payable is arrived at by deducting the VAT
prepaid for purchases during the taxable period (month) from the VAT calculated on
the deliveries in the same term of taxation. In other words, VAT paid on inputs (VAT
paid as an input tax) is deductible from the tax calculated on outputs (VAT calculated
as an output tax). As a rule, the balance remaining after the deduction of the input VAT
may not be claimed from the tax office; instead, it is carried forward to the next taxable
period. A refund for excess input VAT is, however, granted with respect to input VAT
200
12.0S[A]
Chapter 12: Tax Law
related to supplies which are zero rated and supplies subject to the reduced rate
(VATA, Articles 29, 32).
Tax Advantages
[G]
Since the VAT A adheres to the destination principle for the taxation of goods and
services circulating between countries, among the privileges provided by the Act the
most important is that on exportation of goods and services (VATA, Articles 11 et seq.)
The delivery of goods for a client outside Turkey or the performance of services which
benefit a client abroad are not liable for VAT (zero rated). On the other hand, VAT paid
as an input tax on exports (namely VAT paid for the inputs of goods exported) is
refunded to exporters (VATA, Articles 11 / c, 3 2) .
A tax refund for tourists' purchases of goods in Turkey is also possible within the
scope of exemption on exports (VAT A, Article 11 /b). The same exemption is also
provided for on the principle of reciprocity for the purchases of those who benefit from
diplomatic immunity in Turkey.
Among the miscellaneous tax advantages stipulated by the Act, the following
may be cited: Exemption for Turkish public bodies; exemption for imports made for
social and military purposes; exemption on transit transportation, etc. (VATA, Articles
13-17).
12.05
PROCESS OF TAXATION
In this subsection the general mechanism of taxation will be discussed by summarizing

the principles and provisions of the CTP, the Code on the Collection of Public Claims
and of respective tax laws. Taxation is meant here as the creation of a specific tax
liability and the following legal stages for assessment and collection thereof:
[A]
Prerequisites
The Turkish tax law sets forth some prerequisites for the assessment of any tax
whatsoever:
(a) As a result of the maxim of legality of taxes, there must exist a law or a
provision in force to impose a tax on any person, asset or transaction.
(b) According to the budgetary system, the government should be empowered to
assess and collect a specific tax during the current year by the inclusion of that
item of revenue in the annual budget (the principle of prior authorization).
(c) The event generating the tax must occur. This event, whether economic,
legal or even natural, establishes the causal relation between the taxpayer
and the tax (earning income, ownership of an immovable, sale of a commodity, etc.).
201
12.0S[C]
Ahmet Kumrulu & Billur Yalu
The occurrence of a taxable event sets the person involved automatically in the status
of taxpayer. But this debt, though existing in the legal system, is very obscure by its
nature and the dimensions thereof need to be determined. This requirement takes us to
the next stage.
[B]
Preparatory Stage: Determination. of the Tax Base
In order to determine the amount of tax due some calculations are needed. First of all,
the determination of the specific tax base is required to the end of finding the amount
due by applying the tax rate.
There are two main methods for determining the tax base. The base is determined
and declared by the taxpayer; or the tax administration has the initiative for assessment. When the taxpayer possesses the initiative, he/she calculates the base and
informs the tax administration thereof by filing a return. In other words, this is the
method of self-assessment (beyan usulii).
As for the latter method, the tax administration uses its power for fixation either
by ex officio fixation (discretionary assessment, resen vergi tarhi) or by complementary
fixation (ikmalen vergi tarhi). Ex officio fixation is applied in cases like non-filing,
keeping false records or no records at all, etc. In complementary assessment (deficiency assessment) the amount of the tax base is fixed after filing and is determined
according to the taxpayer's return, records, and material evidence, etc.
After the completion of this preparatory stage, the next phase, which in a strict
and technical sense constitutes the taxation process, starts. But before proceeding it
would be convenient to point out that the stages of taxation explained here rather
diagrammatically do not exist in all taxation processes. Still the main lines described
represent the legal approach and technique underlying the Turkish system. In some
processes of taxation such as ex officio and complementary assessments, all these
stages are passed through one by one. But, as in the case where an entertainment tax
is paid by buying a ticket, only the last stage, which implicitly comprises all the former
stages, occurs.
[C]
Stage of Administrative Actions
This is the stage where the tax administration performs some acts for taxation which,
per se have legal consequences and hence are actionable. The respective acts of this
stage are: assessment (tarh); notification (teblig); accruing (tahakkuk); and collection
(tahsil).
After the determination of the tax base, the amount of tax due is calculated by
applying the rate to the base and in this way the tax is assessed (tarh). In selfassessment the taxpayer himself calculates the tax due on the return filed. In other
instances it is the tax administration that assesses the tax due. Assessment constitutes
an administrative act by itself in the sense of Continental legal systems and is
actionable. One characteristic of the Turkish legal system as regards assessment is that
this stage does not constitute an act to be completed once it is begun. The result to be
202
Chapter 12: Tax Law
12.06[A]
derived legally is that assessment is not sufficient for collection. The collection or
payment of the tax assessed is suspended to other stages.
First of all the taxpayer has to be notified about the assessment. If upon
notification the taxpayer accepts and pays the debt there arise no legal problems. In the
case where the taxpayer chooses to file an action within 30 days after notification, stay
orders automatically have effect and no collection can be made until the decision of the
tax court is rendered in favor of the tax administration. If the decision of the court
disfavors the claimant taxpayer then the third stage is reached and now the debtor is
obliged to pay the tax due. In other words, the stage of accruement sets the operations
for collection in motion. Yet the taxpayer has the right to appeal against the decision of
the tax court and when the final decision is in his favor, he gets a refund.
The tax that is due, accrued either by mere acceptance of the debtor or as a result
of legal mechanisms, is collected by the tax administration. And this ends the process
of taxation for a specific tax debt.
There exist some sanctions for the delinquent debtor. In addition to a delay
penalty, the tax administration may apply a lien and collect the proceeds of sale
according to the rules and provisions of the Code on the Collection of Public Claims.
[D]
Time Limits (Statutes of Limitation, Zaman A$lmi)
The CTP envisages a time limit for assessment (CTP, Article 114). After the occurrence
of the chargeable event, if no assessment and notification thereof is achieved within
five years starting from the first day of the calendar year which follows the date of
occurrence of that event, the expiry of the term of limitation occurs and the claimant
administration no longer possesses the right either for collection of the tax debt in
question or for any supplementary assessment. But before the date of expiry, the tax
office has the right to conduct such operations as tax examination, checking, control,
search, etc.
The Code of the Collection of Public Claims prescribes another time limit for the
stage of collection which is also five years, starting from the first day of the calendar
year that follows the date due for payment (CCPC, Article 102).
12.06
CONFLICT SOLVING IN TAX DISPUTES
Turkish tax law comprises administrative and judicial procedures as two main ways for
solving tax disputes.
[A]
Administrative Procedures
Administrative procedures aimed at settling disputes at the administrative level consist

of two tax reviews. These procedures may also be qualified as" amicable" methods for
conflict solving. Two main characteristics of these procedures are:
203
Ahmet Kumrulu & Billur Yaltl
12.06[B]
(1) Administrative appeals are optional in the sense that it is not compulsory for
the taxpayer to appeal for administrative review before suing.

(2) When the taxpayer who has chosen to ask for an administrative review is not
satisfied with the results of the review, he may still seek judicial relief by filing
a law suit in a timely manner.
[1)
Correction of Errors (Dtizeltme)
If the assessment has errors, which are of a rather simple nature, that is, which can be
discovered easily, the taxpayer may apply to the tax office for correction by filing a
protest. Miscalculation, wrong application of the rate and mathematical errors on the
tax return are errors that can be corrected (CTP, Articles 116-126). Such an appeal
should not pertain to a dispute arising from a point of law; disputes of this sort have to
be settled by the judiciary. If the tax office accepts the appeal, the dispute is solved. In
the case of a refusal, the issue may be taken by the taxpayer to the Ministry of Finance
for hierarchical supervision (~ikayet basvurusu). Upon any rejection at this level, the
taxpayer possesses the right to sue.
[2)
Conciliation Agreement (Uzla~ma)
The second method of conflict solving at the administrative level is conciliation

provided for in the CTP (CTP, Suppl. Article 113). This optional procedure may be
started by the taxpayer within 30 days after notification of the assessment. Conciliation
is a procedure of negotiation and agreement based on practical reasons for both of the
parties. When the debtor chooses to apply for conciliation, a conference date is set. If
a compromise among the parties is attained, the dispute is settled finally. In the case
where no solution whatsoever is agreed upon, the taxpayer may take the case to the tax
court. There also exists a special sort of conciliation which can be achieved before
assessment and upon the proposal of the tax office (pre assessment conciliation,
tarhiyat oncesi uzla~ma) (CTP, Suppl., Article 11).
[B]
Judicial Procedures
Tax law and tax adjudication aim at instituting a legal balance of interests between the
administration and the taxpayer. As a result of the constitutional principles of the rule
of law and of legality of administration, all acts and actions of the administration and
hence all acts of taxation of tax authorities are subjected to judicial review. It must be
stated here that the discretionary power of tax administration is very limited. Within
these principles and rules misinterpretation and misapplication of tax laws are
prohibited judicially. Judicial review is valuable for both stages of assessment and
collection. Different acts and actions of tax administration at these stages can be
referred to independent courts. Tax case may pertain to a point of law or it may stem
from a factual dispute.
204
Chapter 12: Tax Law
12.07
If an action is commenced at the stage of assessment it possesses the nature of a

remedy of annulment (iptal davasi). When the taxpayer sues the administration after
the collection of a tax, for example for a refund of the tax, then there is a full remedy
action (tam yargi davasi). In addition to taxes, administrative penalties can also be
litigated.
Within 30 days of notification the taxpayer may file a case with the tax court, and
at the stage of collection such different acts like the issuance of an order of payment or
the application of a lien can also be sued upon, though within different time limits.
As was mentioned above, at the stage of assessment, commencement of an action
by filing a petition has the effect of an automatic stay order on collection. If his case is
denied, the taxpayer must pay interest retroactively for the entire period of deficiency.
The decisions of tax courts may be appealed before the higher courts. There is
not, as a rule, any recourse against the decisions of higher courts, the precedents of
which are binding for the lower courts. This brief description needs to be supplemented
with some notes on the structure of the tax judiciary. The tax judiciary is situated
within the structure of the administrative judiciary where some courts have jurisdiction
solely on tax issues conflicts and function as the judicial authorities of first instance.
There are three judges assigned for each court and the court hears cases according to
the amount of the tax litigated. A single judge reviews some minor cases. When the tax
disputed exceeds a certain amount, the case is heard by a board of three judges.
Judgments rendered by a single judge court are reviewed only by the Regional
Administrative Courts (Bolge Mare Mahkemesi]. And those judgments of the tax court
issued by a board of three judges can, within 30 days after issue, be taken to the Council
of State on appeal. As mentioned above, there is as a rule that no recourse is available
against the decisions of higher courts that act as courts of last resort on tax disputes. It
should also be pointed out that as a result of the organization of the tax judiciary in a
structure of two levels, the decisions of Regional Administrative Courts cannot be taken
to the Council of State for further review.
The Council of State is the highest court in the administrative judiciary and has
mainly appellate jurisdiction. It also has the power to review the legality of some
governmental acts concerning delegated legislation as the Court of First Instance. Of
the 12 chambers of the Council of State, five have competence for tax cases. There also
exists a plenary session of the members of chambers with the venue to review the
judgments of tax courts that are contrary to the reversed decisions of the chambers.
During trials at courts of first instance and at higher courts, hearings may be held
upon request or ex officio by the judicial authority. Contrary to the commencement of
a case, appeals to higher courts do not create an automatic stay order; but a decision
may be rendered to that end.
12.07
PENAL LAW OF TAXATION
The CTP prescribes several sorts of violations of tax laws and their respective sanctions
(CTP, Articles 344-376). When considered as a whole the various offenses and their
12.07
relevant punishments may be classified in two groups. First, there exist some infractions of the law that are basically of an administrative and fiscal nature. These offenses
may cause a tax loss for the revenue service, or they may only bear the risk of creating
a tax loss in the future. The said offenses are dealt with in administrative and fiscal
ways and methods and are rather in the nature of misdemeanors. This category can be
classified as fiscal offenses and penalties. The tax administration is empowered to
apply the related sanctions and the judicial control of the relevant adlninistrative
penalizing acts lies within the jurisdiction of tax courts.
The CTP on the other hand, also envisages some offenses to be considered more
serious in the sense that they correspond to some acts in the nature of crimes in
criminal law. These offenses appear when the taxpayer violates the law through some
fraudulent means such as using fictitious names, false returns, false records, and
double-entry in bookkeeping, etc. (tax frauds). In addition to the fines for the said
offenses, the CTP also sets forth imprisonment as a sanction. These offenses are subject
to criminal prosecution and hence lie within the jurisdiction of criminal courts.
Derdiyok, T., The Turkish Taxation System, Ankara 1999.
Oneel, M., Kumrulu, A. & Nami <;:agan, Nami, Vergi,Hukuku, 22nd ed., Ankara 2013.
Ozbalc1, Y., Gelir Vergisi Kanunu Yorum ve Ar;iklamalan, Ankara 2012.
Ozbalc1, Y., Katma Deger Vergisi Kanunu Yorum ve A<;iklamalan, Ankara 2012.
Tekin, C. & Kartaloglu, E., Kurumlar Vergisi Kanunu Yorum ve Ar;iklamalan, 2nd ed.,
Istanbul 2010.
Uluatam, b. & Methibay, Y., Tiirk Vergi Hukuku, 5th ed., Ankara 2001.
206
CHAPTER
13
Banking Law
B~ak $it imamoglu'
13.01
SOURCES
Banking regulations have two ultimate objectives: to establish and maintain a

smoothly functioning banking system and to regulate the relations between the bank
and its customers who are the relatively weaker party in a banking transactions.
Turkish legislation and regulations ("order rules" diizen normu) cover both objectives
but emphasize the first objective.
Order rules are basically public law rules. In the field of banking law, the target
of these rules is to assure that banks function in a secure and safe way. The provisions
regarding the establishment, structure, operation and regulations relating to financial
reporting, auditing, supervision of banks and measures to be taken under certain
circumstances, credit limitations, capital adequacy, etc., can all be qualified as "order
rules". The breach of banking rules is generally sanctioned by certain measures applied
against the bank, and does not affect the legal situation created by a contract between
the bank and its customer.
The private law aspect of banking transactions is mainly governed by the terms
of individual contracts. The only provision in Banking Law regarding private law
aspects of banking transactions is on the right of withdrawal of deposits and participation funds (Article 61).
[A]
Banking Law (BL)
The main source of banking law is Banking Law, No. 5411. There are additional rules
regulating banking law in the Central Bank Law, Turkish Commercial Code (Comm.
* Assistant Professor of Law, University of Ankara.
Ba~ak $it imamoglu
13.0l[C]
C.), Capital Markets Law, Cheque Law as well as regulations, communiques and
decisions of the Banking Regulation and Supervision Agency (BRSA-Bankacilik Diizenleme ve Denetleme Kummu-BDDK -Agency).
Provisions of the Banking Law (Bankacilik Kanunu) (Law No. 5411 1), which is
the primary source of banking law, can be described as a unification of a new order
based on international standards (i.e., for corporate governance: Basel Accords,
European Union Directives), relevant doctrine and the extraordinary competence
granted to BRSA and the Savings Deposit Insurance Fund (SDIF-Tasarmf Mevduatz
Sigorta Fonu-TMSF).
The Banking Law establishes the financial structure of the banks according to
these international standards in order to attract foreign capital to Turkey and to carry
on external borrowing from foreign markets,.
[B]
Secondary Legislation
Another important source of banking rules is the Banking Regulation and Supervision
Agency which implements the powers assigned by the Banking Law through regulatory
actions and specific decisions of its Board (Kum[). The BRSA is also authorized to issue
regulations and communiques regarding the enforcement of the Banking Law (Article
93). It must be noted that the relevant regulations and,communiques are amended very
frequently. Therefore, one should pay special attention to determine the latest version
of the positive law.
Turkey has begun to apply Basel II rules2 in full. The harmonization process of
Basel II in the Turkish banking system has been realized through secondary legislation
issued by the BRSA.
Secondary legislation on the banking law varies widely. 3 The most influential are
on adequacy of reserves, 4 operations subject to permission, indirect shareholding,5
credit operations, 6 use of "own" funds,7 liquidity adequacy, 8 provision on internal
systems, 9 and provisions on the qualification of loans and other receivables.
[CJ
Form Contracts Term and Conditions
General contractual provisions (genel i~lem ko~ullan / ~artlan) attached to different

types of banking transactions, especially to loan and deposit contracts, to agreements
1. Publication, OG Nov. 1, 2005. Visit www.tbb.org.tr for an unofficial English version of the BL.
2. International Convergence of Capital Measurements and Capital Standards.
3. For an accurate list, visit www.bddk.org.tr.
4. Regulation on Measurement and Evaluation of Capital Adequacy of Banks (Bankalann Sermaye
Yeterlilifj.nin Olc;iilmesine ve De~rlendirilmesine jli?kin YOnetmelik).
5. Regulation on Operations of Banks Subject to Permission and Indirect Shareholding (Bankalann

I "zne Tabi jfi/emleri ve Dolayli Paysahiplifj. Hakkmda Yonetmelik).
6. Regulation on Credit Operations of Banks (Bankalann Kredi jfi/emlerine flipkin Yonetmelik).

7. Regulation on Banks' Own Funds (Bankalann Ozkaynaklanna j/i?kin Yonetmelik).
8. Regulation on Measurement and Evaluation of Liquidity Adequacy of Banks (Bankalann Likidite
Yeterlilifj.nin Olc;iilmesine ve De~rlendirilmesine flipkin Yonetmelik).
9. Regulation on the Internal Systems of Banks (Bankalann jc; Sistemleri Hakkmda Yonetmelik).
208
Chapter 13: Banking Law
13.02[A]
on checking accounts or capital markets operations are important areas of banking

regulation.
Banks are the stronger party to a contract with their customers. Clauses restricting the rights of the customer and providing for the exoneration of banks from their
obligations are usually unfairly to the advantage of the banks. Therefore, bank
customers as well as consumers are protected by law, namely by Code of Obligations
(Article 20 ff), Commercial Code (Article SS}, and Law on the Protection of the
Consumer (Article 6}. However, the protection provided for the bank customer is not
always as broad as that of an ordinary consumer. For example, if the customer is also
a "merchant", then he carries the burden of acting as a prudent businessman in all of
his business activities (Comm. C. Article 18 II}. Such a customer does not have the right
to claim that he was unaware of the provisions of general conditions in a contract.
13.02
TYPES OF BANKS
Banks differ according to the objective of their formation and its stated scope of
activity. There are three types of banks: Deposit banks and participation banks, which
are called "credit institutions" and development and investment banks (BL Article 3}.
Credit institutions are usually called commercial banks.
There is little difference between a deposit bank and a participation bank (katilrm
bankasi). Thus, these two types of banks are generally subject to the same legal
provisions.
Funds of a commercial bank are the savings of depositors (tasarruf) and their
own funds (ozkaynak). On the other hand, development and investment banks are not
authorized to accept deposits; they basically use their own funds and the money they
obtain from public offerings and from national or international financial institutions.
Therefore, commercial banks work with many branches ($Ube) while development and
investment banks work with fewer or even no branches.
[A]
Credit Institutions
[1]
Deposit Banks (Mevduat Bankalan)
Deposit banks are institutions operating primarily for the purpose of accepting deposits
and granting loans in their own names and for their own accounts (as per the
provisions of the BL} and their branches in Turkey of such institutions which have
established abroad (BL, Article 3}.
The term "bank" principally refers to deposit banks. 10 Unless otherwise permitted or decided by the BRSA, such banks have full capacity to perform all the operations
stated in Article 4 of the BL, except accepting participation funds and transacting
10. As ofJune 2013 deposit banks' share of the entire banking market is more than 80% [The Report
of BRSA on the General View of Turkish Banking Sector, 15 (www.bddk.org.tr}].
209
13.02[A]
Ba\)ak $it imamoglu
financial leasing services. The most common operations performed by these types of
banks are accepting deposits and granting loans.
Secondary banking operations, other than credit and deposits (i.e., portfolio
management, payment, counseling), are also performed by deposit banks due to their
number of branches.
{2]
Participation Banks (Katlhm Bankalan)
Participation banks are institutions operating primarily for the purposes of collecting
funds through special current accounts and participation accounts and granting loans
pursuant to the BL.
Unless otherwise permitted or decided by BRSA, such banks have the full
capacity to perform all the operations stated in Article 4 of the BL, other than accepting
deposits.
Special current accounts are accounts opened at participation banks that consist
of funds that can be partially or fully withdrawn at any time upon request and for which
no charge is paid to the owner of the account in return. The objective of special current
accounts is solely custodial, hence it qualifies as a bailment (vedia) .11
Participation accounts are accounts comprising funds collected by participation
banks that result in participation in the loss or profit t~at arises from their use by these
institutions. They do not require the payment of a pre-determined return to their
owners and do not guarantee the re-payment of the principal sum. Since the payment
of the principal sum is not guaranteed, the operational risk arising from such accounts
belongs to the owner. The prevailing opinion is to consider them as ordinary partnerships.12
{3]
Development and Investment Banks (Kalkmma ve Yatmm
Bankalan)
Institutions operating primarily for the purpose of granting loans and/or fulfilling the
duties assigned to them by their charters and the branches in Turkey of such
institutions established abroad are called development and investment banks. Since
development and investment banks' sources for granting loans are their own funds and
long term credits, such banks may utilize their funds according to long term financial
techniques. Therefore, unlike deposit or participation banks, development and investment banks support major investments and the reimbursement of loans granted by
such banks are met by the income deriving from the investment in which the borrower
has invested the credit.
Development and investment banks are subject to all provisons of the BL, other
than that issues specifically stated in the Law (on credit limitations, (Article 77 and
Articles 54-56, on restriction on property and commodity transactions, Article 57, on
11. Reisoglu, 121.
12. Reisoglu, 121; Tekinalp, 22.
13.03[A]
deposits and participation funds, Articles 61, 63, 64, 130.a, 131, on revocation of
operating permission decisions, (Article 106).
13.03
BANKING INSTITUTION (BANK AS A CORPORATION]
A bank must be established as a corporation (BL Article 7 I, a). Consequently, the

establishment procedure of corporations ("joint stock companies") required in the
Comm. C. must be followed unless otherwise provided in the BL. On matters on which
the BL is silent, relevant provisions of the Comm. C. must be applied.
[A]
Formation and Termination
[1]
Permissions for Formation and Operation
Pursuant to Article 6 of the BL, the formation and operation of a bank in Turkey or the
opening of the first branch in Turkey by a bank established abroad is subject to the
permission of the Board of the BRSA, providing that the formation conditions laid down
in the BL are fulfilled. Nevertheless, according to Article 333 of Comm. C., in regard to
(corporation) formation, none of the independent administrative authorities, including
the Board of BRSA is entitled to give permission in the formation of a corporation.
Article 333 of the Comm. C. revokes the formation permission authority of the
Board, but not the authority to grant permission to operate.
Pursuant to Article 10 of tl!e BL banks that are permitted to be established in
Turkey or permitted to open branches in Turkey within the framework of the
provisions of Article 6 of the BL are obligated to receive permission for operation from
the Board of the BRSA. The permission is to be given upon an application to be
accompanied by a declaration that covers all the activities set out in Article 4 of the BL,
within the framework of the limitations set out in the last paragraph of the said article,
unless otherwise decided by the Board.
[2]
Formation Conditions
Any bank to be established in Turkey shall meet the requirements provided in Article 7
of the BL, which are in harmony with European Union directives and Basel Principles.
As mentioned above, banks must be formed as corporations. The shares must be
issued in cash and must be registered, to secure full capitalization of the bank and
prevent anonymous shareholding.
The founders must meet the requirements indicated in Article 8 of the BL. It
should be noted that, although Article 7 speaks of "founders" indicating that the
formation of a bank cannot be accomplished as a one-man company, Article 338 I of the
Comm C. enables the formation of a one-man company13).
13. See also the Chapter on Business Associations.
211
13.03[A]
Ba(>ak $it imamoglu
Members of the board of directors shall have the qualifications set out in the
corporate governance provisions of the BL and shall have the professional experience
required for carrying out the planned activities.
The bank's envisaged fields of activity shall be in harmony with its financial,
managerial and organizational structure. Its paid-up capital, consisting of cash free of
fictitious transactions, should not be less than USD 30 million (appr. USD 15 million).
Its articles of incorporation shall not be in conflict with the provisions of the BL and the
Commercial Code.
There should be a transparent and open partnership structure and organizational
chart that will not constitute an obstacle for the efficient supervision of the institution.
There should not be any element that hampers its consolidated supervision.
The work plans for the envisioned fields of activity, the projections regarding the
financial structure of the institution including capital adequacy, the budgetary plan for
the first three years and an activity program including internal control, risk management and an internal audit system showing the structural organization must be
submitted.
For development and investment banks, paid-up capital shall not be less than
two-thirds of the amount provided above.
Pursuant to Article 8 of the BL, founders of a bank should also have qualifications
of financial strength and competence.
[3}
Requirements for the Opening of a Branch in Turkey by Banks

Headquartered Abroad
The opening of a first branch in Turkey by a bank established abroad is subject to the
permission of the Board (Article 6 I).
The Board has no discretionary power regarding an application for permission of
a foreign bank. That is to say, an application meeting all the conditions required by the
BL cannot be rejected by the Board based on its discretion. Nevertheless, the Board
may reject the application due to (among others provided in Article 7 of the BL), for
example, lack of professional experience required for carrying out planned activities
(Article 7Id) .14
Any bank established abroad that will operate in Turkey through a branch must
meet certain conditions enumerated in Article 9 of the BL.
Banks established abroad may open up representative offices in Turkey with the
permission of the Board provided that they do not accept deposits or participation
funds and that they operate within the framework of the principles to be set by the
Board (Article 6 IV).
The framework of principles regarding opening branches and representatives are
laid down in the Regulation on Operations of Banks Subject to Permission and Indirect
Shareholding.
14. Reisoglu, 202.
212

[4]
13.03[C]
Termination
Other than the provisions relating to dissolution and termination of corporations

provided by the Commercial Code, there are two other special instances foreseen by the
BL. These are the revocation of operating permission by the Board and transfer of the
bank to the Fund.
The BRSA is entitled to take various measures if the bank fails to fulfill the
requirements stipulated in Banking Law (Article 67).
If the BRSA determines that a bank has not taken proper restrictive measures, or
the continuation of the bank's activities will endanger the rights of the depositors as
well as the security and stability of the financial system, or the bank has not fulfilled its
obligations as they fall due, or the total value of the liabilities of the bank exceeds the
total value of its assets, or the dominant partners or managers of the bank fraudulently
use the resources of the bank for their own or others' benefit in such a manner that the
sound operation of the bank will be at stake, then the BRSA is authorized to revoke the
operating permission of that bank or to transfer the shareholders' rights (except
dividends) and the management and supervision of the banks to the Fund, for the
purposes of transferring, assigning or merging them with other banks partially or fully,
on condition that the loss will be deducted from the capital share of the existing
partners (Article 71).
[B]
Scope of Activity
In comparison with the former 'banking acts, Law No. 5411 is the only act that
enumerates the range of permissible activities for banks on an unrestricted bases.
(Article 4 Activities other than accepting deposits and participation funds, can be
performed not only by banks but by other financial and/or capital market institutions
as well. Therefore, it is stated that banks may carry out these activities without
prejudice to the provisions of other laws (Article 4 I). In other words, a bank wishing
to carry out such an activity (i.e., portfolio operations) has to fulfill the requirements
foreseen in the related legislation as well (i.e., permission of Capital Markets Board).
The Banking Board is also authorized to determine that other non-enumerated
activities are accepted as banking activities. Support and consultancy services, 15 over
the counter market brokering, 16 brokering in electronic fund transfers 17 are some
examples of activities determined by the Board that banks are allowed to carry out.
[C]
Shares and Shareholders
Besides ordinary shares, such as in any other corporation, the BL specifically foresees
qualified shares (nitelikli pay). Pursuant to Article 3, shares that represent, directly or
15. BRSA Decision 3.8.2006 Nr. 1947 (dated Aug. 10, 2006).
16. BRSA Decision 31.5.2007 Nr. 2196 (dated Jun. 5, 2007).
17. BRSA Decision 14.5.2009 Nr. 3183 (dated May 20, 2009).
13.03[D]
indirectly, 10% or more of the capital or voting rights of an undertaking, or that grant
the privilege to appoint members to the board of directors regardless of the share
amount, are qualified shares.
The shareholders owning qualified shares are required to meet the criteria
applicable to founders. These shareholders shall not use their preemption rights
until the percentage of their direct or indirect shares in the capital fall below 10 %
(Article 18 V).
Acquisition of qualified shares is conditioned on permission of the BRSA
(Article 18 I).
According to Article 18 IV of the BL, "transactions resulting in the number of
shareholders falling below five, and transferring of shares affected without permission,
shall not be recorded in the book of shares. Any records made in the book of shares in
breach of the foregoing provision shall be null and void".
Another important institution in banking law is indirect shareholding (dolayli
paysahipli[Ji). Since the Turkish banking system caused and experienced destructive
financial crises in the past, Turkish legislation places a great emphasis on "group
banking". Pursuant to Article 5 of the BL, for the purposes of determining indirect share
ownership by a real person, the shares belonging to a real person, his spouse and
children and the undertakings in which such persons participate with unlimited
responsibility as well as the shares belonging to undertakings controlled by such
persons individually or jointly, shall be taken info account. For the purpose of
determining indirect share ownership by legal persons, the shares belonging to them as
well as the shares belonging to undertakings which are controlled by them will be
taken into account.
[DJ
Board of Directors and Corporate Governance (Committees)
Pursuant to Article 23 of the BL, the board of directors of a bank should have at least
five members including the general manager. The minimum number of members is
also consistent with the provisions regarding credit and auditing committees while the
constitution of these committees also requires at least five board members.
Unlike the Commercial Code, the qualifications of the members of the Board of
Directors are prescribed by the BL. Besides the requirements provided in Article 8,
certain qualifications foreseen for the general manager in Article 25 (i.e., university
degree, 10 years of professional experience in the field of banking or business
administration) are also required for the majority of the board of directors (Article 23).
The general manager and the chairman of the board of directors cannot be the
same person.
There is no obstacle to legal persons becoming a member of the bank's board of
directors through a representative. In such a case, the qualifications applicable to real
persons required for the members of a board of directors should be satisfied by the
representative of the legal person. The other qualifications should be possessed both by
the legal person and the representative.
214
13.03[E]
At least a three-member board of managers, including the manager of the main

branch office, having the authority and responsibilities of a board of directors, shall be
established at the main branch office in Turkey, of a bank established abroad and opera.ting in Turkey through branches. The three-member board of managers shall be the
equivalent of the board of directors and the requirements set out for members of boards
of directors apply to the members of the board of managers as well (Article 23 II).
Under corporate governance principles the board of directors should establish an
audit committee for the fulfilling of audit and monitoring functions of the board of
directors. The audit committee shall consist of at least two members. Its members shall
be appointed from the members of the board of directors who do not have any
executive duties. For banks operating in Turkey as branches, a member of the board of
managers to whom no executive unit is attached shall be appointed to fulfill the duties
of the audit committee.
Members of the audit committee shall have the qualifications stipulated by the
Regulation on the Internal System of the Banks.
The audit committee shall, once every six months at the maximum, report the
result of its activities to the board of directors; the measures taken by the bank; the
practices that need to be introduced; as well as other matters that it deems necessary
for the sound operation of the bank.
Another important committee is the credit committee which can be described as
a sub-board of directors with regard to extending loans. The board of directors may
assign the power to extend loans to the credit committee or head office within the
framework of principles and procedures set by the Regulation on Credit Operations of
Banks.
A credit committee composed of a minimum of two members is to be elected by
the board of directors from among its members, who satisfy the same conditions as
apply to a general manager other than the term specified in Article 25 of the BL and
bank general manager or deputy general manager may be empowered to perforrp the
duties assigned by the board of directors in connection with credits.
For foreign banks operating in Turkey through branches, the board of directors
functions as a credit committee as well.
The board of directors may delegate credit extension powers to the credit
committee and office of general manager at a maximum rate of 10% and 1 % of equity,
respectively.
Resolutions adopted by the credit committee unanimously are directly implemented while resolutions adopted by a majority of votes are put into implementation
after the approval of the board of directors.
[E]
Independent Auditing and Supervision
Banks are subject to internal, independent and public auditing (supervision). Among
these, the most important ones are independent auditing and supervision.
Ba~ak $it imamoglu
13.04[A]
Independent auditing of banks is performed on consolidated and nonconsolidated basis.

The final objective of independent auditing is to reflect a corporation's real
financial situation in its financial reports and to keep interested parties informed.
Provisions of the Commercial Code regarding independent auditing are mainly
parallel to that of the BL. Problems resulting from differences between provisions on
the preparation of financial statements or the appointment of the auditor should be
solved by the joint interpretation of the BL, Comm. C. and Decree Law No. 660,
together.
Supervision of banks is carried out by the BRSA. In order to maintain the
efficiency, sustainability, and proficiency of supervision, the BRSA makes an audit on
the basis of a risk-focused method in accordance with international accords.
Supervision consists of an independent process and is different for each bank
depending on its risk profile.
According to the result of its supervision, the BRSA may decide to take relevant
measures provided for in Articles 68-70 of the BL.
13.04
THE REGULATION OF SOME IMPORTANT BANKING

TRANSACTIONS
As mentioned above, banks can act as intermediaries between savers and entrepreneurs. Therefore, accepting deposits and granting loans are the most important
banking transactions. Hence, Turkish legislation contains provisions in its BL only with
regard to these two transactions. However, the private law aspects of these transactions is not regulated under the BL.
[A]
Deposit Transactions
A deposit is money acquired by a bank, with or without consideration to be returned on

a certain date of maturity or whenever it is withdrawn. Only deposit banks are
permitted to accept deposits. Other types of banks, institutions, other real or legal
persons are forbidden to accept deposits.
Overseas branches and undertakings of credit institutions established in Turkey
will carry out transactions for the preparation of deposit books and other relevant
documents pertaining to the collection of funds, in the country where they operate.
Under no condition should books or documents pertaining to collection of funds be
prepared or granted in Turkey by such branches and undertakings (Article 60 V).
Credit institutions shall classify deposit accounts and participation fund accounts
according to maturity and type as determined by the Central Bank upon receiving the
opinion of the Board and shall segregate their saving deposit accounts and participation
funds belonging to real persons from other accounts (Article 60 VII).
216
---
----------------------

[B]
13.04[B]
Loan Transactions
The Turkish legislative approach to loan transactions can be described as recognizing

any transaction that bears risk and includes a deferred payment to be made by banks
as a loan. This approach appears mostly in the definition of loan. According to Article
48 of the BL, cash loans and non-cash loans such as letters of guarantee, counterguarantees, suretyships, avals, endorsements, acceptance loans and commitments
bearing such characteristics, bonds and similar capital market instruments that have
been purchased, funds lent through making a deposit or other ways, receivables arising
from the deferred sales of assets; overdue cash loans, accrued but non-collected
interests, values of non-cash loans that have been converted to cash, receivables
incurred from reverse repurchasing transactions, risks undertaken within the scope of
futures and option contracts and other similar contracts, partnership shares and
transactions recognized as loans by the Agency are considered loans.
The three important consequences attributed to a "loan" are credit limitations,
provisions (terms) and capital adequacy.
The credit limitations in connection with a bank's own funds are based on risk
groups. Pursuant to Article 49 of the BL, there are four risk groups: General risk group,
a risk group in which the bank itself is involved, public banks risk group (kamu
bankalan risk grubu) and public institutions risk group (kamu kurulu$lan risk grubu).
A bank granting a loan to a real or legal person or to one of these risk groups is limited
to 25 % of its own funds (Article 54). If the restriction and threshold related to the
standard ratios set in the BL are reached or exceeded, the bank shall promptly inform
the Agency thereof. The excess o:t limitations set forth in the BL and in the relevant
regulations must be remedied within the framework of the principles and procedures
determined by the Regulation on Credit Operations of Banks.
Pursuant to Article 53 of the BL, banks must prepare, implement and regularly
review their policies regarding compensation for the damages that have arisen or are
likely to arise in connection with the loans and other receivables and to reserve an
adequate level of reserves against impairment in the value of other than those assets,
for the quality and classification of assets; receiving of guarantees; measurement of
value and reliability of them, monitoring the loans under follow-up and the re-payment
of overdue loans, and establish and operating the structures that will execute all these
transactions.
Capital adequacy means keeping adequate funds against losses that could arise
from the risks encountered. Banks are obliged to calculate, achieve, perpetuate and
report their capital adequacy ratio, which shall not be less than 8 % of their own funds.
As of June 2013, the minimum capital adequacy ratio amongst Turkish banks belonging to participation banks is determined as 14.8. 18
18. See the Report of BRSA on the General View of Turkish Banking Sector (www.bddk.org.tr).
Ba~ak $it imamoglu
13.06
13.05
ELECTRONIC BANKING
Electronic banking Ce-banking} refers to conducting, performing and finalizing banking

transactions within the electronic environment. Therefore, it is not a new banking
transaction, but a new environment and instrument. From the perspective of the bank,
e-banking includes ATM transactions, credit card and SWIFT transactions, electronic
fund management, capital markets operations, informing and counseling, granting
loans, etc. E-banking functions through multilateral and bilateral contracts, central
electronic instruments and the networks related thereto.
There are no special regulations in Turkish law regarding e-banking. But, in
conformity with the prevailing approach, the Turkish Court of Appeals decided that 19
since banks benefit from e-banking, they should also bear the risk deriving therefrom
so that the benefit-loss equilibrium will not be jeopardized. Technical problems need
technical solutions. That is to say, although the solution to such problems are
expensive and onerous, since it is the bank that opens the gate to e-banking than it
must again be the bank who carries the burden.
13.06
CONFIDENTIALITY
Pursuant to Article 73 of the BL, the chairman and Board members and Agency
personnel as well as the Chairman and members of the Fund Board and the Fund
personnel should not disclose the confidential information that they acquire during the
performance of their duties pertaining to banks as well as their associates, subsidiaries,
jointly-controlled undertakings and customers, to anybody other than those who are
authorized by the BL and those who are authorized by special provisions of the law and
they should not use such information for their own or other's benefit. The outsourcing
institutions from which the Agency receives support services and the employees of
such institutions shall also be subject to this provision. This obligation continues even
after leaving office.
Those who, by virtue of their positions or in the course of performance of their
duties, have access to confidential information about banks or clients are not permitted
to disclose such confidential information to any person or entity other than the
authorities expressly authorized by law. This confidentiality obligation survives termination of employment contracts (Article 73 III}.
Confidentiality can be evaluated within the scope of Articles 23-25 of the Civil
Code regarding the protection of personality, as well.
Arkan, S., Ticarf j~letme Hukuku, 18th ed., Ankara 2013.
Reisoglu, S., Bankacilzk Kanunu $erhi, Ankara 2007.
19. 11. HD, Nov. 24, 2006, 11943/12226.
218
13.06
$it, B., 6102 Sayili Tiirk Ticaret Kanunu Kar;;ismda Banka Anonim $irketi, Batider
2012, Vol. XXVIII, Nr. 4, p. 175 et seq.
$it, B., Tiirk Hukukunda Banka Kredisi Kavrami ve Euna Baglanan Sonw;lar, Ankara
2011.
Tekinalp, U., Banka Hukukunun Esaslan, 2nd ed., Istanbul 2009.
CHAPTER
14

Tugrul Ansay & Eric Schneider*
14.01
OVERVIEW
Turkish private international law (devletler ozel hukuku) includes choice of substantive law issues (conflict of laws, kanunlar ihtilafl) and problems of international civil
procedure. The rules relevant to these matters are found in the Statute Regarding
International Private Law and Procedure ("Statute", Milletlerarasi Ozel Hukuk ve Usul
Hukuku Hakkmda Kanun), enact~d on November 27, 2007. 1 Previously, a Statute of
1982 regulated these issues. There are other statutes that contain choice of law or
procedural provisions as well as many international agreements, both multilateral and
bilateral, to which the Turkish Republic is a party. International agreements with
choice of law or procedural rules are not affected by the Turkish Statute Regarding
International Private Law and Procedure (Article 1 II).
The provisions of the Statute do not specifically regulate all issues of conflict of
laws and international procedure relating to business transactions. As in the past,
scholarly publications and decisions of the Turkish High Court of Appeals (Yargitay)
will probably contribute to the law in this regard.
14.02
GENERAL CHARACTERISTICS OF TURKISH PRIVATE

INTERNATIONAL LAW
Former Turkish Statute of 1982 on private international law followed a model adopted
by most countries facing outward migration. Affected by the nationalist movements of
* Prof. Dr. Tugrul Ansay, M.C.L., LL.M. (Columbia): Emeritus Professor, Km;: University, School of
Law, Istanbul. Prof. Eric Schneider, JD., LL.M. (NYU): Emeritus Professor, University of
Baltimore School of Law, Baltimore, Maryland.
1. Dated Nov. 27, 2007, Law numbered 5728. See Annex.
221
14.03
the nineteenth century, they followed choice of law concepts and procedural rules,
which required the application of the national law of the parties to disputes. In matters
of personal status, such as marriage or divorce, parties were subject to the common
national law of the parties or to the national laws of each party involved. Similarly, the
Turkish Code of Civil Procedure gave exclusive jurisdiction to Turkish courts on
matters of the personal status of Turks even if they were domiciled in other countries.
Economic and social conditions changed drastically in and outside of Turkey
after 1982. Millions of Turks left their hometowns or villages in Anatolia to work in
different countries, especially in Western Europe. There was also a dramatic increase
in the number of foreign tourists in Turkey. Turkish business people occasionally
became involved in legal conflicts or were faced with the application of Turkish law.
They had disputes arising from contracts for the purchase of real or personal property
or were involved in tortuous acts. Even emigrant Turks, returning to spend their
summer holidays in Turkey, became involved in problems of a transnational nature
when, for example, their foreign registered car caused a traffic accident in Turkey,
Another development affecting Turkish private international law was the considerable increase in international business activity in and outside of TurJr
Turkish
import and export trade expanded immensely and foreign investment in Turkey was
encouraged and increased during the last decades (See Chapter 16 on Foreign Investment). As a result, many foreign companies conduct business in Turkey either directly
or through representatives or branch offices. Similarly, Turkish companies are operating in foreign territories.
The primary objective of the new Statute of 2007 is to bring Turkish private
international law closer to the law of the European Union and follow the trend of
modern conflicts rules is to favor the application of the law of "habitual residence"
(rather than nationality) of the parties to a dispute. It also gives guidance to foreign
judges in determining the governing law in cases where Turkish nationals are involved
in a case pending before a foreign court, even if the applicable provision of the Statute
refers to persons in general, whether Turkish or foreign.
0
14.03
".
GENERAL PROVISIONS
How a court characterizes a case can be important to the choice of which law governs
that case. For example, if the basis of a conflict is characterized as a "contract" then the
law of the place of making the contract might govern rather than the place of breach.
If the case is characterized as "tort," the law of the place of injury might govern. The
Turkish Statute does not contain a general provision regarding whether the law of the
forum or of a foreign legal system should determine the characterization of a legal
issue. However, authorities generally agree that the law of the forum will determine
this. 2
Conflicts of laws issues may arise when a judge, after having decided that foreign
law governs a case, finds that the foreign law's conflicts of law rules refer to another
2. Nomer, 99 et seq.
222
Chapter 14: Private International Law
14.03
country's law. On this issue of renvoi the Turkish Statute states that a Turkish judge
will use the internal substantive law of a foreign jurisdiction when the applicable
conflict of laws rule of that jurisdiction defers to another foreign law in matters of
personal status, which also includes family relations (Article 2 III).
Another general provision of the Statute prohibits the application of foreign law
by a Turkish judge if it "obviously" conflicts with the Turkish ordre public (Article 5).
A finding that a foreign law is contrary to Turkish "ordre public" does not, however,
always result in the automatic application of Turkish law. If a foreign law is found to
be against Turkish ordre public, a Turkish judge may apply Turkish law only if
"necessary." In addition, the requirement that foreign law not be applied only when it
is "obvious" that it conflicts with the Turkish ordre public demonstrates a legislative
intention to limit the use of ordre public to extreme cases. There are not many cases
involving business transactions in which a Turkish court has rejected the application of
foreign law due to an obvious conflict with the Turkish public order.
The application by a foreign judge of a law that is in "obvious" conflict with the
Turkish public order can endanger the enforcement or recognition of foreign judgments
in Turkey. Furthermore, a Turkish judge can refuse to recognize and enforce a foreign
arbitral award on the ground that it violates Turkish public order even without a
finding that the conflict is "obvious." Similarly, a Turkish court will not enforce
agreements to submit to the jurisdiction of a foreign court if it finds that the Turkish
ordre public demands that Turkish courts have exclusive jurisdiction (Article 47 I).
Here again, a finding of an "obvious" conflict with the Turkish ordre public is not
required.
In its general part, the Statut.e also includes a provision on the formal requirements of legal transactions. Under Article 7, a legal transaction may be concluded
according to the formal requirements prescribed by the law of the place where it is
entered or by the law which governs the substance of the transaction. This alternative
formulation makes it possible for the parties to choose the applicable law for the formal
requirements of their transaction. 3
In situations where only one party has acted, such as the creation of a power of
attorney, the place where the transaction occurred determines the validity of the form. 4
A power of attorney or representation sent from a foreign country to Turkey is valid if
its formalities conform to the requirements of the country where the power was
created. 5 Similarly, a notice sent to put another party in default, or to inform them that
delivered goods are defective, is valid if it conforms to the laws of the country from
which it is sent. Turkish courts will recognize declarations if they meet the formal
requirement of the country in which they were made. As a result, a document prepared
or ratified by a notary public will be accepted as a public document, if the law of the
country of the notary authorized the notary to issue or notarize that particular
3. Tekinalp, 112; Nomer, 207-208.

4. Nomer, 209.
5. Nomer, 210.
223
14.04[A]
document or declaration. 6 It should be noted that Turkish law also authorizes Turkish
consuls in foreign countries to act as notaries for the notarization of acts or transactions
of Turkish nationals.
The Statute also contains specific Articles on the formal requirements of particular legal transactions in which the general rule regarding formalities stated in Article 7
are repeated. These specific provisions recognize, for example, the validity of dispositions of property intended to take effect at death (Article 20 IV) and the validity of
marriage ceremonies if they conform to the formality requirements of the substantive
law of the place where celebrated (Article 13 I).
The law of the place where real property is located governs formalities regarding
transactions in real property (Article 21 IV). Thus contracts dealing with the transfer of
title to land located in Turkey must conform to Turkish formalities without regard to
the location or nationalities of the parties or the place of contract formation. This is also
true for creating mortgages on immovable property located in Turkey.
Negotiable instruments are recognized in Turkey as being valid if they are issued
according to the formal requirements of the country where they were signed. 7
However, a subsequent undertaking on a negotiable instrument will be valid only if it
meets the formal requirements of the country where the subsequent undertaking is
made. Furthermore, a negotiable instrument issued by a Turkish national in a foreign
country in compliance with Turkish law will be recognized as valid against another
Turkish citizen in Turkey. 8
Another general n,ile applicable to all matters deals with statutes of limitation.
Article 8 of the Statute 1characterizes statutes of limitation as matters of substantive
rather than procedural law9 and directs that they are to be determined by the law of the
place where the primary transaction or relationship occurs. Statutes of limitation
regarding negotiable instruments are regulated differently in the Commercial Code,
which provides that a statute o-f limitation period be calculated according to the laws of
the place where the negotiable instrument was issued. 10 If there is no statute of
limitation period under the governing foreign law, or if the limitation period is
extremely short, a party may object that the foreign law is contrary to Turkish ordre
public. 11
14.04
[A]
SPECIFIC RULES OF CONFLICTS OF LAW
Personal Status
Due to the increased number of Turkish citizens living abroad, most of the Statute is
devoted to the regulation of problems of personal status, such as marriage, divorce or
6_ Nomer, 210. 12- H.D. (Court of Cassation, Nov. 1, 1983, Yarg1tay Kararlan Dergisi (YKD) 1984,
266-268_
7. Comm_ C. Arts 767, 771 and 820_
8. Comm. C Art. 767. On issuing protest see Comm. C. Art. 768.
9. The law of the forum usually governs procedural issues_
10_ Comm. C. Arts 769, 778, 818.
11- <;:elikel & Erdem, 465; Nomer, 213.
224
14.04[C]
the status of children. National law basically governs matters of personal status, but the
Statute allows the law of the country of domicile or habitual residence to govern if the
parties involved do not have the same nationality. And, in cases involving children, a
court may not apply a law if it is not in the best interest of the child.
[B]
Capacity
Capacity to contract is an important issue in conducting business transactions. The

legal capacity of a real person to have rights or to act is governed by his national law.
However, under the Statute, if a foreigner who transacts business in Turkey is legally
competent under Turkish law but lacks legal capacity under his national law, he is
bound by the legal transaction (Article 9 I and II). An exception to this rule is that the
legal capacity to conduct transactions related to immovable property in a foreign
country is determined by the law of that country (Article 9 II).
Turkey is not a signatory to international agreements regulating the capacity of
legal persons. Under the Statute, the capacity of legal persons to be holders of rights or
to act are governed by the law of the location of their administrative center designated
in their statutes (Article 9 IV). This law determines when and whether a foreign legal
person exists, 12 the extent of its capacity to enter into transactions, the legal status of
the various constituent parts of the legal person, the legal relationships between
members, partners or shareholders and legal relationships between these persons and
the legal person. 13 If, however, the actual center of administration of a foreign entity is
in Turkey, Turkish law may be applied on the issue of its legal capacity.
The Statute applies to busiftess associations with legal personality such as
corporations, partnerships with limited liability and other commercial partnerships as
well as to non-profit-sharing societies and foundations, which have legal personality in
Turkey. It does not regulate the applicable law to the internal relations of the
corporations.
[C]
Property
Article 21 of the Statute concerns ownership and other interests in movable or

immovable property, like liens, mortgages (hypothec], usufructs, easements, and flat
ownership. The law of the country where the property is located governs these rights.
Ownership interests in goods that are in transit are, however, subject to the law of the
place of destination. The law of the last location of the property governs rights in rem
(real rights) in property that is not yet acquired if there has been a change of location
(Article 21 II and III). However, real rights in air, sea and rail transportation vehicles
shall be governed by the laws of their country of origin, which is generally is
determined according to the place of registration (Article 22).
12. Tekinalp, 80 et seq.

13. Tekinalp, 73.
I,
225
I
!I
,,
14.04[D]
Rights in intellectual properties are governed by the law of the country where
protection is sought (Article 23). The Turkish Law on Copyrights states that Turkish
law will govern copyright interests in works that are first made available to the public
in Turkey. 14
[D]
Contracts (and Unilateral Declarations)
The basic principle of the Statute is to allow persons freedom of contract. Parties to an
agreement may choose the applicable law to govern future contractual disputes arising
out of their contract at any time, even during court proceedings (Article 24). This
agreement on applicable law must be explicit. It is, however, sufficient if it is
understood clearly and beyond doubt from the provisions of the contract or from the
relevant circumstances that the parties have agreed on the applicable law.
However, laws of the forum concerning consumer protection, labor law, insurance, restrictive trade practices and other protective legislation, cannot be avoided by
the parties' agreement on which law shall govern their contract. 15 If a governing law
has not been explicitly chosen, the Statute foresees that, as a rule, the law of the
country which is most closely connected with the contract should govern. The Article
24 of the Statute reflects Article 4 of the EU Convention on the Applicable Law to
Contractual Relations of 1980. This Article 24 regulates the details of this general rule
of "close connection", according to which, the most closely connected law will be
determined by referring to the place of the characteristic performance of the obligor.
The place of characteristic performance is determined according to the place of
habitual residence at the time of the enactment of the contract. For contracts related to
commercial or professional activities, this is the place of business of the obligor of the
characteristic performance. If t_here is no such place of business, the law of his domicile
will be applied. If there is more than one place of business of the obligor of the
characteristic performance, the law of the country to which the place of business is
most closely connected is considered as the place of performance. Nevertheless, if
there is a law more closely connected with the contract, after considering all relevant
circumstances, the contract shall be governed by this law (For the presumption of close
connection, see also Article 29 on carriage of goods).
Contracts relating to immovable property or their use shall be governed by the
law of the country where such property is located (Article 25).
For consumer contracts, as a rule, the law of the habitual residence of the
consumer shall be applied. If the parties have chosen the applicable law, this law may
not prejudice the rights of the consumer available under the laws of his habitual
residence (Article 26).
On disputes deriving from labor contracts, if there is no agreement among the
parties on the applicable law, the law of the country where the employee habitually
14. Fikir ve Sanat Eserleri K. Art. 88 II.

15. Namer, 331 et seq.
226
l
l
;.
14.05
carries out his work will be applied. If, however, the employee does not habitually
carry out his work in a specific country, but in more than one country, the law of the
country where the principle place of business is situated is applied. If there is another
law which is more closely connected with the employment contract, this law shall
govern (Article 27 III and IV).
In intellectual property disputes, if the parties have not agreed on applicable law,
the law of the place of business of the party transferring intellectual property rights or
assigning their use, shall be applied. If there is no such place of business, the law of his
place of habitual residence shall apply. If, however, there is another law, which is more
closely connected with the contract, this law shall apply (Article 28).
[E]
Torts
For disputes regarding torts, the place where the tortuous act is committed or where the
damage occurs determines the applicable law, unless there is a relationship of an
obligatory nature underlying the tortuous act, which is more closely connected with
another country (Article 34). This rule is significant in cases arising out of traffic
accidents in Turkey that were caused by foreigners or Turks who reside in a foreign
country and are only visiting in Turkey. Generally these persons travel back to their
country of residence where they realize the greatest damaging effects of the tort.
Unfair competition disputes are governed in two different ways. Normally
liability for damages shall be governed by the law of the country whose market is
directly affected by the act of unfair competition. If, however, only the interests of the
plaintiff are damaged, then the law of the country where the place of business of the
damaged party is located shall be applied (Article 3 7).
Liability for violation of "personality" and the non-contractual liability for
producers of goods are also covered in the Statute (Articles 35 and 36).
[F]
Unjust Enrichment
The law of the place that governs a legal relationship governs whether a party to that
legal relationship is entitled to compensation for unjustly enriching another party in the
relationship. If an unjust enrichment is not the result of a legal relationship the law of
the place where the unjust enrichment has occurred will govern (Article 39).
14.05
INTERNATIONAL LAW OF PROCEDURE 16
The provisions of the Statute on procedural matters are basically the same as the
previous law.
'
!
16. See, Poroy & Oziilkii, "Turkey'', Enforcement of Foreign Judgments, (eds.: Garb & Lew, 1997)
which contains a list of international conventions to which Turkey is a signatory.
14.0S[A]
International procedure involves four basic issues:

(1) When does a Turkish court have jurisdiction in a dispute involving foreign
parties or interests?
(2) If a Turkish court has jurisdiction, which county's procedural rules apply?
(3) If a foreign law governs a dispute before a Turkish court, how will the Turkish
judge determine the content of the foreign law?
(4) Finally, under what circumstances will foreign court decisions be recognized
and enforced by Turkish courts?
[A]
Jurisdiction
(1)
Agreements on Jurisdiction
The Statute gives persons freedom to agree on which country's courts will have
jurisdiction over contractual relations that involve foreign elements or interests. 17 This
is, however, only possible if the jurisdiction of Turkish courts is not exclusive or not
determined by ordre public (Article 47). Turkish courts have exclusive jurisdiction over
disputes related to immovable property located within Turkey. 18 Turkish courts may
also have exclusive jurisdiction over law suits deriving from contracts entered into by
agents against foreign businesspeople doing business through agents in Turkey. 19 This
rule may not be eliminated by an agreement of the parties (Comm. C. Article 105 II).
The jurisdiction of the Turkish courts may also not be avoided on matters deriving from
labor contracts or labor relationships, from consumer or insurance contracts (Article 44
et seq. 47 II).
The parties may enter into a jurisdiction agreement. The Code of Civil Procedure
allows such agreements only between merchants (Article 17). To be valid they should
be made in written form (Statute Article 47 I, Code of Civ. Pr. Article 18. An agreement
on jurisdiction may be proved only if there is a written proof). For some time the
Turkish High Civil Court of Appeals held that an agreement on jurisdiction did not
deprive Turkish courts of their normal international jurisdiction but gave only an
alternative jurisdiction in which a claimant could sue. 20 In more recent decisions the
Supreme Court has held that an agreement on jurisdiction can give jurisdiction to a
foreign court and Turkish courts will not have concurrent jurisdiction. The new Statue
solved this problem by allowing jurisdiction to Turkish courts in such cases, only if the
foreign court considers itself as not having jurisdiction (Article 47 I). If a person is sued
in a Turkish court and wishes to defend on the basis of an agreement depriving Turkish
courts from having jurisdiction, the agreement must be raised as a preliminary
objection. 21
17.
18.
19.
20.
21.
Article 47 and Art. 22 C. Civ. Pr.

Namer, 500.
See Chapter on Agency.
HGIK (Court of Cassation), June 15, 1988, YKD 1988, 123.
Namer, 464f.
228
I.
14.05[A]
If the parties to a dispute involving international matters have no agreement on

jurisdiction, a Turkish court will determine whether it has jurisdiction based on its
internal rules of jurisdiction (Article 40). In making this decision, the nationality of the
parties is not conclusive. For real persons, courts located in the Turkish domicile of the
defendant have jurisdiction (C. Civ. Pr. Article 6). If the defendant has no present
domicile in Turkey, courts located in his habitual residence in Turkey have general
jurisdiction (C. Civ. Pr. Article 9). The domicile of legal persons is the place of their
administrative center (C. C. Article 51). The business center stated in a legal person's
statutes is considered as the equivalent of the domicile of a real person. Foreign
business associations may do business within Turkey through branch offices or agents.
Turkish courts will also have jurisdiction over foreign persons for disputes arising out
of contracts entered into or negotiated by their branches offices or agents (Comm. C.
Article 105 II). If the center of a holding company is outside of Turkey, the courts where
the domicile of the subsidiary is located have jurisdiction (Comm. C. Article 202 I e).
The Statute contains additional provisions giving jurisdiction to Turkish courts.
Lawsuits related to property may be initiated in Turkey at the place of residence of the
defendant. If the defendant has no known residence in Turkey, jurisdiction is at the
place where the property is located (C. Civ. Pr. Article 9). Turkish courts also have
jurisdiction over disputes arising out of contractual obligations if the obligation was to
be performed in Turkey (C. Civ. Pr. Article 10). Turkish courts also have jurisdiction
over obligations arising out of tort if the tort was committed or damage occurred or the
domicile of the damaged person is within Turkey (C. Civ. Pr. Article 16).
In addition, Turkish courts have jurisdiction over cases involving the personal
status of Turkish nationals even \Yhen they have no domicile in Turkey, if a suit may
not be brought to a court in a foreign country (Article 41). These cases are heard at a
Turkish court where the person resides. If there is no residence in Turkey, at the courts
of last domicile within Turkey; otherwise civil courts of first instance in Ankara,
Istanbul or Izmir have jurisdiction (Article 41) .22
{2]
Pending Process (lis pendis, derdestlik)
Occasionally lawsuits are brought in more than one court in Turkey. Turkish internal
law discourages this and allows parties to object to a second law suit. The objection
may be raised at any stage of the process (C. Civ. Pr. Article 114 et seq.) Unfortunately,
the Statute does not regulate situations in which lawsuits are brought in two different
countries. 23 It has been argued that the filing of a lawsuit in another country which has
jurisdiction, does not preclude bringing a lawsuit in a Turkish court. 24 Some bilateral
agreements between Turkey and foreign countries, however, explicitly state that
pending cases concerning the same subject matter, between the same parties, and
22. For inheritance cases see Art. 43. For personal status of foreigners see Art. 42.
23. Except the jurisdiction agreements, Art. 47 I.
24. Nomer, 442.
229
14.0S[D]
based on similar facts, precludes a new law suit in Turkish courts. 25 Some argue that
this is presently the law in Turkey, even without a bilateral agreement or treaty. 26
[B]
Lex Fori
Even in cases involving foreign substantive law, a Turkish judge will apply Turkish
procedural rules. 27 The Turkish court will apply the Turkish law on evidence and the
judge will evaluate under rules of Turkish law whether to admit the testimony of
witnesses or written evidence taken in a foreign country. 28
[C]
Proof of Foreign Law
There has been an evolving answer in Turkey to the question of whether foreign law in
a Turkish court is an issue of fact which the parties have the burden to prove, or an
issue of law which must be determined by the court. The present Statute on PIL and the
Code of Civil Procedure give a clear answer to this issue. According to Article 2 of the
Statute, the judge, ex officio, applies the Turkish conflict of laws rules and the
governing foreign law which is applicable according to these rules. This is also stated
in the new Code of Civil Procedure (C. Civ. Pr., Article 33). The judge is required to
apply not only foreign statutory law, but case law and doctrinal writings as well (Article
2 II). Thus foreign law must be treated not as a "fact" but as "law." If the foreign law
is applied wrongly, or not applied at all, it will be a ground of appeal because of
"misapplication of law". 29
The Turkish judge is not obliged to know the foreign law. 30 In determining the
content of applicable foreign law the judge may demand the help of the parties. When
the relevant provisions of the -foreign law applicable to the specific case cannot be
determined, the judge must apply Turkish law (Article 2 I). Turkey is a participant in
the European Convention on Information on Foreign Law of June 7, 1968, 31 which
enables a judge to get official information on applicable foreign law. A judge may also
require expert opinion to describe the rules of foreign law applicable to the particular
case.
[D]
Enforcement and Recognition of Foreign Court Decisions
Under Turkish law Turkish courts can recognize (tan1ma) and enforce (tenfiz) foreign
judgments. Generally the same rules apply to recognition and enforcement. Whether a
default judgment of a foreign court will be recognized or enforced is regulated in the
25.
26.
27.
28.
29.
30.
31.
Agreement by Turkey and Tunisia, 1982, Art. 2 f, <;:elikel & Erdem, 642.
<;:elikel & Erdem, 642.
Namer, 380 et seq.
Namer, 391 et seq.
Namer, 199 et seq.
Namer, 189.
OG Aug. 26, 1975.
230
14.0S[D]
Statute. Default judgments are enforceable if the judgment is validly given under the
laws of the country where it is rendered (Article S4 I, c;. See below section
14.0S[D][3]).
In practice, "payment orders" as well as other foreign "enforceable titles" are not
considered "judgments" within the meaning of the Statute and are therefore not
enforceable. 32
[1]
Enforcement Hearing
A foreign judgment, which is final under the laws of the country where it was entered,
will be recognized and enforced by a Turkish judge after a hearing is held to determine if
all the statutory preconditions necessary for execution or recognition are present. The
hearing is not a re-opening of the facts of the case, but is more than just a formality. The
judge must invite both parties to the hearing. He renders his decision after an inquiry
conducted under rules of simplified procedure. There is normally no review of the merits
of the original case and the defendant can only show that the statutory conditions for
enforcement do not exist or that the foreign court decision has already been fully or
partly fulfilled or that an event which hinders its fulfillment has meanwhile occurred
(Article SS II). The Turkish court may decide to enforce the judgment fully or partly, or
may refuse enforcement. This decision shall be written beneath the foreign court decision and signed and sealed by the Turkish judge (Article S6).
[2]
Reciprocity (Kaqnhkhhk)
The recognition or enforcement of a foreign judgment in Turkey requires reciprocity

(Article S4 I, a). Turkey has signed reciprocity agreements with some countries 33 but
reciprocity established by an international agreement is not a prerequisite for enforcement of a foreign judgment. De facto reciprocity is also sufficient (Article S4 I, a). If the
actual practice of a foreign country is to enforce Turkish court decisions, the decisions
of that country will also be enforced in Turkey. Such de facto reciprocity has already
been established for court decisions rendered in some of the Western European
countries, including England, Germany and Switzerland. 34 It is not clear if foreign
countries whose courts enforce Turkish judgments only after a review of the merits of
the case will be considered by Turkish courts as meeting the reciprocity standard.
32. Budak, 84-85.

33. Norner, 497 et seq.
34. c;:elikel & Erdern, 622 et seq.; Budak, 82 et seq.
231
14.05[D]
[3]

Ordre Public
A foreign judgment will not be enforced if it concerns a matter under the exclusive
jurisdiction of Turkish courts 35 or if it is obviously against Turkish ordre public (Article
54 I, b and c). When basic values of Turkish law are damaged, as when a party has not
had an opportunity to defend himself in court, it is assumed that Turkish ordre public
is damaged. 36 In particular, a foreign judgment will not be enforced if, under the law of
the foreign country, the person against whom the enforcement is sought has not been
properly summoned, or was not represented in court, or had a default judgment
rendered against him, which was contrary to the laws of that country. Enforcement in
these cases will be rejected if the party against whom the enforcement is sought raises
these objections in the Turkish court. 37
It has been argued that a foreign court decision will not be enforced in Turkey if
a similar case between the same parties has already been decided in Turkey. 38
[4]
National Treatment
Foreign judgments that have been granted enforcement in Turkey are treated like
Turkish internal court judgments and can be executed upon as if they were Turkish
court decisions (Article 57 I).
Ansay, T., American-Turkish Private International Law, New York 1966 (Mainly for the
law prior to 1982}.
Budak, A.C., Making Foreign People Pay, 1999.
<;:elikel, A. & Erdem, B., Milletlerarasi Ozel Hukuk, 11th ed., Istanbul 2012.
Namer, E., Devetler Hususi Hukuku, 20th ed., Istanbul 2013.
$anh, C., Milletlerarasi Ozel Hukuk, Istanbul 2013.
Tekinalp, G. & Uyamk, c;:., Milletlerarasi Ozel Hukuk, 11th ed., Istanbul 2011.
Tekinalp, G., "The 2007 Turkish Code Concerning Private International Law and
International Civil Procedure". Yearbook of Private International Law IX (2007}:
313-341.
35.
36.
37.
38.
Suits on immovable property located in Turkey. Nomer, 500 et seq.

Nomer, 505.
Article 54 I,<;.
<;:e!ikel & Erdem, 640.
232
I
CHAPTER
15
Foreign Investment
Bilgin Tiryakioglu *
15.01
FOREIGN INVESTMENT: HISTORY AND LEGISLATIVE

FRAMEWORK
The legislative framework of foreign investments under Turkish law is not solely
limited with domestic legislation, but reaches out to cover bilateral and multilateral
treaties to which Turkey is party, In this respect, some issues such as definition of
investment and investor, settlement of investment disputes, standard of treatment to
which foreign investments will be subject are governed by national legislation regarding investments, in conjunction with international law. On the other hand, forms of
investments are also subject to the provisions stipulated under some of the fundamental Codes, such as the Turkish Commercial Code and Turkish Civil Code, and other
regulations set out under the Turkish legal architecture.
The first legal initiative observed to have been undertaken in Turkey in order to
attract foreign investment into the country was known as Law No. 6224 on Encouragement of Foreign Capital,1 which was promulgated in 1954. 2 At the time when it
* Professor of Private International Law, Faculty of Law, Bilkent University, Ankara.
1. Law Nr. 6224, Jan. 18, 1954. OG 23 Jan. 23, 1954, Nr. 8615.
2. One must also consider two other significant steps that were taken prior to the promulgation and
entry into force of this law. The first is the Law on Guaranteeing Private Undertakings and Foreign
Currency Commitment (Law No. 5583, Mar. 1, 1950 (OG. Mar. 4, 1950). This law was abrogated,
together with Law No. 5821 on the Promotion of Foreign Capital Investment, after being in force
about a year (Law No. 5821, Sept. 8, 1951 (OG. Aug. 9, 1951). Law No. 5821 enabled foreign
investments to enter into the country, provided that it be used in matters open to Turkish private
capital and provided that it not constitute monopoly or grant privilege. The law opened up the
industry, energy, mining, public works, transportation and tourism sectors to foreign investments, and accepted profit transfer of foreign investment, albeit with a restriction at a certain rate.
The law was abrogated, together with Law No. 6224 on Encouragement Foreign Capital, after
having been in force for about 2,5 years, when it was understood that its aim could not be
accomplished.
233
15.01
Bilgin Tiryakioglu
entered into force, Law No. 6224 had principally prioritized the goal to incentivize
foreign capital and was considered the most liberal foreign capital law of its time. This
Law, for many years, served as an applicable legal source to all foreign investments,
excluding oil exploration, drilling and processing. While the Law permitted foreign
capital to enter the country on the condition that it be used for businesses open to
Turkish private sector, it also sought other conditions, such as being beneficial to the
country's economic development, not causing monopoly and not seeking privilege.
With respect to profit transfer, Law No. 6224 lifted the restrictions set forth under the
previous Law No. 5821, and enabled investors with foreign capital to be treated equally
with domestic investors in terms of acquisition of rights, exemptions and conveniences. Although the Law No. 6224 was considered to be a pro-investment legal
instrument, its provisions related to the approval of foreign investments were designated in an ambiguous and broad manner. Hence, most of the foreign investors came
to the crossroads where they either had to bear a long and busy bureaucratic process
in order to obtain official approvals for their investments, or to withdraw their
applications on early stages. Having been in force for nearly SO years and being
considered as an "investment-friendly" law despite its failure to attain its goals due to
bureaucratic hurdles, Law No. 6224 was consequently abrogated in 2003 with the entry
into force of the currently applicable Law No. 4875 on Foreign Direct Investment
(FDI). 3
Law No. 4875, together with the Regulation that sets forth the principles of its
implementation (hereinafter "Regulation on FDI Act"), 4 comprise the basic legal
framework on foreign investments in Turkey. Essentially, the Law and the Regulation
are the products of legal efforts spent for the creation of an eligible climate for foreign
investments that took start in 1980s5 and gained momentum couple of years prior to the
enforcement of the current legal framework. Significant amount of work undertaken
during this period, including relevant amendments to Turkish Constitution could be
deemed to have composed a reform. In brief, the system applicable since 1950s came
to an end in 2003 as a result of the enactment of fundamental legal amendments which
reflect the 1980s policy of opening up to the outside world and indicate the legal efforts
for attracting foreign capital that took place as continuation of this policy until 2000s.
The most fundamental characteristic of this new legal framework, to which Law
No. 4875 constitutes a central instrument, is the abrogation of the permission and
3. Law No. 4875, Jun. 5, 2003, OG. Jun. 17, 2003.
4. The principles on the application of Law Nr. 4875 have been regulated with the Regulation on the
Application of Foreign Direct Investment Law (OG. Aug. 20, 2003). Pursuant to Provisional Art. 1
of Law Nr. 4875, the Foreign Capital Framework Decree that entered into force with the Council
of Ministers Decision, dated Jun. 7, 1995 and numbered 95/6990, and communiques related to
this decision have been abrogated with the entry into force of this regulation.
5. Together with the Decisions dated Jan. 24, 1980 (referred to as the "January 24 Decisions"),
which constitute a turning point for the Turkish economy, the Turkish economy was opened to
foreign countries. The January 24 Decisions brought about significant changes not only in the
foreign capital area, but also in all other areas of the economy. Among the January 24 Decisions,
the Bylaw Nr. 8/168 on Foreign Capital Framework (OG. Jan. 25, 1980-16880) was enacted in
order to steer foreign capital investments, decisions and implementations in relation to these as
well as to overcome the hold-ups in relation to foreign capital. The enactment of this bylaw is
considered to be a turning point in Turkey's approach towards foreign investment.
234
15.02[A]
Chapter 15: Foreign Investment
approval system (which was in force until 2003 as an indispensable part of the former
applicable system) from the Turkish foreign investment law and its practice. On the
other hand, one can observe that the other restrictive elements of the previous Turkish
foreign investment regime are no longer sought under the new one. For instance, the
new regime neither requires the foreign investor to bring in a specified amount of
capital in order to enter the country nor necessitates the investment to be related to an
area which is open to Turkish private sector. Moreover, constituting monopoly is not
considered to be an obstacle for the foreign investment to take place under the new
regime. In the new period that began in the 2000s, due to the extremely liberal legal
regulations taking effect (including the amendments made to the Turkish Constitution,
as being the foremost) and the radical decrease in the bureaucratic procedures, the
number of multilateral and bilateral agreements on foreign investments to which
Turkey became party, rapidly increased. In this context, the principles and assurances
stipulated under national laws for foreign investors were not confined, and Turkey's
responsibilities towards foreign investors were aligned with international commitments. Turkey had been party to 41 bilateral investment treaties between the period of
1962-2000 (approximately 40 years); however, this number significantly increased to
75 including 34 new treaties signed in the past 13 years as a result of the policies that
began in 2000 to attract foreign investors into the country. Furthermore, it is noteworthy that Turkey's official participation as a signatory state to the Energy Charter Treaty
(ETC), 6 a treaty pertinent to energy investments, falls within this time period as well.
15.02
DEFINITION OF INVESTMENT AND INVESTOR UNDER THE NEW

TURKISH FOREIGN INVESTMENT REGIME
Under the new foreign investment regime, the definitions for "investment" and
"investor" have been kept broadly in alignment with international standards, such as
those found under bilateral and multilateral international agreements.
[A]
Foreign Direct Investment
Pursuant to Article 2 (b) of Law No. 4875, economic assets such as capital in cash,
company stocks and bonds (excluding government bonds), machinery and equipment,
and industrial and intellectual property rights have been deemed as direct foreign
investment, provided that they are acquired from abroad by the foreign investor. On
the other hand, Law No. 4875 also considers certain investments that are made through
certain economic assets as direct foreign investments even if they have not been
acquired from abroad. In this respect, reinvested earnings, revenues, financial claims
or any other investment related rights of financial value that are acquired from Turkey
by a foreign investor are evaluated as FDI. Additionally, commercial rights for the
exploration and extraction of natural resources that are acquired from Turkey are also
considered as FDI under Law No. 4875.
6. OG Jul. 12, 2000, Nr. 24107.
235
15.03[B]
Bilgin Tiryakioglu
The foregoing economic assets that have been enumerated under Law No. 4875
and considered as FDis are not limited with the aforementioned ones. Since the
provision explicitly uses the phrase "by means of, but not limited to ... "when listing the
means of investment; similar other means and investment types are also considered as
FDis even though they are not listed specifically under Law No. 4875. In this respect,
various means of investment that may arise as result of economic and technological
advancements are also be deemed as FDI under Turkish law.
[B]
Foreign (Direct) Investor
The definition of a foreign investor is stipulated under Article 2 of Law No. 4875.
Accordingly, real persons residing abroad, possessing foreign nationality and Turkish
citizens residing abroad, together with foreign legal entities established under the laws
of foreign countries and international institutions, are considered as foreign investors
provided that their investments in Turkey fall within the scope of FDI. In order to
consider Turkish nationals residing abroad as foreign investors, they must certify that
they reside abroad by obtaining work or resident permits (Article 10, Regulation on FDI
Act).
15.03
[A]
THE GOVERNING PRINCIPLES IN THE NEW FOREIGN

INVESTMENT REGIME
Freedom to Invest
As a result of entry in to force of Law No. 4875, the permission and approval system (an
indispensable part of the old investment regime) was abrogated and it was replaced
with a system based on reporting information. Unless otherwise specified by international agreements and special legal provisions, Article 3 (a) (1) of Law No. 4875
expressly provides that foreign investors are free to make FDis in Turkey. Since the
permission and approval system was abrogated, foreign investors are now obliged to
report statistical information with respect to their investment to the Ministry of
Economy, General Directorate of Incentive Practices and Foreign Capital. The last
paragraph of Article 4 of Law No. 4875 stipulates that such information cannot be used
as evidence other than for statistical purposes.
[B]
National Treatment Principle
The principle that national investors and foreign investors shall be equally treated was
also one of the fundamental principles of the previous Turkish investment regime that
was in force before 2003. This principle has also been preserved in Law No. 4875.
Unless stipulated otherwise by international agreements and other special laws, foreign
investors shall be subject to equal treatment with domestic investors (Article 3 (a) (2),
Law No. 4875).
236
15.04[B]
[C]
Freedom to Transfer
Under the new foreign investment regime, foreign investors may freely make transfers
without being subject to any restrictions. In fact, Law No. 4875 does not stipulate any
rule preventing the foreign investor from making transfers abroad even if the foreign
investor is in debt for tax due or for insurance premiums. Moreover, allocating funds for
technological innovation is not designated as a condition for the transfer under the Law
either. As per Law No. 4875, foreign investors may transfer abroad net profits,
dividends, proceeds from the sale or liquidation of all or any part of an investment,
compensation payments, amounts arising from license, management and similar agreements, and reimbursements and interest payments arising from foreign loans through
banks or special financial institutions, without any legal limitation (Article 3 (c),
LawNo.4875).
15.04
[A]
OTHER PRINCIPLES APPLICABLE TO FOREIGN DIRECT

INVESTMENTS WITHIN THE NEW FOREIGN INVESTMENT
REGIME
Standards of Expropriation and Nationalization
Through the Law No. 4875, principles of both international customary law and
international agreements related to expropriation and nationalization of foreign investments have been injected into t~e national law. In this respect, FDls shall not be
expropriated or nationalized, except for public interest and upon compensation in
accordance with due process oflaw (Article 3 (b), Law No. 4875). While Law No. 4875
has not included the "non-discrimination of expropriation and nationalization" criteria
(which is in fact an expropriation and nationalization standard that has become
international customary law), this criteria is observed to have been accepted under all
of the bilateral investment agreements to which Turkey is party.
[B]
Resorting to Arbitration and Other Dispute Resolution Mechanisms

in the Resolution of Disputes
Another remarkable development that took place in the 2000s was the lifting of
obstacles that lay before international arbitration, through enactment and amendment
of national legislation both on the Constitutional and lower level. In addition to this,
Turkish legislator specifically regulated this issue under Law No. 4875. For the
settlement of disputes arising from investment agreements subject to private law and
investment disputes arising from public service concessions contracts and conditions
which are concluded with foreign investors, foreign investors may apply to national or
international arbitration or other means of dispute settlement, along with authorized
local courts, provided that the conditions in the related regulations are fulfilled and the
parties agree thereon (Article 3 (e), Law No. 4875).
237
15.05[A]
[C]
Bilgin Tiryakioglu
Valuation of Non-cash Capital
Non-cash capital is valued within the framework of the regulations stipulated under the
Turkish Commercial Code. In case that stocks and bonds of companies established
abroad are used as foreign capital share of foreign investors, the values determined by
the relevant authorities in the home country, or by the experts designated by the courts
of the home country, or any other international institutions performing valuations will
be accepted (Article 3 (f), Law No. 4875).
15.05
FORMS OF INVESTMENT
Investments that are considered to be FDis pursuant to Law No. 4875 which are
maintained either through assets enumerated on Article 2 of Law No. 4875 or through
similar economic assets thereto, regardless of being acquired from abroad Turkey, may
be in the form of establishment of a new company or branch office of a foreign
company, or acquisition of shares of a company established in Turkey outside the stock
exchange (Article 2 (b) of Law No. 4875). Share acquisitions of a company can be the
acquisition of 10 % or more of the shares or voting power of a company acquired
through the stock exchange. Finally, companies established as per foreign laws can
open liaison offices in Turkey, provided that they. are not engaged in commercial
activities.
By courtesy of Law No. 4875, the requirements for companies with foreign capital
to bring in at least USD 50,000 and be incorporated as either a joint stock company or
a limited liability company have been removed. Accordingly, through the use of the
means of investment that are exemplified under Article 2 (b) of Law No. 4875, foreign
investors can now establish any company and participate in established companies,
just like domestic investors, without having regard to whether or not that company has
a legal personality. Currently, there is no special requirement sought solely for foreign
investments, regarding the forms of investment, except for the establishment of a
liaison office, as a matter of fact, pursuant to Article 9 of the Regulation on the FDI Act,
companies that foreign investors can establish or participate in shall fall within the
categories of companies regulated under the Turkish Commercial Code or shall be
ordinary partnerships regulated under the Turkish Law of Obligations. Partnerships
that are established as a result of an agreement, and do not possess the distinct qualities
of companies regulated under the Turkish Commercial Code, namely as consortiums,
business partnerships and joint ventures are considered as ordinary partnerships for
purposes of the application of Law No. 4875.
[A]
Incorporation of a Company
In the new investment regime, since the principle of "freedom to invest" has been
accepted and the permission and approval system is abrogated, any type of company
can be incorporated to operate in any sector with economic assets stipulated under
Article 2 (b) of Law No. 4875. The issue of how these companies will be incorporated
238
15.05[C]
is thoroughly regulated with national laws. The rules applicable to companies incorporated by Turkish nationals (i.e., the Turkish Commercial Code, Turkish Law of
Obligations and provisions under other legal regulations) will all be applicable to
foreign investors without any discrimination. The only difference with respect to
foreign investors is the obligation to report statistical information on foreign investments for companies incorporated pursuant to Law No. 4875 to the respective unit of
the Ministry (Article 4 (3), Law No. 4875).
[B]
Establishing a Branch Office
There is no special obligation for foreign investors to establish a branch office through
the use of forms of investment enumerated under Law No. 4875. Rules under the
Turkish Commercial Code and under other legislations that are relevant to incorporation of branch offices by the domestic investors that fall outside the scope of the FDI
have equal applicability to the incorporation of branch offices by foreign investors.
Incorporating a branch office through the forms of FDI are not subject to special
regulations, other than the reporting obligation specified under the last paragraph of
Article 4 of Law No. 4875.
[C]
Share Acquisition and Portfolio Investment
Law No. 4875 has regulated share acquisitions that fall under its scope in a bifurcated
manner. Pursuant to Law No. 487_5, foreign investor may acquire shares in two distinct
ways. The first option would be to acquire shares of a company outside the stock
exchange, irrespective of the number of shares. Such an acquisition can result in the
foreign investor being a shareholder in a current company; it could also take place as
a consequence of the full acquisition of a current company. In any event, the provisions
of the Turkish Commercial Code and the relevant legislation will be applicable. The
second option would be to maintain investment through share acquisition in stock
exchanges. In this case, as per Law No. 4875, in order for this acquisition to be
considered a FDI, the share acquired must be at least 10 % . Although such an
acquisition essentially is of the nature of a portfolio investment, it is considered as a FDI
with respect to Law No. 4875. The regulations to which such acquisitions would be
subject are the ones applicable to share acquisitions of domestic investors, which are
found under the Turkish Commercial Code, as well as in the Capital Markets Law.
Therefore, there is no special provision set forth for the aforementioned situations;
however, the only stipulation applicable thereto, is the reporting obligation which has
been regulated due to the fact that shareholders' capital would be foreign sourced or
the shareholders themselves would be foreigners.
Article 5 of the Regulation on FDI provides a detailed rule on how and when
reporting obligations are to be satisfied. In this respect, companies and branch offices
that fall within the scope of Law No. 4875 are obliged to report information with respect
to their capital and operations on a yearly basis and by the end of May every year.
These companies and branch offices are also obliged to report information on
239
15.05[D]
Bilgin Tiryakioglu
payments made in the capital account within one month following the payment.
Additionally, information with respect to share transfers made amongst the current
national or foreign shareholders or to any national or a foreign investor outside the
company must be reported to the Ministry of Economy, General Directorate of
Incentive Practices and Foreign Capital within one month of the date when the share
transfer takes place (Article 5 (a), Regulation on FDI). Companies with full national
capital that fall outside the scope of Law No. 4875 are also obliged to report transfers
of shares in case a foreign investor participates in the company or a foreign investor
outside the company participates in the company's capital increase. In addition, if the
company falls within the scope of Law No. 4875, it would be obliged to report share
transfers as well. In these cases, share transfers must be reported to the General
Directorate within one month following the date of the transfer of the shares (Article 5
(b), Regulation on FDI).
[D]
Establishing a Liaison Office
Contrary to incorporating a company or a branch office or share acquisition, establishing a liaison office in Turkey by a company that is incorporated as per the foreign laws
is peculiar only to foreign investments. All provisions pertaining to liaison offices are
regulated solely by legislation on FDI. Law No. 4875 s~eks two important requirements
for the establishment of a liaison office: First, the liaison office that is established in
Turkey is prohibited to engage in commercial activities, and second, the foreign
company must obtain permission in order to establish such a liaison office. If it is
revealed through inspections that the liaison office has engaged in commercial
activities after having obtained the permission and commenced operations, its official
authorization will be cancelled (Article 8 (d), Regulation on FDI Act).
As per Article 6 of the Regulation on FDI Act, the Ministry of Economy is the
competent authority to grant permission to establish a liaison office (provided that they
are not engaged in commercial activities in Turkey) and to extend the periods of these
authorizations for companies that have been incorporated pursuant to the foreign laws.
When evaluating the requests of newly incorporated companies to establish liaison
offices in Turkey, The Ministry decides in light of factors such as the company's field
of operations, its capital and the number of personnel who are to be employed. The
Ministry may also require a one-year period to be elapsed after the incorporation of the
company when granting permission. The requests of foreign companies to establish
liaison offices that will operate in special areas regulated by special legislation (such as
the financial markets, and the insurance sector) are evaluated by the authorized
agencies and institutions, within the context of the special legislation relevant to those
sectors.
With respect to applications for liaison offices that are made for the first time,
authorization to operate in the area declared by the applicant is given for the maximum
of three years (Article 8, Regulation on FDI Act). However, it is possible for this time
period to be extended afterwards. Liaison offices that wish to extend their term of
operation may apply to the General Directorate before the term of operation elapses.
240
15.06
However, the terms of liaison offices that have obtained permission in order to conduct
market research or to advertise the foreign company's products or services cannot be
subject to extension. In addition to the requirement of authorization for the term of the
operation, liaison offices that have begun operating upon obtaining such authorization
are also obliged to report. As stipulated under Article 8 of the Regulation on FDI Act,
liaison offices are required to give information regarding their operations in the
preceding year, latest by the end of May each year.
[E]
Merging with a Turkish Company or Acquiring a Turkish Company
Apart from the competition law liabilities of merging companies, a merger is subject to
the provisions stipulated under the Turkish Commercial Code. Since a merger essentially results in the incorporation of a new company, the explanations made relevant to
the issue of incorporation of companies, also apply here. Pursuant to the provisions
stipulated under the Turkish Commercial Code, in case of an acquisition, a company
would be deemed to have been wholly or completely acquired by another company.
[F]
Participating in a Joint Venture
There is no special regulation for a foreign investor participating in a joint venture

through the forms of investments stipulated under Law No. 4875; such participation
has been made subject to the same regulations as applied to the establishment of joint
ventures by wholly national investors. As a matter of fact, pursuant to the express
provision under Article 9 of the Regulation on FDI Act, partnerships that are established as a result of an agreement, and do not possess the distinct qualities of
companies regulated under the Turkish Commercial Code, namely as consortiums,
business partnerships and joint ventures are considered as ordinary partnerships for
the purposes of the application of Law No. 4875.
15.06
WORK PERMITS OF FOREIGN PERSONNEL
Special provisions have been stipulated in relation to employment of foreigners in FDis.

Therefore, these provisions provide a more favorable treatment to foreigners who fall
within its scope, compared to the rest of the foreigners who are subject to general
treatment concerning issues of employment. However, the scope of application for
these special provisions does not include all FDis that fall under Law No. 4875.
Favorable provisions of the special regulations are to be applied for the work permits
of key personnel who will be employed in foreign investments which are of a special
nature that fall within the context of FDI (Article 3 (g), Law No. 4875). If the personnel
who will be employed in FDis are not considered to be key personnel, or if investments
are not categorized as having special nature, the general regime on employment of
foreign personnel will be applicable.
241
15.06
Bilgin Tiryakioglu
While employment of foreign personnel is regulated under the Law on Work

Permits of Foreigners, 7 the provisions of the Regulation on Foreign Personnel in FDis
(hereinafter "Regulation on Foreign Personnel in FDI"), 8 which constitutes a special
regulation, apply to the procedure and principles on work permits of foreign personnel
who will be employed at companies, branch offices and liaison offices that operate
within the scope of Law No. 4875, as described above (Article 2, Regulation on Foreign
Personnel in FDI). Work permits have been regulated in a more favorable context
under the said regulation with respect to periods of time and the requirements sought,
in comparison with Law No. 4817 and the its Regulation9 which are applied to other
foreigners. In particular, the requirements under Article 14 of the Law No. 4817, which
constituted as the basis for rejecting work permit applications, are not sought for key
personnel who will be employed in FDis of a special nature. Law No. 4817 and Its
Regulation will be applicable to work permits of those foreign personnel falling outside
Article 2, Regulation on Foreign Personnel in FDI.
Article 4 of the Regulation on Foreign Personnel in FDI has defined FDis that are
of a special nature. 10 Key personnel who are employed in investments that fall under
the scope of this definition are also specifically determined. Accordingly, key personnel
are those who are: employed at the senior management or executive organ of a
company that is incorporated in Turkey and that has legal personality; managing the
whole or a part of the company; the company auditors; supervising or controlling the
work of administrative or technical personnel; hiring new personnel to the company or
letting go of currently employed personnel or authorized to make offers in these
respects. Those who engage in the foregoing can be a company shareholder, CEO,
board member, general manager, deputy general manager, company manager or
company deputy manager. On the other hand, an individual who possesses knowledge
of the company's services, its research equipment, techniques or information fundamental to the company management is also considered as key personnel. With respect
7.
8.
9.
10.
Law Nr. 4817, Feb. 27, 2003, OG Mar. 6, 2003.

OG Aug. 29, 2003.
OG Aug. 29, 2003.
Indicates the company or the branch office that fulfills at least one of the following conditions
and that falls within the scope of Law Nr. 4875:
a)
Company or branch office whose turnover in the past year is at least TRY 79.8 million,
provided that the total capital share of the foreign partners is at least TRY 1,062,491.
bl Company or branch office whose exports in the past year is at least TRY 1 million,
provided that the total capital share of the foreign partners is at least TRY 1,062,491.
c) Company or branch office in which at least 250 personnel registered to the Social Security
Administration were employed in the past year, provided that the total capital share of the
foreign partners is at least TRY 1,062,491.
d) Should the company or the branch office invest, the anticipated minimum fixed investment amount should be at least TRY 26.6 million.
e) There must be one more foreign direct investment in at least one other country other than
the country where the principal company is located.
All values indicated in Turkish Liras above correspond to 2013 rates. The original monetary
values indicated in the Regulation are calculated every year by adding asset revaluation rates
(Art. 17, Regulation on Foreign Personnel in FDI).
242
15.06
to liaison offices, only one person to whom a certificate of authorization is issued by the
principal company based abroad can become a key personnel.
The competent authority to grant the work permits for key personnel in FDis that
are of a special nature, is the Ministry of Economy (Article 5, Regulation on Foreign
Personnel in FDI). Application for a work permit can be made from abroad, as well as
from Turkey. Pursuant to Article 7 of the Regulation on Foreign Personnel in FDI, such
foreigners can make their work permit applications abroad to the diplomatic missions
of the Republic of Turkey in those countries of which they are nationals or where they
are permanent residents. The diplomatic missions directly convey these applications to
the Ministry, together with any evaluations they may have in relation to the respective
work permit application. Documents requested at the time of appl~cation must be
submitted to the Ministry by the employer of the foreigner within three business days
as of the date when the foreigner applies to the respective diplomatic mission. The
details on making an application from Turkey by individuals falling under this group of
persons are regulated under Article 8 of the Regulation on Foreign Personnel in FDI.
Such foreigners or their employers can directly submit their work permit applications
to the Ministry, provided that the foreigner is legally allowed to be in Turkey. The
regulation also foresees that it is possible for the foreign personnel who have obtained
work permit to also obtain work visa. Pursuant to Article 9 of the Regulation on Foreign
Personnel in FDI, key personnel who have obtained work permit for FDis that are of a
special nature, must submit this document to Turkey's diplomatic missions within 90
days as of the day when they obtained this work permit in order to request work visa
and must apply within 30 days as of the day when they enter Turkey in order to obtain
a resident permit from the Ministry of Interior Affairs. The requirement to obtain work
visa from Turkey's diplomatic missions does not apply to key personnel who have
obtained resident permit for at least six months and who have been granted with work
permit within this period.
Documents that are sought during application are those proving, in essence, that
the company or the branch constitutes a FDI that is of a special nature, and that
personnel with foreign nationalities are eligible to be considered as the key personnel
(Article 10, Regulation on Foreign Personnel in FDI). Work permit for the operations of
a liaison office is given to at most one person who is authorized. Application
documents in this respect demonstrate that the respective liaison office has brought at
least USD 200,000 or equivalent currency from abroad in the past year.
The ministry finalizes applications for work permits or time extensions for key
personnel, who will be employed at liaison offices with FDis that are of a special
nature, within 15 days (Article 12 (I), Regulation on Foreign Personnel in FDI).
<;:elikel, A. & Gelgel G., Yabancilar Hukuku, 19th ed., istanbul 2013.
<;:ic;:ekli, B., Yabancilann <;ali$ma frinleri, Ankara 2004.
Ek~ioglu, N., Yabancilar Hukukuna jli$kin Temel Konular, istanbul 2006.
243
15.06
Bilgin Tiryakioglu
Erten, R., Dogmdan Yabanci Yatmmlar Kanununun Tiirk Yabancilar Hukuku Sistemi
jr;indeki Yeri ve Rolii, Ankara 2005.
Gi:ikyayla Dernir C. & Siiral, C., "4875 say1h Dogrudan Yabanc1 Yatmrnlar Kanunu ve
Getirdigi Yenilikler", Dokuz Eyliil Universitesi Hukuk Fakiiltesi Dergisi, 6, no. 2
(2004): 131-167.
Tiryakioglu, B., Dogmdan Yabanci Yatmmlann Uluslararasi Hukukta Korunmasi,
Ankara 2003.
244
CHAPTER
16
International Commercial Arbitration in

Turkey
Zeynep Derya Tannan'
16.01
LEGISLATIVE FRAMEWORK (SOURCES)
The main difficulty associated with arbitration in Turkey is that international and
domestic commercial arbitration, and the enforcement of awards are all addressed
under separate legal frameworks. There is a distinction between provisions relating to
domestic and international arbitration. Both sets of rules are largely based on the
UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL
Model Arbitration Law). Arbitration is not seen as a cost-effective method to resolve
domestic disputes which do not involve significant amounts. Therefore, arbitration in
Turkey is not widely used for domestic disputes compared to litigation. However,
arbitration is widely used to resolve international disputes. The only specific code
relating to international arbitration proceedings is "The International Arbitration Law".
The International Arbitration Law entered into force on July 5, 2001 1 and was modeled
on the UNCITRAL Model Arbitration Law and the international arbitration section of
the Swiss Federal Private International Law of 1987. The primary reason behind the
preparation of the Law was Turkey's desire to attract more foreign companies and
foreign investors by providing not only economic stability but also legal stability in a
country where they plan to make investments. Consequently, the general principles
enshrined in the Model Law constitute the general principles of arbitration in Turkey
under the International Arbitration Law. In this regard, parties have equal rights and
competence in arbitral proceedings and both parties must be given the opportunity to
submit their claims and defenses in full. Party autonomy is encouraged and the
* LL.M., Koi;: University, School of Law, istanbul.
1. Law Nr. 4686 published in the OG, Jul. 5, 2001, Nr. 24453.
245
16.01
Zeynep Derya Tarman
intervention of the State courts in arbitral proceedings is limited to specific circumstances. The Turkish Code on Civil Procedure (hereafter: C.Civ.Pr.) which came into
effect on October 1, 2011 2 deals with domestic arbitrations between local parties where
no foreign elements are involved. The former C.Civ.Pr. was outdated and contained
restrictive provisions on arbitration. The C.Civ.Pr. of 2011 is more aligned with the
Turkish International Arbitration Law and reflects international legal and procedural
principles, even though it applies only to domestic arbitration proceedings.
Under Turkish law, there is no restriction preventing the Turkish state or its state
entities from entering into arbitration agreements with other parties as long as the
matter is arbitrable. They may then become a party to an international arbitration.
Reluctance by the parties to refer to national courts of the state or its state entities with
a concern that they will not be treated impartially makes arbitration an attractive
alternative particularly for state - investor disputes. Moreover, in 1999, the Turkish
Constitution was amended to make concession contracts arbitrable. 3 By this change,
instead of the administrative courts' exclusive jurisdiction, the parties were allowed to
conclude a private law contract with an arbitration clause. This was particularly
important for privatization projects and Build-Operate-Transfer (BOT) contracts.
The recognition and enforcement of foreign awards is regulated separately under
the Private International Law and International Civil Procedure Code (hereafter: PIL
4
Code). Article 1/2 of the PIL Code states that "The provisions of international
conventions, to which the Turkish Republic is a parti;, are reserved." If an issue falls
within the scope of an International Convention, the International Convention takes
precedence over provisions of the national law. Turkey is a party to the Washington
Convention on the Settlement of Investment Disputes between States and Nationals of
5
Other States (1965), to the New York Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (1958), 6 and to the Geneva Convention on International
Commercial Arbitration (1961). 7 These conventions constitute a part of Turkish
arbitration legislation.
The most prominent institutions in Turkey for international arbitration are: The
Union of Chambers and Commodity Exchanges of Turkey8 and The Istanbul Chamber
2. Law Nr. 6100 published in the OG, Feb. 4, 2011, Nr. 27836.
3. The demand to establish a code of international arbitration became apparent in disputes arising
from Concession agreements and contracts regarding public services concluded for the assurance
of necessary services and investments to construct big infrastructure facilities such as bridges,
reservoirs, sewages and water treatment services which can only be executed by external
financing. The major drawback of Concession agreements and contracts was the Council of
State's (Dam;>tay) authority of preliminary examination. Since conflicts concerning Concession
agreements and contracts were subject to administrative jurisdiction, the Council of State was
granted the right to eliminate the clauses concerning international arbitration within Concession
agreements and contracts during a preliminary examination. This elimination was an obstacle for
foreign investors to make investments in Turkey. To put an end to this conflict created by the
Council of State, many laws were amended starting with the Constitution. Kalpstiz, Ttirkiye'de
Milletleraras1 Tahkim 2007, 5; ~anlt, 240.
4. Law Nr. 5718, OG Dec. 12, 2007 Nr. 26728.
5. Law Nr. 3460, May 27, 1988, OG Jul. 2, 1988, Nr. 19830.
6. Law Nr. 3731, May 8, 1991, OG May 21, 1991, Nr. 20877.
7. Law Nr. 3730, May 8, 1991, OG May 21, 1991, Nr. 20877.
8. Its website is www.tobb.org.tr.
246
Chapter 16: International Commercial Arbitration in Turkey
16.02[A]
of Commerce. 9 These organizations have a list of arbitrators and their own arbitration
rules in respect to both domestic and international arbitration. There is a Draft Law, 10
which has not yet been ratified, proposing the establishment of an arbitration center in
Istanbul for the resolution of domestic and international disputes.
16.02
[A]
TURKISH INTERNATIONAL ARBITRATION LAW
Scope of Application
The International Arbitration Law governs arbitrations that are "seated" in Turkey and
involve a "foreign element". The place of arbitration in Turkey is one of the conditions
of application of the International Arbitration Law and is used as a binding point. 11
Even if the seat (place) of arbitration is not in Turkey, the parties, the arbitrator or the
arbitral tribunal can subject the arbitration to the International Arbitration Law,
provided the dispute has a foreign element (Article 1/2).
The Law specifies the cases where the dispute is considered to have a foreign
element. In Article 2 of the International Arbitration Law, it is not only the place of
arbitration or the applicable procedural law, but certain features of the dispute which
give a foreign character to the arbitration. 12 The following circumstances will constitute
a foreign element under Article 2:
- if the habitual residence, domicile or place of business of any party to the
arbitration agreement is located outside Turkey (m.2/1);
arbitration agreement is located in a country other than the seat (place) of the
arbitration designated in the arbitration agreement [(m.2/2(a)];
arbitration agreement is located in a country other than the place where the
majority of the obligations under the main agreement will be performed or the
place where the subject of the dispute is primarily related to [(m.2/2(b)];
- if at least one of the shareholders of a company that is a party to the main
agreement containing the arbitration clause has injected foreign capital into
the company under applicable foreign investment legislation 13 or when a loan
or a guarantee agreement is executed in order to bring foreign investment to
Turkey for performance of the relevant agreement (m.2/3); and
9. Its website is www.ito.org.tr.

10. http://www.kgm.adalet.gov.tr/DUYURULAR/isttahkim.pdf (erii;im tarihi: Aug. 24, 2013}.
11. The place of arbitration being in Turkey does not impose an obligation to perform arbitration
proceedings in Turkey, and it should not be interpreted as the only place where arbitrators meet
and hear witnesses and experts or where the arbitral award is given. Namer, Eki;i & Geigel, 37.
12. Akmc1, 60; Kalpsuz, Turkiye'de Milletleraras1 Tahkim, 16-26; $anh, 247; Namer, Eki;i &
Geigel, 38.
13. Law Nr. 4875 on Foreign Direct Investment of June 5, 2003, OG Jun. 17, 2003, Nr. 25141. See
Chapter 15 on Foreign Investment.
247
16.02[B]
Zeynep Derya Tarman
- the main agreement or legal relationship constituting the basis of the arbitration agreement permits the flow of capital or goods from one country to
another (m.2/4).
The International Arbitration Law provides that "this Code shall not apply to disputes
concerning in rem rights of immovable properties located in Turkey or to disputes that
are not subject to the parties' will" (Article 1/4). Under this Article, a dispute related to
immovable property is not arbitrable if it has arisen from immoveable property located
in Turkey and the dispute concerns in rem rights. Turkish law restricts recourse to
arbitration on matters that are not subject to the parties' freedom of contract. 14
[B]
The Arbitration Agreement
The International Arbitration Law defines the arbitration agreement as an agreement

executed by the parties to settle all or any, present or future disputes arising between
them out of an existing legal relationship through arbitration. An arbitration agreement
can be established as an arbitration clause in a contract or as a separate agreement
(Article 4/1). The main requirement for the validity of an arbitration agreement is the
common consent of the contracting parties to resolve the dispute through arbitration.
In some circumstances, even though the contract does not provide an arbitration
clause, the parties may agree that the dispute should go to arbitration after the dispute
has arisen. The consent of the parties to take the dispute to arbitration must be explicit
and free of any kind of doubt. For example, clauses stating that disputes which cannot
be solved by arbitral resolution should be solved by national courts are interpreted by
courts as "contradictory" and therefore invalid. 15
The arbitration agreement must be in writing. This requirement is considered
fulfilled if there is a written document signed by the parties or written communications
between the parties confirming agreement (e.g., letter, fax or electronically). If the
main contract makes a reference to a different document that includes an arbitration
agreement, such reference will be acknowledged as a valid arbitration agreement by
incorporation. 16 Alternatively, this requirement is also satisfied when a party refers to
an arbitration agreement in court and the respondent does not object to the petition for
arbitration claiming that there is a written arbitration agreement (Article 4/2).
14. Family law disputes, administrative law disputes or criminal issues cannot be referred to
arbitration. In .order to protect the weaker party to the employment contract (employee), the
Turkish Court of Cassation held that labor law disputes are not arbitrable. The amendment in
Art. 20 of the Labour Act (numbered 4857) allows for the inclusion of an arbitration clause in the
employment contract. This article provides that an employee whose contract was terminated
can refer to arbitration as long as the collective employment contract has an arbitration clause
or the parties have agreed to take the dispute to arbitration. The Turkish Court of Cassation held
that only disputes arising from termination and the consequences of the termination of the
employment contract are arbitrable. Thus, disputes arising from the other matters of labor
law must be resolved by the Labour Law Courts (Court of Cassation 9th Civil Circuit decision,
Mar. 22, 2004 numbered 5846/5621).
15. $anh, 231.
16. $anh, 253; Namer, Ekpi & Geigel, 42.
248
~-
16.02[C]
The validity of the arbitration agreement is governed by the law chosen by the
parties; failing such a choice of law, by Turkish law (Article 4/3). The validity of the
arbitration agreement will also depend on whether the arbitration agreement has been
signed by the authorized person. The International Arbitration Law does not deal with
the issue of which law governs the capacity of the parties to enter into an arbitration
agreement. This is determined according to the general conflict of law provisions in the
PIL Code. 17
It is noteworthy that the International Arbitration Law recognizes the principle of
the independence of the arbitration agreement from the underlying main agreement
(Article 4/4). If the arbitration agreement is a clause in a main contract, the invalidity
of the contract does not necessarily invalidate the arbitration agreement, provided the
necessary requirements for a valid arbitration agreement are otherwise met. An
arbitration clause which forms part of a contract can be treated as an agreement
independent of the other terms of the contract and separable from the other parts of the
contract (separability principle) .18 Under Article 7 (H) of the International Arbitration
Law arbitrators may rule on their own jurisdiction, including any objections with
respect to the existence or validity of the arbitration agreement (doctrine of
competence-competence). For that purpose, an arbitration clause which forms part of
a contract shall be treated as an agreement independent of the other terms of the
contract. A decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration agreement. 19
[C]
Governing Law
[1]
Procedn.ral Law
The parties are free to agree on the rules of procedure to be applied in arbitration
proceedings through specifically creating their own procedural rules. The Turkish
International Arbitration Law also allows references to procedural acts or procedural
rules of the ICC, UNCITRAL, GAFTA, etc. As a result, it would be possible to conduct
an arbitration proceeding in Turkey pursuant to the International Chamber of Commerce Arbitration Rules. However, the procedural rules chosen by the parties cannot
be contrary to the mandatory rules of the Turkish Arbitration Law. 20 These include, for
example, the rules that the parties are treated equally and that due process is provided
for parties to raise their claims and defenses. In the absence of the parties' agreement
on the rules of procedure, the rules apply that are set out in the Code of Civil Procedure,
in the case of domestic arbitrations, and the Turkish International Arbitration Law, in
the case of international arbitrations.
17. Nomer, Devletler Hususi Hukuku 2013, 541. According to Art. 9 of the PIL Code, the applicable
law to determine capacity is the national law of a real person. For a legal entity, the law of the
seat of administration in their statues is applicable to determine capacity.
18. $anh, 253.
19. $anh, 253-254.
20. $anh, 258.
249
16.02[D]
[2]
Zeynep Derya Tarman

Substantive Law
Since the principle of party autonomy entitles the parties to choose the applicable law
to the merits of the case as well, the arbitrator or the arbitral tribunal will decide on the
merits of the dispute in accordance with the applicable law chosen by the parties. 21
Where a given state's laws are referred to, this reference is to be construed, unless
otherwise expressed, as applying to the substantive law of that state; the reference is
not generally extended to that state's procedural law. Similarly, unless otherwise
agreed, the reference to the applicable law of a state does not extend to the state's
conflict of laws rules according to Article 12 (C) of the International Arbitration Law.
The arbitrators are bound by the choice of the parties under the principle of party
autonomy in that once the parties have chosen the applicable law, the arbitrators are
obliged to apply it. The arbitrators can only act as amicable compositeur if they are so
instructed by the parties. When determining the substantive issues, the parties'
contract must be taken into account in the first instance. In interpreting and applying
the provisions of the contract, commercial practices and usages of trade will be taken
into account. Under Article 12 (C) of the International Arbitration Law, in the absence
of the choice of law to be applied to the substance of the dispute, the sole arbitrator or
the arbitral tribunal decides according to the law with which they consider the dispute
to be most closely connected. The arbitrators have great freedom over the method used
to determine the law most closely connected to the dispute. 22
[D]
Intervention of the State Courts
The International Arbitration Law reduces the power of the State courts over arbitration and establishes arbitration -as a method of dispute resolution based primarily on
the principle of party autonomy. State courts may only intervene in a dispute referred
to arbitration to the extent permitted by the provisions of the International Arbitration
Law (Article 3/2). The Court of First Instance where the respondent's habitual
residence, domicile or place of business is located will have jurisdiction over the
dispute in the circumstances stipulated in the Arbitration Law. If the respondents's
habitual residence, domicile or place of business is located outside Turkey, the Istanbul
Civil Court of First Instance will have jurisdiction (Article 3/1).
In international arbitrations, Turkish courts can intervene in the following
circumstances: 23
(i) Grant provisional and protective measures before the arbitral tribunal is
constituted or during the arbitration proceedings or assist in enforcing
provisional and protective measures ordered by the arbitral tribunal, if a
party does not comply voluntarily with such measures (Article 6).
21. Sanh, 259.

22. Namer, 557.
23. Namer, Ek~i & elgel, 49.
250
16.02[E]
(ii) Assist in taking evidence requested by the arbitrators to support the arbitration [Article 12 (B)].
(iii) Appoint an arbitrator if a party fails to appoint its arbitrator or if the
arbitrators appointed by two parties fail to agree on the third [Article 7 (B)] .24
(iv) Decide on the challenge of an arbitrator [Article 7 (D)].
(v) Relieve the arbitrators if they are unable to reach a decision [Article 7 (F)].
(vi) Grant an extension of time if an award cannot be made within the necessary
time limit [Article 10 (B)]. 25
(vii) Set aside the arbitral award (Article 15).
[E]
Setting Aside Procedure of the Arbitral Award
There is no appeal procedure for international arbitration awards. The only possibility
is a setting aside action. The setting aside procedure excludes the possibility of any
appeal on the merits of the dispute. Under Turkish law, the courts are not entitled to
examine which substantive law the arbitral tribunal applied for the resolution of the
dispute and whether it applied the law correctly or not. 26
An application for setting aside must be made within 30 days of the party
receiving the award. The hearing of the case must be held in a simplified procedure
[Article 15 (A) 1)]. The setting aside procedure stops the execution of the arbitral award
[Article 15 (A)4)]. The grounds for setting arbitral awards aside are listed in Article 15
(A) in a numems clausus manner, under two main titles. These are (a) causes to be
taken into consideration by the judge ex-officio and (b) causes to be proved by the
requesting party. 27 Under Article 15 (A), an arbitral award may be set aside if the court
finds that (i) the subject matter of the dispute is not capable of settlement by arbitration
under Turkish law; or (ii) the award is in conflict with public policy. Article 15 further
provides the causes of setting aside an arbitral award that must be proved by the
requesting party. If the party requesting the court to set aside the arbitral award proves
that:
24. The parties' freedom to select the arbitrators includes not only their freedom on the determination of the number - however the number has to be odd-, but also the nationality, qualifications
and appointing authority of the arbitrators. There are no requirements as to the professional
qualifications or educational background of the candidates for arbitrators under Turkish Law.
However, in case the arbitrators are appointed by the state court, the sole arbitrator or the
chairman of the tribunal shall be of a nationality other than those of the parties [Art. 7 (B}].
25. International Arbitration Law provides that where parties are silent on the time frame the sole
arbitrator or the arbitral tribunal will render the award on the substance within one year from the
appointment of the sole arbitrator or within one year of the date of the first minutes of meeting
of the tribunal where there is more than one arbitrator. If the parties agree, the duration will be
extended with their agreement, if they cannot agree one of the parties can appeal to the Court to
extend the duration.
26. Nomer, 558.
27. The relevant circumstances are similar to those listed in the New York Convention of 1958 as the
grounds which prevent enforcement of an arbitral award and those listed Art. 36(1} of the
UNCITRAL Model Law.
251
Zeynep Derya Tarman
16.02[E]
(i) a party to the arbitration agreement was under some incapacity; or the said
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
agreement is not valid under the law to which the parties have subjected it or,
failing any indication regarding the law applicable, the arbitration agreement
is invalid under Turkish law;
the composition of the arbitral tribunal is not in accordance with the parties'
agreement;
the arbitral award was not rendered within the term of arbitration;
the arbitral tribunal unlawfully found itself competent or incompetent;
the award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitration, or contains decisions on matters
beyond the scope of the submission to arbitration;
the arbitral proceedings were not in compliance with the parties' agreement
or, failing such agreement, with the International Arbitration Law, and such
non-compliance affected the substance of the award; and
the parties were not treated with equality, the Court of First Instance will set
aside the arbitral award.
The International Arbitration Law envisages another step before an award can become
final and enforceable; the right to appeal the court's decision with respect to the setting
aside request on the same grounds [Article 15 (A)7]. The acceptance of both setting
aside and appeal procedures will result in the extensiqn of the period before the dispute
will be finally resolved. Article 15 of Turkish International Arbitration Law allows the
parties to partially or wholly waive their right to apply to have the award set aside. Such
a waiver is permitted only if neither party has a domicile or place of habitual residence
in Turkey [Article 15 (A)5]. Such a waiver seems to be accepted for the promotion of
Turkey as a place of international arbitration.
Unless an application is made to set aside the award, or if such application is
made and dismissed by the competent court, any party may acquire a document from
the Court of First Instance indicating that the award rendered is final and binding
[Article 15 (B) I]. In granting this document, the Civil Court of First Instance must
consider whether, under Turkish law, the dispute subject to the arbitration award is
capable of being resolved by arbitration and whether the award is in compliance with
public policy. The court can consider these issues on its own motion, without the need
for any demand of the parties [Article 15 (B)2]. The "executor decision" document
given by the court is sufficient and necessary for the execution of an arbitral award. 28
This applies to arbitrations which are subject to the International Arbitration Law. An
arbitral award where the Turkish International Arbitration Law has been applied is
considered a domestic arbitral award. For this reason, such arbitral awards are directly
enforceable and are not required to be subject to an enforcement lawsuit in Turkey.
Otherwise, the enforcement of foreign awards is subject to the New York Convention
or the PIL Code.
28. Nomer, 558-559;
~anll,
266.
252

16.03
16.03
RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS
The recognition and enforcement of foreign and domestic arbitral awards are subject to
different regimes under Turkish law. Arbitr al awards rendered in accordance with the
Turkish International Arbitration Law or the Code of Civil Procedure will be deemed
"domestic arbitral awards". An award will be directly enforceable in Turkey when it
becomes final and binding. On the other hand, if the award is rendered in the territory
of a state other than Turkey29 and if the award is not deemed a domestic award under
Turkish law, the recognition and enforcement of that award is subject to a different
regime. In respect to the decision of the Court of Cassation, 30 "the awards given in the
authority of the foreign law is a foreign arbitral award". Foreign arbitral awards are
subject to an enforcement lawsuit in order for them to be enforceable in Turkey. The
PIL Code provides the conditions of a foreign arbitral awards' enforceability in Turkey.
Furthermore, Turkey is a party to the UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958 (New York Convention). Turkey's
participation in the New York Convention is subject to reservations. Turkey made two
reservations permitted by the New York Convention: the "reciprocity" and the
"commercial" reservations. Turkey applies Article 1 (3) of the New York Convention
only with respect to the recognition and enforcement of an award rendered in a
signatory state in accordance with the reciprocity principle and that it must apply the
New York Convention only to disputes arising from legal relationships, whether
contractual or not, and to disputes which are considered as commercial under its
domestic law.
As a party to the New Yprk Convention, the recognition and enforcement
of foreign arbitral awards in Turkey is allowed if the relevant conditions stated in
Article V of the New York Convention are met. In case of recognition and enforcement
of a foreign arbitral award in Turkey, the New York Convention will be applied instead
of the PIL Code. However, Article VII of the New York Convention provides that any
interested party is entitled to benefit from the provisions of the place of enforcement.
In comparison with the New York Convention, the PIL Code sets out heavier conditions
for recognition and enforcement of foreign arbitral awards. Furthermore, if the New
York Convention is not applicable, the foreign award can still be enforced under the PIL
Code. Since the New York Convention does not contain any procedural rules and
leaves the procedure of recognition and enforcement lawsuits to the law of the country
where the recognition and enforcement is sought (Article III), the procedural rules for
recognition and enforcement lawsuit are the rules provided in the PIL Code.
PIL Code Article 62 and the New York Convention Article V provide similar
grounds for refusal of the recognition and enforcement of an award. A request for an
enforcement order of a foreign arbitral award can be refused under limited circumstances. Under both the burden of proof lies with the party arguing for refusal of
29. 15th Civil Circuit, E. 1975/1617, K. 1976/1052, T. Mar. 10, 1976 (Norner, 537, fn. 348).
30. HGIK. Nov. 7, 1951 (Norner, 536, fn. 346).
253
Zeynep Derya Tarman
16.04
enforcement. However, where questions of the violation of public policy or nonarbitrability arise, the enforcing court may consider these two grounds on its own
motion. 31
Regarding the enforcement of foreign arbitral awards, an examination on the
ground of "public policy" is one of the most invoked grounds for refusal of recognition
and enforcement. In the past, the attitude of the Turkish State courts towards the
perception of "public policy" was unjust. 32 "The Keban Case", which occurred
between a foreign company and DSi, a Turkish State Institution, is one of the
predominant cases causing a bad reputation for Turkey. The Court of Cassation held
that the submission of the draft award to the ICC Arbitration Court in order to provide
enforceability of the arbitral award was incompatible with Turkish public policy. 33
Hence the enforcement request was refused by the Turkish judges on the basis of
public policy. In a recent decision of the General Assembly of the Court of Cassation, 34
the Court emphasized in its decision that the conformity of the foreign arbitral award
to Turkish public order must be taken into consideration by the courts. The dispute was
related to tax law and the General Assembly of the Court of Cassation underlined that
a taxing issue is an issue related to public order. For this reason, the Gener;i l Assembly
of the Court of Cassation overruled the decision of the Court of First Instance enforcing
the arbitral award related to a dispute of tax law. On the other hand, it is a fact that
Turkish State courts are gradually changing their attitudes towards the recognition and
enforcement of arbitral awards. 35 The recent decisions of the State courts will bring an
end to this very broad application of the concept of public policy and enable the more
effective enforcement of foreign arbitral awards in Turkey.
The court grants or refuses the enforcement of foreign arbitral awards at inter
party proceedings. Its decision can be appealed and reviewed by the Court of
Cassation. The filing of an appeal request suspends execution of the decision (Article
61/2 PIL Code). The length cif enforcement proceedings varies according to each
specific case. Generally, enforcement proceedings in the State courts can take approximately one year with an additional year for any appeal process.
16.04
CONCLUSION
There is a gradually increasing trend towards applying arbitration instead of resorting

to litigation for settlement of commercial disputes of an international nature. Since
arbitration is becoming more popular in international commercial disputes, national
courts are becoming increasingly familiar with this alternative dispute resolution
method. There are no specialized arbitration courts in Turkey.
The Turkish International Arbitration Law has been enacted based on the
UNCITRAL Model Law and on arbitration rules of Switzerland. Therefore, it contains
31.
32.
33.
34.
35.
Norner, 542.
Norner, Ek~i & Geigel, 74.
15th Civil Circuit, E. 1975/1617, K. 1976/1052, T. Mar. 10, 1976.
HGlK E. 2011/13-568, K. 2012/47, T. Dec. 8, 2012 (www.kazanci.corn.tr).
Sanll, 371-372.
254
16.04
regulations generally accepted in the international arbitration arena. Moreover, the

rules of domestic and international arbitration have been harmonized through the
implementation of the new C.Civ.Pr. This put an end to the long-standing conflicts
between the Turkish International Arbitration Law and the arbitration section of the
former C.Civ.Pr dated 1927. From this point of view, the existence of arbitration rules
in Turkey at an international level is positive for foreign investors. The next step,
namely the enactment of the Law of the Istanbul Arbitration Center, will be the start of
a new era in Turkish arbitration.
Turkey's being a party to the New York Convention has provided the opportunity
to enforce foreign arbitration awards in Turkey. Arbitration awards qualified as foreign
arbitral awards may provide effective results in Turkey if they are recognized and
enforced by the State courts. Turkey's reputation as a reliable forum for the settlement
of international disputes depends heavily on how it can further promote the enforcement of foreign awards by Turkish courts. The perception of arbitration by the Court of
Cassation is generally considered as positive although in a number of cases the court
has remained skeptical of arbitration.
Aklnc1, Z., Arbitration Law of Turkey: Practice and Procedure, London 2011.
Aklnc1, Z., Milletlerarasi Tahkim, Ankara 2007.
Kalpsiiz, T., Milletlerarasi Tahkim Kanununda ICC Tahkim Kurallan ile IPL'den
Esinlenen Hiikiinler, ICC Tiirkiye, 2003.
Kalpsiiz, T., Tiirkiye'de Milletlerarasi Tahkim, Ankara 2007.
Nomer, E., Devletler Hususi Hukuku, istanbul 2013.
Namer, E., Ek~i, N. & bztekin Gelgel, G.,Milletlerarasi TahkimHukuku, istanbul 2013.
$anh, C., Uluslararasi Ticari Akitlerin Hazirlanmasi ve Uyu$mazliklann (:oziim
Yollan, istanbul 2011.
Siiral, C., "Nearly a Decade on the Perception of International Arbitration Law by
Turkish Courts'', Arbitration International 26, no. 3 (2010): 421-435.
255
Index
A
Absenteeism, 170
Abuse of
dominance, 122, 123
dominant position, 122, 124, 127,
132-136
Acceptance loan, 217

Acceptor, 84, 85
Accessory claim, 60
Acente, 51, 55-57
contract, 55-57
Acentelik, 55-56
Acquisitions, 18, 70, 123, 125, 136, 138,
176, 214,234,238-241
Actions
Prohibitory, 116
Adequacy of reserves, 208
Adi
~irket,
89, 91-94
Administration
board of, 101-103, 105, 106
Administrative
actions, 202-203
adjudication, 186
bodies, 47, 142
courts, 6, 142, 188, 246
judiciary, 205
penalties, 41, 205, 206
powers, 93
Administrators (directors), 11, 99-104,
106, 109, 110, 112, 118, 158
Advertisements, 33, 40, 42, 119

Advertising Council, 40
AFM/Mars, 138
Age, 16, 77, 89, 175

Agency
contract, 4, 43, 47-51, 53-54, 56, 57
relationship, 47-51, 53-54
Agenda, 104
Agent, 12, 34, 47-57, 60, 92, 102, 111,
112, 115, 119, 228, 229
Agricultural profits, 191, 193, 195
Agriculture, 144, 169, 174
Aircraft, 73, 75, 149
Alienation, 72
Alternative dispute resolution, 161, 211,
254
Amicable methods, 203

Annual
leave, 163
return, 193
Annual leave board, 163
Annulment, 105, 106, 182, 205
Anonim ortakllk
(~irket],
89, 100, 112
Anti-competitive abuse, 135-136

Antitrust law. See Competition law
Applicable
foreign law, 230
law, 223, 225-227, 230, 247, 250, 252
Appointment, 49, 50, 92, 104, 106, 216
Arbitration
agreement, 52, 246-249, 252
award, 180, 255
clauses, 246-249
Committees, 41-42, 45
compulsory, 180, 181
contract, 180
grievance, 180
257
Index
private, 180-183
Arbitrators, 180, 247, 249-2Sl
Articles of incorporation, 97-110,
Banka
Kalkmma ve yatmm bankast, 20-2h

Katthm bankast, 209
Mevduat bankast, 209-210
Banking
board, 213
electronic, 218
group, 214
Regulation and Supervision Agency,
212
Artisans, 70, 194

Assets, 74, 90, 92, 94, 97, 99, 102, 104,
106-108, 136, 137, 190, 191, 201,
213,21~23S,236,238
Assignee, 79, 190

Association agreement, 2
Associations, 3, 4, 8-10, 12, 41, 61,
39,208
89-110, 11~ 12S-12~ 129, 1S2,

1S7, 162, 173-179, 181-183, 189,
196,22S, 229
Attorney, 48, Sl, 223
Auditing, 91, 101, 103, 104, 106, 17S,
207, 214-216
Auditing committee, l 7S, 214
Auditors, 101, 103-104, 109, 216, 242
special, 106
Authenticated translation, 110
Author, 17, 1S4-1S9
Authorities
competent, 34, 41, 73, 178, 240, 243
judicial, 20S
public, 41, 43, 142
Authorization, 48-SO, S2, S4-56, 108,
llS, 137, 146, 178-182, 201, 240,
241,243
Aval, 68, 82, 83, 217
Award, 1S8, 180, 24S, 2Sl, 2S2, 2S4, 2SS
arbitral, 223, 2Sl-2S4
foreign arbitral, 223, 2S3-2SS
B
Bailee, 87
Bailment, 18, 210
Balance sheet, 102-104, 106
method, 196, 197
Bank
depo~t,
regulations, 39, 207-209

transactions, 207, 208, 216-218
Banking Law, S, 98, 103, 207-218
Bankrupt, S3,61-63, 94,96, 103
Bankruptcy, 9, S2, SS, 64, 71, 90, 94
Barter, 16-17
Basel accords, 208
Basel II rules, 208
Basel principles, 211
Basit usul, 192, 193
Bearer eertificates, 78, 108
Behavior, 4S, 123-126, 128-130,
132-13S
Beyan usulii, 193, 202
Bilateral agreements, 187, 221, 229, 230,
23S, 237
Bill of exchange, 68, 78-87
Bill of lading, 18, 78, 87
Binding rules, 6
Bireysel, 179
Board of administration, 101-103, lOS,

106
Bona fi-de third persons, S4
Bonds, 78, 79, 108, 197, 217, 23S,
238
Bono, 79, 86
Bookkeeping, 192, 193,206
Branches
executive, 101
offices, 9, 12, Sl, S2, S4, S6, 103, 21S,
222, 229, 238-240,242
79, 197, 209-210, 216
development and investment, 209-212

participation, 209, 210, 217
supervision of, 207, 213, 216
Broker, 48, Sl, S6

agent, SS
Built, operate, transfer. See BOT
Business
258
Index
activities, 1, 2, 4, 5, 10, 61, 90, 98,
109, 112-114,209,222
associations, 3, 4, 8-10, 12, 61,
89-110, 189, 196,225,229
contracts, common, 3
corporations, 51, 78, 79, 89, 90, 97,
102, 104
enterprise, 1, 4, 11, 12, 51, 67, 89, 90,
97, 199
entities, 12, 196
environment, 8, 10-11
law, 1-12
organizations, 8, 11, 12
profits, 90, 191-193, 195-197
transactions, 3, 5, 6, 10, 48, 89, 221,
223,225
unionism, 173-175
Businessmen/businesswomen, 1, 2
Buyer, 15-26,33, 35, 36,38, 114
Bylaws, 188
c
Calculations, 5, 115, 116, 202
Calendar year, 104, 191, 192, 198, 200,
203
Call work, 165
Campaigns, 31, 37, 38
Capacity, 3, 30, 48, 51, 60-61, 81, 89,
92,9~ 99, 102, 103, 133, 170,
177, 18~ 189, 190, 192,209,210,
225,249
Capital
adequacy,207, 212,217
contribution, 93-95, 99, 110
gains, 191, 194
Movements, 2
stated, 97, 104, 107-109
stock, 99, 100, 103-104, 106
Capital market, 209, 213, 217, 218
Commission, 104
Law, 5, 78,98,208,239
Capital Market Administration (CMA),
10
Capital Markets Board, 98, 213
Capital Markets Law (CML), 5, 78, 98,

107, 239
Carrier, 18, 26, 87
Case law, 6, 133-136, 230
Cash loan, 217
Cassation, Courts of, 4, 31, 42, 43, 67,
180, 188, 253-255
Central Bank Law, 207
Certificate of guarantee, 33, 34
Certificates, 9, 61, 63, 69, 78, 85, 97,
107-109, 147, 243
Certification marks, 151
Cessation, 35, 40, 42, 186
Chambers of Commerce, 9, 117, 249
Check, 5, 78, 79, 85-87, 103,209
Cheque Law, 208
Cinematographic works, 154, 155
Ciro, 82-83
Civil
Law System, 3-5
procedure, 221
servant, 163, 177
Claimant, 42, 189-190, 203, 228
Co-debtor, 59, 62, 66
Code of Tax Procedures (CTP), 45, 185,
186, 189,201,203-206
Code on the Procedures of
Administrative Adjudication
(CPAA), 186
Code provisions, 3, 5, 6, 57, 74, 91, 98,
110
Collateral Guarantees, 67-68
Collective
bargaining, 162, 173, 179-181
interests disputes, 179, 180
marks, 151
Collective labor
agreements, 162, 164, 167, 169,
171-173, 177-183
disputes, 162, 179
law, 162, 173-183
Collective labor agreement
duration of, 182-183
effect of, 182-183
group (workplaces), 177-179
259
Index
termination of, 182-183
undertaking, 177, 178
Collective rights management, 156-157
Collusion, 127-129
Commercial
activities, 2, 4, 29, 117, 119, 130, 137,
Board, 10, 122-125, 128-138

Board decision, 122, 124
distort, 123, 125, 129
Law, 121-139, 241
rules, 150
Competitors, 113, 115, 116, 119, 123,
132, 134
238,240
advertisements, 33, 40, 42

agent, 51, 55
banks, 209
books, 3-5, 90
contracts, 15, 20, 55, 250
custom, 20, 24
enterprise, 4, 8, 11, 12, 16, 32, 51,
54-56, 60, 61, 73, 74, 95
nature, 4, 66
registry, 3, 4, 9, 54, 56, 90, 95, 96,
100, 102, 104, 110
representative, 48, 51, 54, 55, 60, 112

sales, 5, 15, 19, 20, 22
transactions, 3-5, 7, 15
usage, 5-6, 19, 32, 200
Commission, 39, 56, 57, 162
Commissioner, 48, 51, 56
Communique
block exemption, 122
Group Exemption (see Group
Exemption Communiques and
Guidelines) Concerning Vertical
Agreements, 131
merger, 122
Companies. See also Corporations
joint stock, 89, 97-109, 196, 211, 238
private, 2
Compensation
bad-faith, 177
goodwill, 57
severance, 172
unionism, 176, 177
Competence, 178-179, 205, 208, 212,
245
Competent court, 171, 179, 252

Competition
Act on the Protection of, 121
Authority, 121, 128, 134, 135, 138
Concentration
control, 127
economic, 122
Concerted practice, 127, 128, 132
Concession contracts, 10, 237, 246
Concessions, 10
Conditions, 2, 3, 9, 10, 18, 24, 26,
31-32,35,39,40,57,67, 70,87,
93, 99, 102, 112, 114, 115, 124,
126-128, 131-135, 137, 138,
143-145, 147, 150, 164-166, 171,
172, 174, 196-200,208-209,
211-213,215,216,222, 231,234,
237,247,253
Conditions for patentability, 143-144,
147
Confederation
of Revolutionary Trade Unions, 175
of Turkish Real Trade Unions,
174-175
of Turkish Trade Unions, 174

Confederations, 162, 167, 174-175, 177,
178
Confidence, 50, 53, 90

Confidentiality, 218
Conflicts, 9, 100, 103, 155, 157, 158,
205,212,221-227,230,249-251,
255
solving, 203-205
Confusion, 114, 116, 117, 152
Constitution, 2-3, 6, 8, 29, 38, 121, 146,
153, 174, 187, 188,214,234, 246
Court, 38, 146, 150, 153, 187
Constitutionality, 38, 187
Consumers
contracts, 6, 30-32, 35-41, 43-44, 226
courts, 42-45
credit contracts, 31, 32, 38-39, 43, 44
260
Index
institutions, 41-42
interests, 29
organizations, 35, 41, 42
problems, 10, 41-42, 45
protection, 5, 29, 30, 42, 43, 226
Contract
formation, 3, 4, 16, 17, 19, 22, 25, 224
price, 20
Contractors, 49, 70, 115
Contractual relations, 1, 7, 228
Contributed capital, 95, 99
Contributions, 91, 93-95, 99, 107, 110,
154, 185
Contrived resignation, 172
Cooperatives, 8, 70, 73, 89, 90, 125, 196,
198
Co-owners, 70, 92
Copyrights, 16, 18, 141, 142, 147, 150,
152, 154-159,226
exceptions and limitations to, 157-158
ownership of, 155
Corporate
status, 174
tax, 194-198
Tax Act, 185, 186, 189, 194-198
Corporate bodies, 189, 195-197
nonprofit, 195, 196
public, 189
Corporate governance, 161, 208, 212,
214-215
Corporate social responsibility, 161, 177
Corporate Tax Act (CTA), 185, 186, 189,
194-198
Corporations. See also Business
corporations, Companies
closely held, 90, 91, 97, 98
publicly held, 10, 90, 91, 97, 98, 104,
106
Cost, Insurance and Freight (CIF)
basis, 200
Council of Ministers, 145, 181-183, 188,
200
Counter-guarantee, 68, 217
Court
action, 170
cases, 4, 49, 119

costs, 42
decisions, 6, 11, 61, 100, 180, 189,
228,230-232
Craftsmen, 8, 70, 177, 194
Credit
committee, 214, 215
contract, 31, 32, 38-39, 43, 44, 66
institution, 209-211, 216
instrument, 79, 80
limitation, 207, 210, 217
Creditor, 34, 37, 59-66, 68-75, 77,
92-94, 100, 103, 107, 109
Crime, 40, 119, 146, 150, 153, 159, 188,
190,206
Criminal penalties, 158
Currency, 17, 63, 69, 80, 81, 243
Custom, 5, 20, 24, 25, 153, 158, 187
Customs duties, 21
D
Damages, 1, 9, 11, 17, 19-21, 24-26,

29-30, 32, 34, 35, 40, 50-53, 57,
63,64, 66,67, 85,86, 92, 96,
103, 106, 109, 112-119, 146, 150,
153, 157, 158,21~ 22~229,232
Death, 90, 94, 96, 159, 224
Debt, 36, 40, 59-64, 66, 68-72, 92, 94,
108, 163, 190, 195, 202, 203, 237
certificates, 78, 108
conditional, 60, 69
primary, 71
Debtor, 25, 39, 59-70, 72, 73, 75, 102,
189, 190,203,204
Declaratory relief, 116-118
Decreasing production, 181
Decrees, 5, 29
postponement, 182
special governmental, 188
Default, 11, 19-20, 24-26, 35, 36, 39,
40,62,65, 223, 230-232
Defective, 22, 23, 44
goods,21-24, 30,33-35,42,44,223
goods, sales of, 33, 35, 42
261
Index
Defects, 16, 19, 21-24
hidden, 23
Defendant, 116-118, 229, 231
Defense, 6, 23, 61, 63, 68, 79-80, 132,
174,245,249
Deficit, 102
Delivery
defective, 23
final, 18-19
Denet<;i, 103
Deposit, 73, 79, 86, 108, 142, 192, 197,
207-213, 216
Deposit transaction, 216
Derdestlik, 229-230
Demekler, 12
Design
registration, 149, 150
rights, 149, 150
Directors, 11, 100-103, 110-112, 118,
155, 212, 214-215
Discharge, 36, 39, 51, 54, 63, 66, 72, 93,
102-106, 109
Discrimination, anti-union, 171, 176
Dismissal
collective, 171
constructive (see Contrived .
resignation)
as a form of sexual harassment, 169
instant, 168, 170
for just cause, 168
on notice, 168-172
summary, 168
Disputes
contractual, 226
individual labor, 179
interests, 179, 180
interpretation, 183
investment, 2, 233, 237, 246
rights, 179, 180, 183
settling, 203
Distributor, exclusive, 57
Dividends, 102, 104-108, 191, 195, 198,
237
Documents of title, 78, 87
Domestic worker, 163
Domicile
statutory, 196, 200
Dominance, 132-133, 135, 138-139
Dominant
position, 122, 127, 132-133, 137,
138
power, 132 f.
power, abuse of, 132 f.
Doorstep selling, 31, 32, 37, 43-44
Draft,30, 31, 142, 167,254
Dues, 35, 36, 183, 194
solidarity, 183
Duty to notify, 65, 137
Diizeltme, 204
E
Earnings, 162, 191, 194, 195, 198, 235

Economic
activity, 69, 125, 126
competition, 111 ff.
entity, 126, 195
interests, 40, 41, 111, 115, 117
rights, 156-158
source, 190, 195
Effects doctrine, 125
Electricity, 10, 16, 36, 181
Elimination of infringement, 158
Employee inventions, 144
Employees, 47-49, 52, 105, 111, 112,
115, 118, 119, 144, 149, 155, 162,
164, 194,218,226-227
Employers, 49, 111, 112, 118, 119,
144, 149, 155, 162-172, 174-179,
181, 183, 192, 243
associations, 162, 174, 175, 177-179,
181-183
principal, 163
representative, 163, 169
unaffiliated, 177, 178, 181, 183
Employment
contract, 49, 111, 112, 218, 227
permanent, 164
policy, 167, 177
temporary, 166
262
I
I
Index
Employment Protection Legislation
(EPL), 168
Emtea senetleri, 78, 87
Fair dealing, 169

Farmers, 15, 177
Financial
condition, 9, 102
reporting, 207
status, 103
strength, 90, 97, 212
Fishing, 174
Five-year plans, 8
Fixed-term Work Directive, 164
Flexicurity, 164
Flexitime, 167
Encouragement of Foreign Capital

Law No. 6224, 233
Endorsement, 74, 78, 81-83, 217
Energy, 16, 174, 235
Energy Charter Treaty (ETC), 235
Enforceable titles, 231
Enforcement, 6, 61-63, 69, 121, 122,
125, 138, 142, 171, 186, 208, 223,
230-232,245,246, 252-254
Enterprises
mixed, 2, 8
private, 2
Entry barriers, 132, 133
Establishing authorship, 158
EU competition
law, 122
European
Community, 2, 5, 122
Court, 2
European Commission, 2, 134, 135
European Community Competition Law,
122
European Economic Community (EEC),

163
European Patent Convention, 142

European Union (EU), 2, 3, 43-44, 98,
122, 135, 138, 161, 162, 164, 186,
199,200,222
legislation, 141, 186, 199
model, 186, 199
European Union Directives, 208, 211
Exchange
bill of, 68, 79-82, 84-87
stock, 10, 17, 20, 97, 98, 194, 238, 239
Execution Office, 59, 72, 73, 75
Executive
Decree, 234
Exhaustion of intellectual property
rights, 159
Exporters, 201
Exports, 2, 15, 125, 194, 201, 222
Expropriation, 3, 237
Force majeure, 170

Foreclosure, 59, 72, 73
Foreign
companies, 186, 189, 196, 197, 222,
238,240,241,245, 254
countries, 192, 223-225, 227,

229-232,236
court, 65, 222, 223, 228, 230-232

court decisions, 230-232
currency, 17, 69, 81
employee, 241, 243
enterprises, 56
entity, 225
investment, 2, 222, 233-243, 247
investors, 2, 108, 234-241, 245, 255
judges, 222, 223
judgments, 223, 230-232
law, 222-224, 228, 230, 238, 240
law governs, 222, 228
legal system, 222
personnel, 241-243
Foreigners, 12, 100, 189, 192, 225, 227,
239,241-243
Forestry, 163, 174

Formalities, 86
Formation
formalities, 90
process, 99, 100
Form contracts, 31, 208-209
Foundation, 2-7, 12, 41, 90, 125, 141,
157, 189, 190, 195, 196, 225
263
11
'W
Index
Framework agreement. See Collective
labor agreements
Franchising, 5
Fraud,22-24, 33, 60
Free
market economies, 2, 111
Freedom of association
negative, 174
positive, 174
Freedom of contract, 6, 11, 38, 226,
248
Fringe benefit, 165, 182
Full functionality, 137
G
Garanti, 67-68, 151
GATT/WTO, 2
Ger;ici vergi, 193, 198
Gelir vergisi kanunu, 185, 191
General contractual provisions, 208

General Directorate of Foreign
Investment (GDFI), 240
General Directorate of Incentive
Practices and Foreign Capital,
236,240
Gerr;ek usul, 192, 193, 197
Germany, 3, 231
Gift, 16-17, 52, 55
Good faith, 7, 20, 31, 32, 51, 54, 66,
99, 102, 103, 105, 113, 115,
116, 171
Goods
delivered, 18, 19, 21-23, 25, 26, 37,
55, 199, 223
fungible, 23, 26
industrial, 33, 34
specific, 19, 25, 26,
39
Grev, 180
Group Exemption Communiques and
Guidelines, 130
Guarantee contracts, 67
Guarantor, 67, 68
Giindem, 104
Habitual residence, 222, 225-227, 229,

247,250,252
Hakszz rekabet, 112-119
HHI Test, 138
High Court, 6
Homeworker, 163
Horizontal
agreements, 130
Human Rights, 2, 3, 173
I
Ibra, 102, 103, 163

Ibraz, 84
Idare meclisi. See YOnetim kumlu
Ihbar, 169
Ihtiyati tedbirler, 117
ILO convention, 173

Immovpble property, 10, 15, 18, 30, 36,
44, 50, 68-72, 74, 94, 191,
224-226,228,248
Imports, 33, 57, 149, 159, 200, 222
Incentives, 130, 194, 198
Income
lower, 35
subject, 191, 197
tax, 190-198
Taxable, 192, 193, 196, 197
Tax Act (ITA), 185, 191-197
Incorporation, 97-110, 157, 161, 162,
168, 196,212,238-241,248
Incorporation of a company, 238-239,
241
Incorporator, 99
Independence, 80, 125, 126,249
Independent auditing and supervision,
215-216
Independent inventions, 144, 145
Indirect shareholding, 208, 212, 214
Individual character, 148-150, 154, 155
Indorsee, 82 f.
Indorsement (see also endorsement),
82-83
264
Index
Indorser, 83, 85, 87
Industrial
action, 162, 180-183
applicability, 144
designs, 147-150
property, 16, 142
unionism, 173-175
unions, 174, 175, 177
Infringement
of rights, 145-146, 150, 158
of trademark rights, 153
Inheritance, 145, 149, 152, 156
Injunction, 117, 119
order, 182
Installments, 37, 114, 193
Installment sales, 15, 18, 31, 32, 35-37,
43,44
Institutions
autonomous, 10
public, 40, 41, 70, 73, 217
Insurance, 3, 10, 31, 43, 71, 99, 109,
122, 174,200,226,237
agents, 50, 55
companies, 1, 5
general health, 161
social, 161
Intellectual
properties, 113-115, 133, 141-159,
194,226,227,235
property rights, 133, 152, 159, 194,
227,235
Intermediaries, 10, 47, 49, 51, 55-57,
167, 216
International
agreements, 12, 221, 225, 231,
235-237
arbitration, 237, 245-252,
255
procedure, 221, 228
International Covenant on Civil and
Political Rights, 173
International Covenant on Economic,
Social and Cultural Rights, 173
Intifa senetleri, 107
Inventive step, 144
Investment
direct, 234 f.
foreign, 2, 108, 222, 233-243,
247
foreign direct, 5, 108, 234-238
incentives, 194, 198
Investor, 2, 8, 67, 108, 233-241, 245,
246,255
Istanbul, 142, 229, 247
J
Joint
management, 182
representation, 52, 95, 103
stock company (see Corporations)
sureties, 62, 66
suretyships, 62, 66
ventures, 2, 8, 91, 97, 136, 137, 189,
195, 196,238,241
Joint stock company, 238
Joint venture, 2, 8, 91, 97, 136, 137, 189,
195, 196, 238, 241
Judge, 7, 21, 24, 74, 112, 117, 142, 187,
205, 222, 223, 228, 230, 231, 251,
254
Judicial
decisions, 188
procedures, 203-205
source, 188
Jurisdiction
exclusive, 222, 223, 228, 232,
246
international, 228
Just cause, 64, 168, 170, 172
Justice, 45, 187
courts, 122
K
Kambiyo senedi, 78
Kampanyali sati$lar, 3 7
Kapidan satl$lar, 3 7
KaT$lliklilik, 231
Katma deger vergisi, 185, 199-201
265
Index
Kefalet, 11, SO, SS, S9-66
Adi, 61
Birlikte, 62
Kefile, 62
Miiteselsil, 62
Riicua, 62
Kzymetli
evrak, 77
evrak hukuku, 88
Kolektif !jirket, S4, 89, 112
Komandit !jirket, 112
Komisyoncu, 48, Sl
Konu, 190, 19S, 199
Kurumlar Vergisi Kanunu, 90, 18S, 194
LA 161 f.
Labor
Act, 161-16S, 167, 168, 170, 171
contracts, 163-173, 182, 183, 226,
228
disputes, 162, 17S, 179
law, 161-183, 226
legislation, 161
organised, 162
relations, 162, 171, 174
relationship, 166, 168, 228
slowdown, 181
statistics, 17S
Labor Act
Maritime, 163
Press, 163
Labor contract
Fixed term (see Fixed-term Work
Directive)
open ended, 164, 166, 168, 169
Part time (see Part-time Work
Directive)
temporary (see Temporary Agency
Work Directive)
termination of, 168-173, 183
with a trial period, 164
Labor law
collective, 162, 173-183
confederation, 162, 167

individual, 162-173
Labor-management relations, 17S
Lading
bill of, 18, 78, 87
Land
charge note, 69
Register, 69-72
Law on Intellectual and Artistic Works,
1S4
Law on the Protection of the Consumer
(LPC), 23,29-4S, 209
Lawsuits, 42, SS, 92, 94, 103, 106, 229,
2S2,2S3
Lawyer, 6, 9, 49, SO, 113
Leasing, S, 39, 40, 98, 210
Legal
action, 62, 6S, 116-119, 1S7
capacity, 3, 60, 81, 89, 92, 99, 102,
22S
conflicts, 100, 222
entity, 8, 137, lSS, 162, 163, 174, 178,
236
personality, 4, 11, 12, 89-9S, 97,
100, 110, 126, 19S, 22S, 238,
242
persons, 3, 9, 30, 43, 47, 81, 89, 91,
9S, 97, 101, 12S, 126, 146, lSS,
1S9, 162, 189, 190, 194-196, 214,
216, 217, 22S, 229
rights, 89, 92, 171
transactions, S4, 123, 223-22S
Legislation
draft, 142
national, 187, 233, 237
protective, 226
special, 8, 8S, 240
Legislators, 6, 7, 237
Legislature, 41
Lehdar 68, 79, 86
Leniency, 122
Letter of confirmation, 11
Letter of guarantee, 217
Levy, 187, 189
Lex fori, 230
266
Index
agreements, 182
Managers, 11, 54, 102, 103, 112,
213-215, 242
Managing committee, 175
Mandatory
law, 6, 105
provisions, 16, 98, 105
Market
geographic, 123, 124
price, 17, 20
product, 123, 124
relevant, 123-124, 127, 132, 137, 138
share, 132, 133, 135, 138
Marriage, 222
ceremonies, 19, 224
Martial law, 188
Matrah, 190, 196-197
Maturity, 17, 19, 63, 66, 72, 81, 83-84,
86,216
Mediation, 157, 180, 181
Mediator, 180-182
Medium Sized Enterprises, 169
Menkul mal, 3
Merchandise, 87
Merchants, 1, 4-6, 8-12, 18, 20, 47, 50,
52, 55,90,94, 113,209,228
Merger controls, 122, 125, 136
Mergers, 98, 122-126, 136-138, 241
Mergers and acquisitions, 123, 124, 138
Minerals, 16
Mines, 10, 73, 74
Mining, 74, 174
Ministry of
Customs and Trade, 99, 105
Labor, 162, 167, 175, 176, 178, 179
Ministry of Economy, 236, 240, 243
Ministry of Labor and Social Security,
M
162, 167, 175, 176, 178, 179
Machines, 70, 235
Misconduct, 170
Maintenance, 33, 34
Mobbing. See Psychological harassment
Makbuz senedi, 78, 87
Monopolies, 7, 135, 234, 235
Makbuz senetleri, 78, 87
problems (see Economic
Management, 93, 156-157, 162, 164,
concentration)
175, 196,200,210,213, 218,237,
Moral or pecuniary damages, 116, 146,
242
150, 153, 158
Liability, 10, 12, 22, 31, 33-35, 37, 44,

48, 50-52, 61-66, 68-70, 72, 80,
83,84, 86,89-98, 100, 102, 103,
106, 107, 109-110, 112, 118-119,
146, 150, 186, 189, 191-201, 213,
225,227, 238,241
Liaison offices, 196, 238, 240-243
License, 74, 133, 136, 145, 149, 150,
152, 156, 237
Licensee, 74
Licenser, 74, 133, 136, 145, 149, 150,
152, 156, 237
Liens, 3, 62, 64, 65, 73, 75, 203, 205,
225
Limitations statute of, 72, 73, 94, 118,
203,224
Limited
~irket, 89, 112
partners, 96
partnerships, 89, 96, 112, 196
Limited liability, 10, 90, 91, 97, 98, 107,
109-110, 112, 192, 194, 196-198,
225
company, 89, 238
Liquidation, 107, 108, 237
Liquidity adequacy, 208
Litigation, 24, 42, 61, 245, 254
Loan, 8, 34, 37, 39, 40, 55, 69, 71, 114,
208-210,215-218,237,247
Loan and deposit contracts, 208
Lokavt, 180
Lower courts, 42, 205
LPC. See Law on the Protection of the
Consumer (LPC)
Lump sum payment, 169
267
Moral rights, 156, 158

Mortgage
certificates, 69
debt, 59, 69, 72
rights, 87
Mortgaged property, 59, 62, 69-72
Mortgagee creditor, 59, 72
Mortgages, 3, 10, 59, 69-73, 75, 79, 82,
Objective conditions, 165, 166

Obligations, 3-9, 15-26, 29-32, 34-37,
39-41,47-50, 55, 59-68, 70, 75,
84, 89, 91-93, 97,98, 108, 109,
111, 114, 116, 118, 143, 161, 163,
166, 169, 170, 172, 182, 183,209,
213,218,229,238,239,247
contractual, 53, 229
Obligor, 84, 85, 226
Occupational health and safety, 177
Occupational Health and Safety Act, 161
Odeme, 84
83,224,225
Mortgagor, 69-71
Movable property, 15, 68, 72-75, 225
Movables, 15, 18, 30, 72-75, 191
Multinational Investment Guarantee
Agency, 2
OECD
Code, 2
Draft Double Taxation Convention,
Muraklp. See Denet<;i

Miiteselsil bor<;luluk, 66
N
187
Model Tax Convention, 187

Offenses, 118, 158, 159, 166, 170, 205,
Nationality, 95, 100, 110, 189, 192, 196,

199,222,224,225,229,236,243
206
Nationalization, 23 7
National treatment principle, 236
Natural, 30, 43, 66, 124-126, 134, 146,
Omissions, 82
Oral agreement, 11
Order paper, 78, 82
Order rules, 207
Ordinary
meetings, 104
partnership, 89-94, 110, 112, 195,
155, 159, 201, 235
gas, 181
resources, 235
Negative freedom, 174
Negligence, 9, 24, 50, 64, 85, 116
Negotiability, 79-80
Negotiable instruments, 3-5, 11, 52, 54,
238,241
suretyships, 61, 63
transactions, 4, 92, 93, 95
Ordre public, 223, 224, 228, 232
Owner, 11, 15, 17, 18, 21, 50, 54, 60, 61,
55, 69, 73-75, 77-87, 89,224
Net profits, 105, 108, 196-198, 237

Non-cash loan, 217
Non-performance, 19, 20, 36, 67
Notary, 11, 48, 50, 85, 90, 99, 109, 110,
65, 70-72, 7~ 83, 87, 90, 97, 108,

118, 119, 145, 150, 152-155, 159,
210
181,223,224
Notice of dishonor, 84-85

Notice pay, 169, 170
Notice period, 63, 169, 170
Notices, 9, 11, 19,22,23,25, 33,37,38,
52-57, 63, 66, 68, 72, 73, 75,
84-85, 94, 104, 158, 168-172,
178, 179, 223
Novelty, 143-144, 148
Ownership
flat, 70, 225
transfer of, 3, 15, 17-20
p
Pacta sunt servanda, 183

Parental relationships, 97
Paris Convention, 142, 146, 147
268
Index
Participation, 96, 99, 155, 170, 177, 197,
198,209-213,216,217,235,241,
253
certificates, 107, 108
Partnership
agreement, 48, 92, 94-96, 109, llO
assets, 92, 94
business, 238
debts, 92, 94
general, 47, 54, 89, 90, 94-96, ll2
limited, 89, 96, 112, 196
with limited liability (limited liability
company), 89, 90, 97, 109-llO,
112, 196, 225
name, 90, 95, 96
ordinary, 89-94, 100, 112, 195, 210,
238,241
Part-time Work Directive, 164
Patent
of addition, 143
Cooperation Treaty, 142, 146
crimes, 146, 153
laws, 141-143
license, 74, 145
Pay
bad-faith, 169, 170
discrimination, 170
job security, 170
senetleri, 108
severance, 166, 170, 172
Penal law, 186, 205-206
Personal
liability, 69, 70, 72
property, 3, 16, 25, 222
property, sales of, 15-26
rights, 42, ll7, 173
status, 222-225, 229
Pledge, 18, 59, 62-66, 72-74, 102, 145,
149, 152, 156
Police, 157, 159
Political
parties, 2, 8, 175
rights, 188
Portfolio investment, 239-240
Power of attorney, 48, 223
Power over price, 132

Precautionary measures, 107, 117, 119,
158
Predatory pricing, 136
Preemptive rights, 106
Prepaid sales, 25, 31, 32, 37, 43, 44
Presentment, 84, 86
Price, 15-17,20-22,25,26,29, 30,33,
34, 36, 41, 44, 45, 72, 114,
123-125, 128-130, 132, 134-136
purchase,23-24,33, 35,37
squeeze, 136
Price-quotation, 32
Pricing
discriminatory, 135, 136
predatory, 136
selective, 136
Principal, 47-57, 60-68, 70, 81, 102,
111, 119, 121, 163, 189, 210, 243
Principal employer, 163
Private
arbitration, 180-183
International Law, 221-232, 245, 246
investors, 2, 8
law, 8, 12, 29, 207, 216, 237, 246
person, 162
Privatization
contracts, 246
laws, 98
process, 8
Procedural law, 186, 247, 249
rules, 224
Process patents, 143, 145
Producer of the database, 155
Producers, 22, 34, 35, 37, 124, 130, 151,
154, 155, 159, 200, 227
Production secrets, 111
Productivity, 168
Product patents, 143, 145
Profits, 67, 90, 93, 105, 106, 108, 116,
125, 135, 146, 150, 153, 157, 158,
191-198,210,234,237
Profit transfer, 234
Prohibited practices, 132
Prohibition, 32, 35, 40, 42, 102,
269
Index
111-112, 116-118, 122, 129, 131,
146, 150, 152, 158, 180
temporary, 181
Prohibition of infringement, 158
Promissory note, 78, 79, 86, 87
Property, 3, 10, 12, 15-26, 30, 35, 36,
40, 44, 50, 52, 54, 55, 59, 62,
68-75,89, 91,92, 94, 10~
113-115, 133, 141-159, 181, 185,
191, 194, 210, 222, 224-229, 232,
235,248
Protection period, 159
Protest, 55, 84-85, 204
Protesto ve ihbar, 84-85
Provincial Directorate of Labor and
Employment Office, 179
Proxy, 108
Prudent businessman, 56, 209
Psychological harassment. See Mobbing
Public
Economic Institutions, 8
law, 29, 207
legal persons, 3, 30, 43, 189
order, 6, 30, 143, 148, 157, 223,
254
policy, 6, 29, 251, 252, 254
sector, 144, 167, 174, 181
Publication of the court decision, 158
Public banks risk group, 217
Public Economic Institutions (PEis), 8
Public institutions risk group, 217
Public official, 162
Q
Qualified share, 213, 214
Quorum, 101, 104, 107
R
Railroads, 7, 87
Real
property, 3, 12, 16, 25, 26, 52, 54, 55,
70, 92, 191, 224
securities, 59, 61, 63, 68-75
Recall right, 171

Reciprocity, 201, 231, 253
Recognition of foreign judgments, 223,
230,231
Reference period, 167
Refusal to deal, 136
Regional
Administrative Courts, 205
Directorates, 189
Regions, 115, 129
Register, 4, 9, 64, 69-75, 100, 153, 165
Registration, 4, 9-10, 25, 26, 54, 70, 74,
75, 95, 99, 100, 102, 110, 141,
142, 144, 146-147, 149-153, 155,
225
Registration and term/period of
protection, 146-147, 153
Regulation of banking transactions,
216-217
Regulation of Fines, 122
Regulation on Foreign Personnel in
FDis, 242, 243
Regulatory agencies, 10
Rehin, 78, 83
Reimbursement, 210, 237
Rekabethukuku, 139
Relationship
competitive, 116
contractual, 20, 47, 48, 52, 56
Renvoi, 223
Repatriation of investment, 237
Representatives
appointed, 60, 171
powe~ 51, 54, 56, 57, 102, 110
Reserves, 102, 105, 107, 179, 217
Residence, 61, 84, 187, 189, 192, 222,
225-227, 229, 247,250,252
Residents, 63, 192, 195-198, 236, 243
Resignation
instant, 172
for just cause, 172
Restrictive agreements, 122, 127-131
Restrictive trade practices, 111, 226
Retailers, 15
Retirement, 93, 96
270
Index
Retiring partner, 93, 96
Rights disputes, 179, 180, 183
Rome Treaty, 1S4
Rule of reason analysis, 130
s
Safety, 40, 41, 161, 177
product, 34-3S
Salaries, 191, 192
Sale contract, 4, lS-20, 2S, 31, 32, 40,
S7
on trial and inspection, 164

5;art, 26
Savings Deposit Insurance Fund (SDIF),
208
Secondary legislation, 122, 188, 208

Security(ies), 2, S9-7S, 77, 78, 83, 102,
108, 117, 14S, 1S7, 162, 164,
167-179, 182, 198,213
personal, S9-68
real, S9, 61, 63, 68-7S
Seizure at the customs, 1S8
Selective pricing, 136
Servants, 49, 119, 163, 177
Services, 1, 2, 29-39, 43, 44, 48-Sl,
111-llS, 119, 123-12S, 127, 130,
132, 144, 149, lSl-lSS, 1S8, 16S,
170, 171, 174, 181, 198-201,206,
210,213,218,241,242
inventions, 144
public, 163, 237
Settlement, 2, S2, SS, 162, 179, 180, 182,
233,237,246,2Sl,2S4,2SS
Shareholder
books, 108
meetings, 102, lOS, 106, 108
resolutions, 102, lOS, 106
rights, 77, 78, 90, 104-108, 213
Shares
acquisition, 238-240
bearer, 108
registered, 108
transfer of, 108-110, 240
Shipment, 20-21
Shop
agency, 173
closed, 173
union, 173
5;irket
adi, 89
kolektif, S4, 89, 112
SLC test, 138
Small and medium sized businesses, 169
Small and medium size enterprises
(SMEs), 169
Social, 2, 8, 130, 161, 162, 168, 171,
173-176, 17~ 179, 182, 187,201,
222
partners, 167, 177
Societies, 12, 73, 91, 142, 1S6, 1S7, 1S9,
189, 19S, 196, 22S
Solidarity due, 183
Sources, 2-S, lS-16, 42, 4S, 78, 98,
121-122, 124, 146, 149-lSl, 171,
187-190, 19S, 207-210, 234,
24S-247
Staff employee, 162
State
aid, 8
banks, 1
economic enterprises, 8, 196
State Council decision, 122
State Planning Administration (SP A), 8
Statute of limitations. See Limitations
Statutory
decrees, 188
law, S, 230
provision, S, 38, 78, 107, llS
sources, 2-S
Stipulation, 81, 86, 173, 239
Stock, 10, 17, 18, 20, 34, 89, 97-109,
194, 196, 211, 23S, 238, 239
capital, 99, 100, 103, 104, 106

Strike, l 7S, 180-182
politically motivated, 181
solidarity, 181
vote, 181, 182
Sub-board of directors, 21S
Subcontractor, 163
Index
Subsidiary, 97, 126, 174, 17S, 197, 218,
229
Subsidiary work, 17S
Substantial amendment in employment
conditions, 171, 172
Substantial cause, 166
Supervision, 39, 98, 123, 142, 166, 204,
207,208,212,213, 21S-216
Supreme Arbitration Board, 181, 182
Suretyship, 11, SO, S2, SS, S9-68, 217
contracts of, SO, S2, SS, 60, 61, 68
T
Tacir, 11
Taksitle sati!'j, 3S
Ta!'jmir rehni, 73
Tapu sicili, 10
Tarh, 202
Tax(es), S, 8, 33, 36, 4S, 90, llO,
18S-206,237,2S4
act, 18S, 186, 189, 191-199
administration, 187, 190, 202-204,
206
advantages, 194, 198, 201
base, 190, 192, 193, 196-200,202
cases, 204, 20S
courts, 203-206
credits, 19S
debt, 190, 19S, 203
income, 18S, 187, 190-198
judiciary, 20S
liability, 186, 189, 201
loss, 206
office, 189, 190, 200, 203, 204
rat~ 18~ 19~ 192-19~ 197,200,202
relationship, 18S, 189-190
responsibility, 190, 200
system, 18S, 186, 190-199
value added (see VAT)
Taxable event, 190, 191, 19S, 199, 202
Taxation
double, 187, 193, 19S, 198
or expenditures, 199-201
processes, 202
272
progressive, 192, 193

Tax law
procedural, 186, 224, 247, 249, 2SO
substantive, 186, 223, 224, 230, 2SO,
2Sl
Taxpayers
limited, 192, 194, 196-198
real, 190, 200
Tekeffiil, 22
Temerriit, 19-20, 2S
Teminat
::}ahsi, S8-68
Ayni, 68-7S
Temporary Agency Work Directive, 164,
166
Temporary employment, 166
Temporary Work Agency, 164, 166, 167
Temsilci, 48, S4
Temsil ili!'jkisi, 47
Tenfiz, 230
Termination
of design rights, lSO
of employment, 168-173, 218
of patent rights, 147
wrongful, 169, 170, 172
Territorial reach, 123-12S
Third parties, 21, 47, 48, Sl-S4, 6S, 84,
96, 102, 112-llS, 117, 144, 14S,
lSO, 1S2-1S4, 1S9, 180, 190
Ticaret sicili, 4, 9
Ticari i!'jletme hukuku, 11
Ticari miimessil, S4
Ticari senet. See Kambiyo senedi
Ticari temsilci, S4
Tobacco, 40
Tortuous act, 92, 222, 227
Torts, 3, 89, 92, 103, 116, 222, 227, 229
TPI. See Turkish Patent Institute (TPI)
Trade
name, 3, 9, 74, 81, 90, 94-96, 100,
114, 141, 142, 1S2
profits, 191, 19S
register, 90, lSl, 1S3, 1S4
unionism, l 7S
union representatives, 171
Index
Trademarks, 18, 21, 114, 141, 142,
151-154, 159
Examination Guidelines, 151
registration, 152
rights, 152, 154
exceptions to, 153
Traders, 9, 151, 194
Trade union
authorized, 171, 175, 178, 181, 182
representative, 171
Trade unions
authorised, 175, 178, 181, 182
signatory, 183
Transfer
ownership, 15, 17-20, 87
real property, 3, 52, 54, 55
Treaties, 122, 142, 146, 151, 154, 182,
188,230,233,235
international, 2, 142, 187
Treaty on the Functioning of the
European Union (TFEU), 122
Treaty on the Trade Related Aspects of
Intellectual Property Rights
(TRIPS), 142
Trust, 10, 56, 175
Tiiketici, 3 0
Turkish
banks,208,214,217
business, 222
business law, 1-12
choice of law rules, 222
citizens, 189, 224, 236
companies, 196, 197, 222, 241
Competition Law, 121-138
Constitution, 2, 6, 121, 146, 234, 235,
246
corporations, 97, 100-105
court decisions, 231, 232
courts, 56, 119, 159, 218, 222, 223,
228-232,250,255
government, 30, 121, 162
High Court, 6, 221
legal system, 122, 202
legislation, 189, 195, 207, 214, 216
nationals, 192, 222, 224, 229, 236, 239
private international law, 221-232

public order, 223, 254
Republic, 1, 141, 149, 221, 246
Turkish Civil
Code,3,69,233
High Court, 228
Turkish Competition Board, 128,
133-137
Turkish Confederation of Employers
Association, 162
Turkish Economic and Social Council,
177
Turkish labor law, 162
Turkish Patent Institute (TPI), 142, 146,
150-153
Turkish tax
law, 185-187, 189, 201, 203
system, 185, 186, 190-199
Turkish trade Unionism, 174
u
UCITS, 198
Ultima ratio rule, 170
Undertakings, 21, 67, 90, 123-138, 151,
166, 169, 177-179, 196, 198, 214,
216, 218, 224
association of, 125-12 7
Unfair
competition, 3, 40, 111-119, 142, 150,
196, 227
trade practices, 10, 111
Unions
anti-union discrimination, 171, 176
authorized, 178, 182
customs, 141
employers', 174, 177, 182
formation of, 173-175
labor, 162
local, 174
majority, 178
membership, 170, 171, 175-177
most representative, 178
pluralism, 173, 174
regulation, 183
273
Index
structure of, 175
Voluntary
trade, 162, 167, 171, 174-179,
unionism, 173, 183
181-183
Unionisation
w
rate, 175
Wage
of workers, 175
earners, 162, 194
Unionism
minimum,
194
compensation, 176, 177
supplements, 172
industrial, 173 , '"'"'
multiunionisn
ULUSLARARASI
,, 87
voluntary, 173
ANTALYA ONivERSiTESi KUTOPHANESi 6
Unions and Colli
34
Act, 161
Universal Deel
(UDHR},
Unjust enrichmE
Unlimited l i a b i l i - - - - - - t - - - - - - - 1 - - - - - - - - t u a l Property
O)
103, 112
UN Model Conv
User enterprise,------+------+-------l7, 198
Usufructs, 3, 21
;-179, 182,
Uzla:jma, 204
v
Vade, 83-84
Vakif, 12
Valid suretyshiI
Value Added T , - - - - - - - t - - - - - - - - - - 1 - - - - - - , 4 3
model, 185
of Foreigners,
refund, 200
Value Added T , - - - - - - + - - - - - - - + - - - - - - - 1 r t y Organisation
199-201
Vekaletname, 1 - - - - - - + - - - - - - + - - - - - _ : _ _ m (WTO}, 2
9, 170
Vekalet sozlqm
47-49
Vekil, 55, 163
Venue,205
Vergi alacaklisi, 189-190
Verginin tarhi, 193-194, 200-201
Vergi sommlulugu, 190
Vergiyi doguran olay, 190, 191, 195, 199
Vertical agreements, 131

Vested rights, 98, 106
Vocational training, 177
YOnetim kumlu, 175

Yukumlu, 189, 190, 195-196
z
Zaman a:jimi, 203
Zapttan sommluluk, 21
Zero-tolerance offense, 166, 170

274

Introduction To Turkish Business Law - Tuğrul Ansay - Eric C.schneider

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction To Turkish Business Law - Tuğrul Ansay - Eric C.schneider

Uploaded by

Copyright:

Available Formats

Introduction to Turkish Business Law

Introduction to Turkish Business Law

Se9kin YaymcthkA.$. I Sagltk Sok. No:21 06410 S1hhiye/Ankara

List of Editors and Contributors

List of Editors and Contributors

General Introduction to Turkish Business Law

Tugrul Ansay & Eric Schneider

Sales of Personal Property

Tugml Ansay & I~ik Onay

Consumer Protection Law

Tugrul Ansay & Firat Oztan

Giil Okutan Nilsson

Nurhan Siiral & Mustafa Kilu;oglu

Ahmet Kumrulu & Billur Yalti

Tugrul Ansay & Eric Schneider

Zeynep Derya Tarman

List of Editors and Contributors

General Introduction to Turkish Business Law

Tugml Ansay & Eric Schneider

Sales of Personal Property

Definition and Sources

Consumer Protection Law

Agency Contract and Agency Relationship (Vekalet Sozle$1Tiesi

[DJ Sole Distributor

Personal Securities ($ahsi Teminatlar)

Unfair Trade Law

Unfair Competition Law (HakslZ Rekabet)

Background and the Sources of Competition Law

Giil Okutan Nilsson

10.01 General Background

Nurhan Siiral & Mustafa Kilu;oglu

11.01 General Introductory Remarks

Ahmet Kumrulu & Billur Yalti

Taxation of Individual Income: Income Tax

BG.$ak $it jmamoglu

13.03 Banking Institution (Bank as a Corporation)

Tugml Ansay & Eric Schneider

Proof of Foreign Law

15.01 Foreign Investment: History and Legislative Framework

Zeynep Derya Tarman

16.01 Legislative Framework (Sources)

Bankacilik Diizenleme ve Denetleme Kumlu

Build, Operate and Transfer

Turkish Civil Code

Turkish Code of Obligations

Turkish Commercial Code

Corporate Tax Act

European Economic Community

Employment Protection Legislation

Tiirkiye Devrimci j~i;i Sendikalan Konfederasyonu

Energy Charter Treaty

International Covenant on Civil and Political Rights

Tiirkiye Hak j~i;i Sendikalan Konfederasyonu

International Covenant on Economic, Social and Cultural Rights

Public Economic Institutions

Tiirkiye j~i;i Sendikalan Konfederasyonu

Tasarruf Mevduati Sigorta Fonu

Turkish Patent Institute

General Introduction to Turkish Business

Tugrul Ansay & Eric Schneider

FOUNDATIONS OF TURKISH BUSINESS LAW

1. Law Nr. 1567, OG Feb. 25, 1930.