June 10, 2024

The "value-based surveillance" practice in imports, which began in 2003, involves the Ministry of Trade setting a minimum or reference value for a product based on quantity (such as kg, ton, unit, pair, etc.), requiring a Surveillance Certificate for goods below this value, while no such certificate is required for goods above this threshold.

The practice has been kept flexible. Importers with goods valued below the reference price are given the option to declare the value at the reference price. Since the General Directorate of Imports of the Ministry of Trade, which is responsible for issuing the Surveillance Certificate, is usually reluctant to issue such certificates, importers often choose to increase the value of their goods to the reference value in order to proceed with the import (instead of not importing at all).

Such artificial practices often arise from Turkey's customs union relationship with the EU without being a full member and the implementation of the Common Customs Tariff with the EU. The Customs Union for industrial products between Turkey and the EU has reduced Turkey's average customs duty on industrial products to around 6-7%. Since customs duties for industrial products are determined by the EU, protection rates remain low. As this average protection rate does not provide significant protection for Turkey’s domestic production, the country has implemented various measures to create protection. One of these measures, and the most commonly applied, is the "value-based surveillance" practice explained above. This practice applies mainly to industrial products, with very few exceptions.

The value-based surveillance practice has provided little protection in imports for products subject only to VAT, where customs duties are zero or close to zero. This is because the VAT paid on imports is usually offset by the importers, which significantly reduces the protective effect of the value-based surveillance practice. As a result, a Presidential Decree issued in 2023 eliminated the possibility of deducting VAT calculated on surveillance differences. In this way, an additional customs duty has been effectively imposed on imports.

The value-based surveillance practice, which began in 2003, has also become a source of significant disputes between customs authorities and importers over time. Since importers could not obtain surveillance certificates, they often increased the declared value of their imported goods to the reference value under protest, paid customs duties based on this value, and later filed lawsuits claiming that the payments were unjustified, seeking refunds for the taxes paid. Many of these cases have been ruled in favor of the importers, with the decisions being upheld by the Council of State, establishing a common legal practice.

The Customs Authority has responded to refund claims, and importers who received refunds (due to importing without obtaining a surveillance certificate) faced penalties under Article 235 of the Customs Law. The penalty is a fine equal to twice the customs value of the goods. Appeals and lawsuits challenging these penalties have further increased the number of dispute files.

To eliminate all these problems, Article 211 of the Customs Law was amended by Law No. 7333 in 2021, stipulating that if customs duties are paid as a result of the importer increasing the customs value of goods subject to trade policy measures, no requests for refunds or cancellations of these duties will be accepted. Thus, the problems that had arisen since 2003 were attempted to be resolved through legal regulation.

However, developments after the amendment of Article 211 of the Customs Law, and a precedent-setting decision by the Tax Dispute Chambers of the Council of State (Case No. 2023/6, Decision No. 2024/1), have shown that the issue has not been resolved as the administration intended, and that lawsuits concerning the refund of taxes arising from surveillance differences will continue.

The decision by the Tax Dispute Chambers of the Council of State was taken to resolve the conflicting judgments that emerged in two Regional Administrative Courts in cases related to customs declarations filed under protest after the law change.

It is understood that the decision of the Tax Dispute Chambers of the Council of State was formed considering primarily Articles 24, 25, and 242 of the Customs Law and Article 17 of the Agreement on the Implementation of GATT Article VII.

We can summarize the Council of State’s decision as follows: For declarations registered after the amendment to Article 211 of the Customs Law, requests for refunds of duties paid due to the increase in the value of goods to the level specified in the surveillance notice will not be accepted.

However, since a protest note is a statement included in the declaration to indicate that the declaration is not made voluntarily and to preserve the right to legal recourse, when a protest note is added to the declarations and a legal process is pursued after an administrative appeal, Article 211 of the Law cannot be applied.

In other words, Article 211 of the Customs Law will not be applicable to declarations made under protest.

In this case, when determining the customs value of the imported goods, the sale price should primarily be taken into account. If it is determined that the conditions for taking the sale price into account are not met, other methods (such as the sale price of identical goods, the sale price of similar goods, the deductive method, the computed value method) should be used in order.

In conclusion, based on the Council of State's decision, it can be said that the amendment to Article 211 of the Customs Law will not meet the expectations the administration aimed to achieve with this change. Link to the article (Turkish)