Disputes over the Movement of Goods and Payment in Foreign Trade

In foreign trade, the physical movement of goods is subject to customs and foreign trade legislation, while the financial movement of the payment for those goods is subject to foreign exchange legislation (kambiyo mevzuatı), that is, the legislation on the control of foreign currency. The customs administration tracks the movement of goods through the customs declaration and the bill of lading, that is, the transport document; banks track the movement of payment by means of the export proceeds acceptance certificate (İBKB; ihracat bedeli kabul belgesi). Where the two movements do not match in value or quantity, proceedings begin against the exporter: notification of an open foreign exchange account, tax inspection, an administrative fine and a smuggling investigation.

The legal basis for these proceedings is formed by the Customs Law (Law No. 4458), Law No. 1567 on the Protection of the Value of Turkish Currency (1567 sayılı Türk Parasının Kıymetini Koruma Hakkında Kanun) and Decree No. 32 on the Protection of the Value of Turkish Currency (32 sayılı Karar), which entered into force under that Law. The principles of financial monitoring are set by the Communiqué (tebliğ) on Decree No. 32 on the Protection of the Value of Turkish Currency (on Export Proceeds) (Communiqué No. 2018-32/48) and by the Export Circular (İhracat Genelgesi) of the Central Bank of the Republic of Türkiye (CBRT). Inspections relating to tax and to sham transactions, that is, secret arrangements, are based on the provisions of the Tax Procedure Law (Law No. 213).

Which Legislation Governs Goods and Payment?

There are two separate flows in foreign trade: the physical movement of the goods across the border, and the financial movement of the payment that constitutes the economic value of those goods. The Ministry of Trade and the customs administration supervise the border crossings of goods within the framework of the Customs Law (Law No. 4458) and the foreign trade regimes. The aim is to collect customs duties, to prevent the entry and exit of prohibited items and to keep foreign trade statistics accurate. The goods complete their physical movement at the moment they enter or leave the customs area.

The movement of payment proceeds on an entirely different plane, under the foreign exchange supervision of the Ministry of Treasury and Finance and the Central Bank. Under Law No. 1567 and Decree No. 32, exporters are, as a general rule, obliged to bring the payment for the goods they sell into the country within one hundred and eighty days. While the customs administration follows the physical goods, the banking system follows the monetary counterpart of the same goods.

Which Documents Are Used to Track the Two Movements?

To verify the exit or entry of goods, the customs administration first looks for the Customs Declaration (GB); the exporter or importer states the type, quantity and value of the goods on this declaration. Carriers issue a bill of lading to show that the goods have been physically loaded and transported. The parties also rely on documents such as the commercial invoice, the packing list and the certificate of origin, that is, the document showing the country in which the goods were produced.

The main document tracking the movement of payment, by contrast, is the export proceeds acceptance certificate issued by banks. The intermediary bank issues this certificate by establishing the link between the foreign currency received from abroad, the export contract and the customs declaration. Banks record the receipt of the payment by means of transaction receipts, SWIFT messages and account statements. The bank closes the export account by matching the value on the customs declaration with the amount on the İBKB.

Where Do the Two Movements Intersect?

The point of intersection is set-off. A firm's import debt and its export receivable may be set off against each other, provided that no more than one hundred and eighty days elapse between the release of the imports for free circulation and the actual export; where there is an inward processing authorisation, the period granted by the Ministry of Trade may be taken into account instead. For precious metals, importation on a no-payment basis is also possible.

Under two headings, however, the intersection is misleading. A free zone is not treated in the same way in every set of rules: the Capital Movements Circular regards firms resident in a free zone as non-resident, while income from exports to a free zone and from transit trade is accepted as foreign currency income only if it is documented that the goods were sold from there to a third country. In transit trade, too, two directions are distinguished: sales proceeds may be freely disposed of and there is no obligation to bring them into Türkiye; for the payment of purchase prices, however, the import payment (ithalat bedeli) rules apply and the transfer is made through banks.

What Problems Arise When They Do Not Match?

Where the value of the goods and the payment received do not match, that is, where an open account remains between them, banks notify the tax office of the situation at the end of the closing period. The tax office receiving the notification sends the exporter a 90-day notice to close the account. Accounts not closed within this period are reported to the public prosecutor's office; the public prosecutor imposes an administrative fine of 5% of the market value of the amount not brought into Türkiye. If the payment is brought into Türkiye before the fine decision becomes final, the rate falls to at most 2.5%.

Overstating the value of the goods on the customs declaration while not bringing in the payment, on the other hand, gives rise to suspicion of fictitious exports, that is, obtaining an unjustified tax refund by presenting a sale that did not take place as if it had, and leads to a smuggling investigation.

Consequences also arise under tax law. A mismatch between the two movements leads to the firm being examined for transfer pricing, that is, eroding the tax base by setting the price of goods between related companies contrary to arm's-length comparables. The transaction of an exporter that shows its goods below their value is treated as unrecorded income or an attempt at tax evasion. The customs administration, too, imposes an administrative fine under the Customs Law where the declared value proves to be understated.

What Should Foreign Trade Companies Do?

• Make sure that the value of the goods you declare on the customs declaration matches exactly the commercial invoice you issue to the importer.
• When having the bank accept export proceeds received from abroad, have an export proceeds acceptance certificate issued, stating the number of the relevant customs declaration.
• If you have agreed with the importer on cash against goods (mal mukabili ödeme), that is, delivering the goods and collecting the payment afterwards, write the payment due date into the contract and submit it to the bank.
• Track the one-hundred-and-eighty-day period running from the date of actual export separately for each customs declaration.
• In the event of payment shortfalls, apply to your bank in time to benefit from the USD 15,000 and USD 100,000 write-off limits, that is, the limits for deleting the account.
• If you are served with a 90-day notice by the tax office, submit your force majeure documents within the notice period.
• If a fine has been imposed, consider bringing the payment into Türkiye before it becomes final; the rate falls from 5% to at most 2.5%.
• For sales to a free zone and for transit trade, establish at the outset whether the payment will count as foreign currency income.

Warning. The information in this article is for general information purposes and does not constitute a legal opinion. Foreign exchange and precious metals legislation is a frequently changing area; the amounts, rates, thresholds, time limits and dates in this article may change in line with the legislation in force. Verify the latest version of the legislation before every application and transaction. Current texts are available at mevzuat.gov.tr.

Source: Customs Law (Law No. 4458) · Law No. 1567 · Decree No. 32, Article 8 · Communiqué No. 2018-32/48 · CBRT Export Circular · Tax Procedure Law (Law No. 213) · Corporate Tax Law (Law No. 5520), Article 13

Related page: Foreign Trade, Customs and Logistics