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schemes, and their subsidiaries and affiliates, to real persons or legal
entities with whom they have a direct or indirect relationship in terms
of management, audit, or share capital, through reducing their profits
or their assets, or preventing the increase of their profits or their assets,
by virtue of performing transactions, such as forming contracts or
commercial practices comprising different prices, fees, costs or condi-
tions, or via producing a trading volume that is in violation to market
practices (the arm’s length principle
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), according to prudence and hon-
esty principles of commercial life.”
A remarkable point in this provision is that its scope of application
with respect to applicable persons is widened, in comparison to abro-
gated Article 15. In this Article, along with public companies’ collec-
tive investment schemes, their subsidiaries and affiliates have been
included in the scope of the Article. The opposite party of the transac-
tion is regulated as the real or legal entity, with whom the persons as
listed under four categories in the Article are either in a direct, or an
indirect, relationship in terms of management, audit or share capital.
The Article, as a rule, specifically prohibits hidden income shift-
ing. The first paragraph of the Article sets forth that such shifting can
be executed through four different methods. These are; (i) the reduc-
tion of profits (ii) the reduction of assets and (iii) the prevention of the
increase of profit or (iv) the prevention of the increase of assets.
The Article also sets forth that prohibited income shifting may be
performed through forming contracts or commercial practices com-
prising different prices, fees, costs or conditions that are in violation of
market practices, the arm’s length principle, or prudence and honesty
principles of commercial life, or through concluding transactions, such
as producing transaction volumes.
The meaning of the word “transaction” as defined in CML Article
21 is accepted in the doctrine to include the avoidance of a typical
or atypical agreement, such as service, attorney, work, sale/purchase
or shareholders agreement, or avoidance of a behavior. Accordingly,
it is concluded that income may also be shifted through the non-
entrance into tenders that are in favor of the concerned persons,
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Please see Corporate Tax Law Article 13.