STAMP TAX DUTY IN CONSIDERATION OF CONTRACTS INVOLVING PENALTY CLAUSE
Stamp tax duty holds a significant place within the Turkish tax system and has been in effect since the 1800s. The Stamp Tax Duty Law numbered 488 (“SDL”), enacted in 1964, was introduced to ensure a more systematic and comprehensible application of this tax, and it continues to regulate key aspects today. However, in practice, certain legal terms and situations may give rise to uncertainties for taxpayers and contracting parties. One such area of ambiguity concerns the application of stamp duty to contracts that do not contain a monetary consideration but include penalty clauses.
Stamp Duty and Types of Instruments
According to the SDL, stamp duty is applied exclusively to written instruments, and these instruments must serve the function of proving or evidencing a legal transaction. Documents listed in Table 1 annexed to the Law are subject to stamp duty. These include, among others, contracts, letters of undertaking, and deeds of assignment. Furthermore, the amount stated in the instrument constitutes a fundamental basis for calculating the applicable stamp duty.
In calculating stamp duty, the tax is determined by applying a rate to the amount specified in the document. If a specific amount is stated in the document, that amount forms the basis for taxation. However, in documents that do not contain a specified amount, determining the taxable base can become more complex. In particular, elements such as penalty clauses added to the contract play a significant role in the calculation of stamp duty.
Penalty Clauses and the Application of Stamp Duty
A penalty clause is an obligation in a contract where the debtor agrees to make a payment in the event of failing to fulfill a specific obligation. In Türkiye, penalty clauses are included in many types of contracts, and determining whether these clauses are subject to taxation plays a crucial role in the correct calculation of stamp duty.
With the amendment made to the SDL by Law No. 6728 on the "Amendment of Certain Laws for the Improvement of the Investment Environment," penalty clauses and similar obligations, which are a sanction of a contract, are not subject to stamp duty if they are not the subject of a separate agreement. This provision has introduced an important regulation, particularly in contracts that do not contain monetary consideration but include penalty clauses. Stamp tax duty in consideration of such contracts is a discussion, particularly whether it should be calculated solely based on the penalty amount or not.
For instance, in a non-disclosure agreement, if only a penalty clause is specified and no other consideration is included, no stamp duty is applicable on such an agreement. This issue has been clarified by the tax circulation dated 10.07.2019, with reference number 66813766-155[3-2018-60]-E.262388, issued by the Izmir Tax Office, it was stated that such an undertaking should not be subject to stamp duty. The key point here is that the penalty clause is included as a "sanction" in the agreement; however, this clause cannot be regarded as a separate "consideration" added to the contract.
Application and Exemptions
In various tax circulations issued by the Revenue Administration, It has been stated that stamp duty does not accrue to contracts that contain penalty clauses but do not include monetary consideration. Specifically, in the advance tax ruling dated 12.08.2020, with reference number 41931384-155[11-2019]-E.28921, issued by the Sakarya Tax Office, it was emphasized that documents which do not contain a specific monetary amount, other than the penalty clause, should not be subject to stamp duty. This indicates that the penalty clause in the contract should be regarded solely as a sanction of the contract and, since it does not include consideration, stamp duty cannot be applied.
However, if the penalty clause is only part of a contract, and other essential elements, such as the contract amount, are included in a separate document, then stamp duty will accrue based on the main contract amount.
Conclusion
Stamp tax duty constitutes an important regulation for fulfilling tax obligations related to legal transactions. However, in contracts that do not contain monetary consideration but include penalty clauses, tax applications can become more complex. The amendments made by Law No. 6728 provide clarity in the taxation of penalty clauses and similar commitments. It is understood that if penalty clauses are included solely as sanctions of the contract and do not constitute a separate consideration, such contracts shall be exempted from stamp duty.
To ensure the accurate fulfillment of tax obligations, the provisions of the SDL must be duly considered during the contract drafting process, with particular attention that may rise accrue of stamp tax.