Constitutional Court's Important Annulment Decision on Digital Service Tax

With the decision of the Constitutional Court published in the Official Gazette dated 12.09.2023 and numbered 32307, it has been ruled that paragraph (2) of Article 7 of the Law No. 7194 on Digital Service Tax and Amendments to Certain Laws and Decree Law No. 375 is unconstitutional and has been canceled, and it has been decided that the cancellation provision will enter into force nine months after the publication of the decision in the Official Gazette.

As it is known, Articles 1 to 7 of the Law No. 7194 published in the Official Gazette dated 7/12/2019 and numbered 30971 regulated the digital service tax and the said articles entered into force on 01.03.2020. With the aforementioned articles, digital service tax was introduced and the subject, taxpayer, exemptions, tax base, rate, calculation, taxation periods, declaration and tax security provisions were regulated.

In summary, the digital service tax is based on the principle that digital service providers pay a tax of 7.5% on the revenues they receive in return for digital services on a monthly basis.

Article 7 of Law No. 7194 was related to tax security and included the following provisions;

"Tax security

ARTICLE 7 - (1) Digital service providers within the scope of this Law or their authorized representative in Turkey who do not fulfill their obligations to submit and pay declarations and payments regarding the taxes covered by the Tax Procedure Law No. 213 dated 4/1/1961 and numbered 213 in due time may be notified by the tax office authorized to levy the digital service tax for the fulfillment of these obligations by the notification methods, electronic mail or all other means of communication listed in the Law No. 213 using the information obtained through communication tools, domain name, IP address and similar resources on the websites and this situation is announced on the website of the Revenue Administration.

(2) If these obligations are not fulfilled within thirty days following the announcement, the Ministry of Treasury and Finance shall decide to block access to the services provided by digital service providers until these obligations are fulfilled, and this decision shall be sent to the Information and Communication Technologies and Communications Authority to be notified to access providers. The requirements of the blocking decisions shall be fulfilled by the access providers within twenty-four hours following the notification.

(3) The procedures and principles regarding the implementation of this article shall be determined by the Ministry of Treasury and Finance in consultation with the Ministry of Transportation and Infrastructure."

Paragraph (2) of the Article was annulled by the Constitutional Court on the grounds that the rule allowing the imposition of access restrictions on the services provided by digital service providers restricts the freedom of enterprise of digital service providers.

In addition, the Court stated that a reasonable balance should be struck between the freedom of enterprise and the guarantee of tax receivables, and that the sanction should not impose an excessive and unbearable burden on the owners of the undertakings, and that if there is a measure that would cause less harm to the rights and freedoms of the individual, it should be sufficient with that measure or that measure should be applied first, in this framework, blocking access to the services provided by digital service providers who fail to fulfill their obligations to submit declarations and pay taxes within the scope of Law No. 213 in due time means blocking access to the entire website, which is the most severe sanction, However, it was stated that while it is possible to introduce a gradual tax security measure, deciding to block access directly imposes an excessive burden on service providers, the reasonable balance that should be found between the freedom of the undertaking and the public interest is disrupted, in this respect, the restriction imposed on the freedom of the undertaking by the rule is disproportionate and violates the principle of proportionality_._