Fixing the Contract Price at Foreign Currency

Fixing the Contract Price at Foreign Currency

 

DETERMINATION OF CONTRACT PRICE IN FOREIGN CURRENCY

What Innovations Does the Amendment to the Law on the Protection of the Value of Turkish Currency dated 13.09.2018 Bring?

Attorney Baris Erkan Celebi

SUMMARY

With the Presidential Decree dated 13.09.2018, it is prohibited to determine the contract price and payment in foreign currency or indexed to foreign currency in certain contracts between Turkish residents. These contracts include contracts for the purchase and sale of movable and immovable property, all kinds of movable and immovable property leasing contracts including vehicle and financial leasing, leasing contracts, employment contracts, service contracts, and work contracts.

The Decision not only prohibits the determination of the prices of such contracts to be concluded as of 13.09.2018 in foreign currency but also orders that the prices agreed in foreign currency in the contracts previously concluded and still in force must be redetermined in Turkish currency until 12.10.2018.

However, the Presidential Decree dated 13.09.2018 left the authority on many issues to the Ministry of Treasury and Finance, and the communiqué issued by the Ministry introduced many exceptions and even exceptions to exceptions.

As a result, the types of contracts under Turkish law that may be denominated in foreign currency have become an issue that needs to be carefully examined. In this study, the types of contracts that can and cannot be determined in foreign currency within the scope of the Presidential Decree dated 13.09.2018 and the communiqué dated 06.10.2018 will be briefly examined.

 

I. INTRODUCTION

In 1929, the economic crisis, also known as the Great Depression, hurt the economy of the newly established Republic of Turkey, which was still repaying the debts of the Ottoman Düyunu Humumiyesi. Due to the absence of a central bank at the time, the Turkish Lira depreciated rapidly, and the Law on the Protection of the Value of the Turkish Currency (Law No. 1567 on the Protection of the Value of the Turkish Currency) was adopted on 20.02.1930 to prevent this depreciation and to protect the Turkish Lira against internal and external threats. The Law granted various powers to the executive to protect the value of the Turkish Lira, especially against economic crises, speculation, and manipulation.

In 2018, due to the sudden and significant depreciation of the Turkish Lira due to several internal and external factors, the Presidency published Presidential Decree No. 85 on 13.09.2018[1] based on the authorization it received from the TPKKK, thereby amending Article 4 of the Decree No. 32 of 7/8/1989 on the Protection of the Value of the Turkish Currency.2

The compatibility of this regulation with the Constitution, the hierarchy of norms, the TPKKHK, and the freedom of contract[2] is beyond the scope of this study, and this study will briefly examine what changes the regulation brings.

 

II. TYPES OF CONTRACTS COVERED BY THE REGULATION

With the Presidential Decree dated 13.09.2018, it is prohibited to determine the contract price and payment in foreign currency or indexed to foreign currency in some contracts between Turkish residents. These contracts are:

  1. Securities and real estate purchase and sale contracts
  2. All kinds of movable and real estate leasing agreements including vehicle and financial leasing
  3. Leasing contracts
  4. Labor contracts
  5. Service contracts
  6. Contracts of work

As can be seen, proxy agreements, retainer agreements, attorney agreements, transportation agreements, charter agreements, atypical agreements, suretyship agreements, commission agreements, loan and banking agreements, brokerage agreements, and corporate law agreements are excluded from the scope of the Decree and are therefore among the agreements that may be concluded in foreign currency.

The aforementioned Decree authorizes the Ministry of Treasury and Finance to make exceptions to the above-mentioned contracts. Therefore, by the regulations to be made by the Ministry of Treasury and Finance, in certain exceptional cases, it will be possible to determine the contract price and payments in foreign currency or indexed to foreign currency in the above-mentioned contracts between Turkish residents.

Based on the authorization granted in the Decision, the Ministry of Treasury and Finance published a Communiqué[3] in the Official Gazette dated 06.10.2018 and numbered 30557.

The main exceptions specified in the Communiqué, the price of which may be determined in foreign currency, are as follows:

  • Employment and service contracts to be performed abroad,
  • Employment and service contracts to which foreigners are parties,
  • Service contracts made within the scope of exports, transit trade, sales, and deliveries deemed to be exports and foreign currency earning services and activities,
  • Service contracts related to electronic communications that start in Turkey and end abroad and service contracts related to electronic communications that start abroad and end in Turkey,
  • Contracts for the construction, repair, and maintenance of ships,
  • Contracts for the sale of movable property other than construction machinery and vehicles (as a result, construction machinery and vehicles cannot be paid for in foreign currency; other contracts for the sale of movable property may be indexed to foreign currency),
  • Sales contracts for software produced abroad within the scope of information technologies, and license and service contracts for hardware and software, Financial leasing (leasing) contracts of ships.

As can be seen, exceptions come into play, especially in cases where there is a foreign element in the contract or the market related to the agreement, and the prices of these contracts may be determined in foreign currency.

 

III. PARTIES TO THE CONTRACTS COVERED BY THE REGULATION

Presidential Decree No. 85, by limiting the scope of the Decree with the phrase “residents of Turkey…“, includes the above-mentioned contracts within the scope of the Decree only if they are concluded between residents of Turkey. Therefore, if one or more of the parties are not residents of Turkey, the contract price and payment may be specified in foreign currency, regardless of the type of contract. The phrase “residents in Turkey…” means that the headquarters of the company for legal entities and the residential address for individuals must be located in Turkey.[4] Therefore, all companies established under Turkish law will be deemed to be residents in Turkey.

In the case of individuals, the registered residence address will be a presumption of domicile in Turkey; however, since the determination of domicile is based on the material reality, i.e. the place of residence to settle, and not the formal reality, the contrary can be proved.[5] In this context, foreigners in Turkey without a residence or work permit and a registered Turkish residence address should be presumed not to be “resident in Turkey”. Moreover, even if they are residents in Turkey, the employment and service contracts to which foreigners are a party are in any case within the scope of the exemption and the price can be determined in foreign currency.

 

IV.  REDETERMINATION OF THE VALUE OF CONTRACTS IN FORCE

Presidential Decree No. 85 added Provisional Article 8 to the TPKKL and ordered that the consideration agreed in foreign currency in the contracts previously concluded and still in force shall be redetermined in Turkish currency until 12.10.2018. It should be noted here that this determination is not a renewal of the obligation within the meaning of Article 133 of the TCO, but only a change of a part of the record of the contract regarding the price.[6]

Article 8/24 of the Communiqué dated 06.10.2018 stipulates what will happen if the parties cannot reach an agreement on the contract price while applying this provision of the law. According to the said article, if the parties cannot reach an agreement, the contract price stated in a foreign currency will first be converted into TL at the effective selling rate of the Central Bank of the Republic of Turkey on 02.01.2018. Then the new contract price will be found by applying the CPI from 02.01.2018 to the date of renewal of the prices.

For residential and roofed lease agreements, the same calculation method has been adopted, but the validity period of the rent calculated based on the exchange rate dated 02.01.2018 and CPI is limited to 2 years, and what will happen afterward is not specified. In my opinion, if the parties cannot reach an agreement on the rental price at the end of the 2 years, the rental price will no longer be calculated by increasing the rental price based on CPI, but the rental price will be determined by the judge by Article 344/3 of the TCO, taking into account the condition of the leased property and comparable rental prices.

 

V. CONCLUSION

As a result, under the Presidential Decree dated 13.09.2018, as a rule, the prices of all kinds of movable and immovable property purchase and sale agreements, all kinds of movable and immovable property lease agreements including vehicle and financial lease agreements, leasing agreements, employment agreements, service agreements and work contracts between Turkish residents cannot be determined in foreign currency and payments cannot be made in foreign currency. However, the Ministry is authorized to introduce many exceptions to this general rule, and the Communiqué dated 06.10.2018 has introduced many exceptions.

In conclusion, when all the exceptions are evaluated together, it is seen that the Presidential Decree No. 85 mainly covers the sale and lease contracts of immovable vehicles between Turkish and foreign persons residing in Turkey. Foreigners who purchase immovable property for the first time to reside in Turkey will not be residents of Turkey at the date of sale, and therefore, these contracts will not be covered by the Decree and the immovable property may be sold in foreign currency.

SOURCE

[1] Decree Amending Decree No. 32 on the Protection of the Value of the Turkish Currency (Decree No: 85) 2 See Official Gazette dated 13.09.2018 and numbered 30534.

[2] For a detailed discussion on this issue, see DOĞRUL, Sefa, The Problem of the Unconstitutionality of Articles 4/g and Provisional Article 8 of the Decree No. 32 on the Protection of the Value of Turkish Currency, BATİDER, June 2019, C.35, S.2.

[3] COMMUNIQUÉ AMENDING THE COMMUNIQUÉ ON THE DECISION NUMBERED 32 ON THE PROTECTION OF THE VALUE OF THE TURKISH CURRENCY (COMMUNIQUÉ NO: 2008-32/34) (COMMUNIQUÉ NO: 2018-32/51)

[4] İMAMOĞLU, Başak Şit, An Evaluation of the Presidential Decree dated 12 September 2018 on the Restriction of the Freedom to Conclude Contracts in Foreign Currency, Banking and Commercial Law Research Institute, September 2018, C. 34, S.3, p.155.

[5] PEKCANITEZ, Hakan, Civil Procedural Law, 2018, C.1, pp.270-271.

[6] IMAMOGLU, p.155.