AMBASSADOR RAISES DEFINITION OF TERRORISM AND TAX

C O N F I D E N T I A L ANKARA 001652

SIPDIS

E.O. 12958: DECL: 11/17/2019
TAGS: PTER EFIN PHUM TU
SUBJECT: AMBASSADOR RAISES DEFINITION OF TERRORISM AND TAX
ISSUES WITH MINISTER SIMSEK

REF: A. ANKARA 1497

B. ANKARA 1425

C. ANKARA 1327

Classified By: Ambassador James Jeffrey for reasons 1.4 b, d


1. (C) Summary: Ambassador Jeffrey and Econ Counselor met
November 12 with Minister of Finance Mehmet Simsek. Simsek
established an interagency working group on the definition of
terrorism that will make recommendations on legislative
changes by mid-December, allowing him to present legislation
to the parliament in January, in advance of the FATF review
deadline. On the Revenue Administration's (RA's) denial of
the USG request for consultations on Citigroup,s liability
under the Bilateral Tax Treaty, Simsek said he was unaware of
the internal guideline used to deny the request, and the
Ambassador promised him a paper on the issue. On the Dogan
tax case, Simsek said the GOT was hampered by tax
confidentiality rules from defending itself publicly. Dogan
was being treated the same as other taxpayers. Auditors
assessed back taxes after finding a series of unreported
stock transfers in which Dogan moved shares through multiple
"dummy" companies and then to Dogan's German partner. Simsek
argued that the GOT could not win with the public or
investors by politicizing the case, and that he recently told
Dogan's daughter that the door to settlement was still open.
The Ambassador said the process, while legal, appeared
flawed and the USG had to ask if the penalties were
proportionate and if their effect is to restrict the media,
regardless of intent. End summary.


2. (C) Ambassador Jeffrey asked Simsek about the GOT,s
preparations for the Financial Action Task Force (FATF)
"targeted review" of Turkey, which will be published in
February. The Ambassador noted that Turkey,s limited
definition of terrorism was likely to be a particular concern
to the FATF. Simsek said he had established an interagency
working group on Turkey,s definition of terrorism, and that
he expected the group to make recommendations by
mid-December. Simsek said this would allow him to raise the
issue with the Cabinet in late December and present any
legislative changes needed in January. The Ambassador said
the working group might want to review the definitions of
terrorism of the United Kingdom, New Zealand and Belgium,
which had been found "fully compliant" by the FATF, and those
of Canada, Japan, the UAE, Spain and Norway, which the FATF
had found to be "largely compliant."


3. (C) The Ambassador told Simsek that the USG was troubled
by a refusal of the Revenue Administration (RA) , which
reports to Simsek, to agree to a consultation process with
the USG concerning Citigroup's tax liability, as called for
under Article 25 of the US-Turkey Bilateral Tax Treaty. The
basis for the refusal was a new RA Internal Guideline that
tries to limit taxpayers to either consulting under the
treaty or going to local court, but not both. The Ambassador
said we did not see how an Internal Guideline could overrule
a treaty provision. Simsek said that Citigroup had met with
him and requested more time to negotiate with the RA. While
Simsek said he wanted to agree to their request, they had
come to him after the settlement negotiations had ended, and
that it was not possible to re-open the negotiations to allow
more time. He was not aware of the RA refusal to consult
under the treaty. The Ambassador said we would send a paper
with details, and Simsek said he would review it with the RA.


4. (C) The Ambassador then raised the Dogan Group tax case,
which he noted had set off apublic debate about whether the
GOT was trying to restrict press freedoms. Simsek said the
GOT was hampered by tax confidentiality requirements from
defending itself fully in the press, while Dogan was free to
provide selective information that made the GOT,s actions
appear sinister. The Dogan case began, Simsek said, when the
RA received a detailed, anonymous letter outlining a series
of undisclosed stock transfer transactions involving Dogan
Broadcasting shares. Simsek said that over a few hours
time, Dogan had transferred shares through multiple "dummy"
companies (which appeared to have been set up only for
purposes of these transfers) and finally to Dogan's German
partner, Axel Springer. None of these stock transfers were
reported to the Capital Markets Board. To this day, Simsek
said, Dogan has not revealed these transactions to the public
nor explained their purpose to the GOT. (Comment: Simsek was
careful not to say that these were sham transactions intended
to avoid taxes, though he implied it. Rather, he emphasized
that Dogan was not disclosing the whole truth about the tax
case in the press. But if the GOT still does not understand
the purpose of the transactions, it remains unclear on what
basis they found additional tax was due. End comment.)

5. (C) Simsek acknowledged the public perception that the GOT
was using its tax authority to punish Dogan after his public

spat with the Prime Minster in 2008, but argued that Dogan
was being treated the same as other taxpayers. Simsek said
that the RA initially sent in auditors to confirm the
anonymous letter's content before the Erdogan-Dogan dispute
erupted. A team of 15 auditors all signed the report
finding that back taxes were owed and Simsek asserted that it
would be impossible for the GOT to influence all 15 auditors
to falsify a report even if it tried to. Dogan's tax
liability was determined by the auditors, not the GOT. The RA
then applied statutory interest (30 percent per year) and a
standard penalty equal to the amount of back taxes owed.
Simsek also noted that Dogan's daughter had recently met with
him and that he had told her the door to settlement was still
open.

6. (C) The Ambassador thanked Simsek for his explanation,
but noted that USG remains concerned. While all that was
done to Dogan might have been perfectly legal in Turkey, it
was the result of a deeply flawed process in which the RA was
prosecutor, judge and jury, and noted that Dogan had to pay
billions of dollars just to take this case to court and
defend itself. While legal, the USG has to ask if the
penalty was proportionate and whether it does in fact affect
the media. Simsek said that the GOT has not engaged in any
political discussions on this case. "we cannot win this
either with the public or with investors" because the GOT
cannot defend itself. He argued that the lien on Dogan's
stock was only precautionary and did not interfere with their
operations -- "we haven,t seized anything." He also said
the majority of Turkish media do not make much money as a
business, but make up for their losses with political favors.


JEFFREY

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