The Turkish Parliament has recently passed "Law numbered 7061 on the Amendment of Certain Tax Laws and Other Laws" (the "Law No 7061")1. In the tradition of the so-called blanket laws, Law No 7061 introduces several changes across a wide spectrum of tax and other laws, each perhaps meriting separate discussion.
This update will focus on the new tax exemptions introduced in connection with the financing of public private partnership investments ("PPPs") by way of offshore securities issuances.
Exemptions from stamp duty and administrative levies
Articles 30 and 31 of Law No 7061 introduce stamp tax and administrative levy exemptions on documents and security for the on-lending of proceeds of offshore securities issuances by special purpose vehicles to finance PPPs in Turkey.
The new exemptions appear tailored to the traditional offshore issuance structure where a special purpose vehicle would make an offshore securities issuance and on-lend proceeds to the relevant domestic investment vehicle against security over project assets and revenues.
There has been a long-standing debate as to whether these on-lending arrangements and the associated security would be "stampable" with the majority of views leaning conservatively, that they would in fact be subject to stamp taxes.
In this landscape, the potential taxes and administrative levies chargeable on on-loan documents and security registration represented a significant, perhaps even deterring, cost in the financing of PPPs by way of offshore securities issuances, keeping most sponsors from tangibly exploring alternatives to traditional bank financing such as project bonds.
The new exemption introduced in Law No 7061 settles this debate, at least in the context of PPPs - going forward, on-loan agreements and any associated security in respect of the financing of PPPs by offshore securities issuances will be exempt from stamp taxes and administrative levies.
However, it may still be too early to call offshore issuances as being at par with bank financings from tax perspective - Law No 7061 does not provide exemptions from withholding taxes and value added taxes all of which have the potential of becoming chargeable on such on-loan arrangements. At least for the time being, traditional banks will continue to enjoy some level of privilege in these areas.
Conclusion
The new exemptions aim to facilitate the financing of PPPs by way of offshore securities issuances by reducing potential tax and transaction costs and allowing sponsors to explore debt capital markets as an alternative to traditional bank financings.
This is a welcome change amidst a slowly saturating domestic financing market for PPPs and with many more projects in the pipeline to compete for favourable financing terms.
Footnotes
1 Published in the Official Gazette numbered 30261 and dated 5 December 2017.
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