The Constitutional Court Annulled the Provision on Temporary Suspension of Activities Subject to License in the Petroleum Market Due to Violation of Tax Procedure Law No. 213
The Constitutional Court, in its ruling dated 28/09/2023 and numbered 2023/35 E.-2023/163 K. published in the Official Gazette No. 32369 on 14/11/2023 (the "Ruling" or the "Annulment Decision"), decided to annul the provision added to the second paragraph of Article 20 of Law No. 5015 of the Petroleum Market Law, under paragraph (g) by Law No. 7318. The annulled provision stated: "(...) and all licensed activities at any facility (excluding refineries) shall be temporarily suspended by the Institution until the decision of non-prosecution or a final court decision is rendered, and during this period, no license shall be issued to any other real or legal person for the said facility."
This information note examines the scope of the review conducted by the Constitutional Court, the reasons for annulment stated in the Decision, whether the annulled provision will continue to be applied due to the postponement of the Decision’s effective date, and the potential effects of the Decision on ongoing lawsuits.
I. PROCESS
As is known, Article 10 of the Law No. 7318, which Amends the Tax Procedure Law and Certain Laws, dated 29/04/2021, added the following provision to the second paragraph of Article 20 of the Petroleum Market Law No. 5015:
"g) Regarding licensed activities under this Law, in accordance with Article 359 of the Tax Procedure Law No. 213 dated 4/1/1961, with respect to misleading document preparation or usage, preparing or using original or copies of documents fraudulently, or committing the crimes listed in the (ç) paragraph of the same article, the situation shall be reported to the Prosecutor’s Office as per Article 367 of the mentioned Law and shall also be forwarded to the Institution, and all licensed activities at any facility (excluding refineries) shall be temporarily suspended by the Institution until a decision of non-prosecution or a final court decision is rendered. During this period, no license shall be granted to any other real or legal person for the said facility. The licenses of the license holders shall be revoked in accordance with the final court decision. Administrative fines imposed for actions under this provision shall prevent the issuance of a license for the facility unless paid. No license shall be granted to any other real or legal person for the facility until the tax audit related to the crimes under this paragraph is concluded."
In the context of tax crimes regulated under this provision, license holders who were subject to a tax audit under Article 134 of Law No. 213 were also reported to the Energy Market Regulatory Authority ("EMRA"), and the issuance of new licenses for the facilities was halted. Following the tax audits, reports were filed by tax inspectors indicating that individuals had committed tax crimes under the scope of Article 359(a) and (b) of the Tax Procedure Law, leading to the suspension of activities at approximately 700-800 facilities by the EMRA.
License holders whose activities were suspended have filed annulment lawsuits against the EMRA. However, in most of these cases, the courts ruled that the suspension of activities based on the notification of a tax crime report to the Prosecutor’s Office and the EMRA was sufficient, and the suspension of activities was in line with the law, leading to the rejection of the lawsuits.
Meanwhile, the claim that the provision in the second paragraph of Article 20 of the Petroleum Market Law, as amended by Law No. 7318, was unconstitutional was taken seriously by the Ankara 17th Administrative Court, Ankara 10th Administrative Court, and Ankara Regional Administrative Court 8th Administrative Law Chamber, and the provision was referred to the Constitutional Court for concrete norm review. The referring courts argued that the suspension of licensed activities without judicial review and the lack of an effective remedy violated fundamental rights, including the right to work and the right to property, and the right to a fair trial. They claimed the provision violated several articles of the Constitution, including Articles 2, 13, 35, 36, 38, and 48.
II. CONSTITUTIONAL COURT'S ANNULMENT DECISION
1. Scope of the Review
The Constitutional Court, consolidating the objections, examined them together under the case number 2023/35. The Court assessed the provision in question within the context of Article 48 of the Constitution, titled "Freedom of Work and Contracts," and Article 13, titled "Limitation of Fundamental Rights and Freedoms," and made the following evaluations.
The Court referred to Article 48, which ensures the right to work and contract freely, and noted that the freedom of private enterprise is guaranteed for everyone as part of the right to work.
Given that the provision envisaged the temporary suspension of all licensed activities (excluding refineries) until a final decision of non-prosecution or a final court ruling, the Court determined that it constituted a limitation on freedom of enterprise and conducted the review with respect only to this specific right.
After considering the limitation on freedom of enterprise, the Constitutional Court emphasized that fundamental rights and freedoms can only be restricted in accordance with the principles outlined in the Constitution, including the principles of legality and proportionality, and continued its analysis accordingly.
a. Legality
The Constitutional Court emphasized that it is not sufficient for a legal regulation limiting freedom of enterprise to exist in form alone. Legal rules must be specific, accessible, and predictable, and they must not allow arbitrariness, in accordance with the rule of law.
The Court concluded that the provision was clear and predictable, specifying the circumstances under which the suspension of activities would occur, who would impose it, and the maximum duration of such suspension.
b. Legitimate Purpose
The Court emphasized that the freedom of private enterprise under Article 48 is not an absolute right, and it can be limited in line with national economic needs and social goals, as stated in the second paragraph of the article. The provision’s purpose of effectively combating tax evasion in the petroleum market and preventing state tax losses was deemed a legitimate aim.
c. Proportionality
The Court noted that the restriction must also be proportional, as outlined in its established case law under Article 13 of the Constitution. The Court examined the three sub-principles of proportionality: suitability, necessity, and balance.
i. Suitability
The Court concluded that the temporary suspension of activities at facilities where tax evasion had been identified would help reduce the risk of tax loss, thus serving the legitimate aim.
ii. Necessity
The Court acknowledged that the temporary suspension of activities posed a severe limitation on the enterprise's economic future and stated that less restrictive measures should be considered. It evaluated whether allowing activities to continue with a guarantee could serve as a less restrictive measure but found that such a measure would not be as effective in achieving the desired outcome. Ultimately, the Court ruled that it was within the legislature’s discretion to directly impose the temporary suspension of activities.
iii. Proportionality
The Court observed that the provision lacked a mechanism for reassessing the suspension of activities in response to changing circumstances during the investigation or prosecution phases. The lack of an exception, even when the decision of non-prosecution or acquittal is reached, was seen as disproportionate, as it placed an excessive burden on individuals and disrupted the balance between protecting public interests and limiting the freedom of enterprise.
2. Annulment Decision
The Constitutional Court annulled the part of the provision added by Law No. 7318 to the second paragraph of Article 20 of Law No. 5015, specifically the text stating: "and all licensed activities at any facility (excluding refineries) shall be temporarily suspended until the decision of non-prosecution or a final court decision is rendered," by a majority vote, and unanimously annulled the part that stated: "and during this period, no license shall be granted to any other real or legal person for the said facility."
3. Effective Date of the Annulment Decision
Due to the legal gap created by the annulment of the relevant parts of the provision, the Court ruled that the Decision would come into force nine months after its publication in the Official Gazette, which was published on 24/06/2023, and would take effect on 14/08/2024.
III. APPLICATION OF THE ANNULLED PROVISION DUE TO THE DELAY IN THE DECISION'S EFFECTIVE DATE
Since the Constitutional Court postponed the effective date of the Decision by nine months, the annulled provisions will remain in force during this period. Therefore, from a positivist standpoint, these provisions will remain applicable until the effective date of the Decision, and enforcement should continue. However, continuing to apply a provision that the Constitutional Court has declared unconstitutional would conflict with the principle of the supremacy of the Constitution. Therefore, these provisions should not be applied in a way that would harm individuals, but provisions that would benefit individuals should be applied in accordance with the principle of protecting acquired rights.
Moreover, even if the annulled provisions continue to be applied during this period and activities are temporarily suspended, courts hearing related cases should take the unconstitutionality into account ex officio or upon claim.
As noted in the decision of the Council of State's Administrative Law Chamber dated 26/06/2008 (E. 2007/2326, K. 2008/1714), it is stated that "even if it is known that the Constitutional Court has found a law or specific provisions of a law to be unconstitutional and annulled them, it would violate the principle of the supremacy of the Constitution and the rule of law for ongoing cases to be resolved according to those provisions found to be unconstitutional."
The 13th Chamber of the Council of State, in its decision dated 21/12/2018 (2012/3152 E., 2018/4283 K.), also emphasized that those whose rights or interests have been violated by a provision annulled by the Constitutional Court should benefit from the legal consequences of the annulment.
In conclusion, the EMRA should not continue suspending activities based on the annulled provisions. Even if market activities are temporarily suspended, the courts that will adjudicate the matter should take the unconstitutionality into account.
IV. EXISTING LAWSUITS OF LICENSE HOLDERS WHOSE ACTIVITIES WERE TEMPORARILY SUSPENDED UNDER THE ANNULLED PROVISIONS
The situation of license holders whose activities were temporarily suspended by the EMRA should be examined based on whether the precautionary measure has become final or not.
If the measure has become final, either without recourse to the judiciary or after a lawsuit has been rejected, it can be said that these measures will not be affected by the Constitutional Court's decision. However, for those license holders awaiting a final decision on non-prosecution or acquittal, the Constitutional Court’s decision implies that the measure should be re-evaluated in light of changing circumstances in the investigation and prosecution phases.
Therefore, license holders should apply to the EMRA to request a reassessment of their situation under the Constitutional Court’s ruling, and the EMRA should evaluate whether there are grounds for continuing the suspension.
For precautionary measures that have not yet become final, courts should consider the unconstitutionality and issue rulings accordingly, as discussed above.
For further information and support, you can contact us at info@lbfpartners.com.
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This information note examines the scope of the review conducted by the Constitutional Court, the reasons for annulment stated in the Decision, whether the annulled provision will continue to be applied due to the postponement of the Decision’s effective date, and the potential effects of the Decision on ongoing lawsuits.
I. PROCESS
As is known, Article 10 of the Law No. 7318, which Amends the Tax Procedure Law and Certain Laws, dated 29/04/2021, added the following provision to the second paragraph of Article 20 of the Petroleum Market Law No. 5015:
"g) Regarding licensed activities under this Law, in accordance with Article 359 of the Tax Procedure Law No. 213 dated 4/1/1961, with respect to misleading document preparation or usage, preparing or using original or copies of documents fraudulently, or committing the crimes listed in the (ç) paragraph of the same article, the situation shall be reported to the Prosecutor’s Office as per Article 367 of the mentioned Law and shall also be forwarded to the Institution, and all licensed activities at any facility (excluding refineries) shall be temporarily suspended by the Institution until a decision of non-prosecution or a final court decision is rendered. During this period, no license shall be granted to any other real or legal person for the said facility. The licenses of the license holders shall be revoked in accordance with the final court decision. Administrative fines imposed for actions under this provision shall prevent the issuance of a license for the facility unless paid. No license shall be granted to any other real or legal person for the facility until the tax audit related to the crimes under this paragraph is concluded."
In the context of tax crimes regulated under this provision, license holders who were subject to a tax audit under Article 134 of Law No. 213 were also reported to the Energy Market Regulatory Authority ("EMRA"), and the issuance of new licenses for the facilities was halted. Following the tax audits, reports were filed by tax inspectors indicating that individuals had committed tax crimes under the scope of Article 359(a) and (b) of the Tax Procedure Law, leading to the suspension of activities at approximately 700-800 facilities by the EMRA.
License holders whose activities were suspended have filed annulment lawsuits against the EMRA. However, in most of these cases, the courts ruled that the suspension of activities based on the notification of a tax crime report to the Prosecutor’s Office and the EMRA was sufficient, and the suspension of activities was in line with the law, leading to the rejection of the lawsuits.
Meanwhile, the claim that the provision in the second paragraph of Article 20 of the Petroleum Market Law, as amended by Law No. 7318, was unconstitutional was taken seriously by the Ankara 17th Administrative Court, Ankara 10th Administrative Court, and Ankara Regional Administrative Court 8th Administrative Law Chamber, and the provision was referred to the Constitutional Court for concrete norm review. The referring courts argued that the suspension of licensed activities without judicial review and the lack of an effective remedy violated fundamental rights, including the right to work and the right to property, and the right to a fair trial. They claimed the provision violated several articles of the Constitution, including Articles 2, 13, 35, 36, 38, and 48.
II. CONSTITUTIONAL COURT'S ANNULMENT DECISION
1. Scope of the Review
The Constitutional Court, consolidating the objections, examined them together under the case number 2023/35. The Court assessed the provision in question within the context of Article 48 of the Constitution, titled "Freedom of Work and Contracts," and Article 13, titled "Limitation of Fundamental Rights and Freedoms," and made the following evaluations.
The Court referred to Article 48, which ensures the right to work and contract freely, and noted that the freedom of private enterprise is guaranteed for everyone as part of the right to work.
Given that the provision envisaged the temporary suspension of all licensed activities (excluding refineries) until a final decision of non-prosecution or a final court ruling, the Court determined that it constituted a limitation on freedom of enterprise and conducted the review with respect only to this specific right.
After considering the limitation on freedom of enterprise, the Constitutional Court emphasized that fundamental rights and freedoms can only be restricted in accordance with the principles outlined in the Constitution, including the principles of legality and proportionality, and continued its analysis accordingly.
a. Legality
The Constitutional Court emphasized that it is not sufficient for a legal regulation limiting freedom of enterprise to exist in form alone. Legal rules must be specific, accessible, and predictable, and they must not allow arbitrariness, in accordance with the rule of law.
The Court concluded that the provision was clear and predictable, specifying the circumstances under which the suspension of activities would occur, who would impose it, and the maximum duration of such suspension.
b. Legitimate Purpose
The Court emphasized that the freedom of private enterprise under Article 48 is not an absolute right, and it can be limited in line with national economic needs and social goals, as stated in the second paragraph of the article. The provision’s purpose of effectively combating tax evasion in the petroleum market and preventing state tax losses was deemed a legitimate aim.
c. Proportionality
The Court noted that the restriction must also be proportional, as outlined in its established case law under Article 13 of the Constitution. The Court examined the three sub-principles of proportionality: suitability, necessity, and balance.
i. Suitability
The Court concluded that the temporary suspension of activities at facilities where tax evasion had been identified would help reduce the risk of tax loss, thus serving the legitimate aim.
ii. Necessity
The Court acknowledged that the temporary suspension of activities posed a severe limitation on the enterprise's economic future and stated that less restrictive measures should be considered. It evaluated whether allowing activities to continue with a guarantee could serve as a less restrictive measure but found that such a measure would not be as effective in achieving the desired outcome. Ultimately, the Court ruled that it was within the legislature’s discretion to directly impose the temporary suspension of activities.
iii. Proportionality
The Court observed that the provision lacked a mechanism for reassessing the suspension of activities in response to changing circumstances during the investigation or prosecution phases. The lack of an exception, even when the decision of non-prosecution or acquittal is reached, was seen as disproportionate, as it placed an excessive burden on individuals and disrupted the balance between protecting public interests and limiting the freedom of enterprise.
2. Annulment Decision
The Constitutional Court annulled the part of the provision added by Law No. 7318 to the second paragraph of Article 20 of Law No. 5015, specifically the text stating: "and all licensed activities at any facility (excluding refineries) shall be temporarily suspended until the decision of non-prosecution or a final court decision is rendered," by a majority vote, and unanimously annulled the part that stated: "and during this period, no license shall be granted to any other real or legal person for the said facility."
3. Effective Date of the Annulment Decision
Due to the legal gap created by the annulment of the relevant parts of the provision, the Court ruled that the Decision would come into force nine months after its publication in the Official Gazette, which was published on 24/06/2023, and would take effect on 14/08/2024.
III. APPLICATION OF THE ANNULLED PROVISION DUE TO THE DELAY IN THE DECISION'S EFFECTIVE DATE
Since the Constitutional Court postponed the effective date of the Decision by nine months, the annulled provisions will remain in force during this period. Therefore, from a positivist standpoint, these provisions will remain applicable until the effective date of the Decision, and enforcement should continue. However, continuing to apply a provision that the Constitutional Court has declared unconstitutional would conflict with the principle of the supremacy of the Constitution. Therefore, these provisions should not be applied in a way that would harm individuals, but provisions that would benefit individuals should be applied in accordance with the principle of protecting acquired rights.
Moreover, even if the annulled provisions continue to be applied during this period and activities are temporarily suspended, courts hearing related cases should take the unconstitutionality into account ex officio or upon claim.
As noted in the decision of the Council of State's Administrative Law Chamber dated 26/06/2008 (E. 2007/2326, K. 2008/1714), it is stated that "even if it is known that the Constitutional Court has found a law or specific provisions of a law to be unconstitutional and annulled them, it would violate the principle of the supremacy of the Constitution and the rule of law for ongoing cases to be resolved according to those provisions found to be unconstitutional."
The 13th Chamber of the Council of State, in its decision dated 21/12/2018 (2012/3152 E., 2018/4283 K.), also emphasized that those whose rights or interests have been violated by a provision annulled by the Constitutional Court should benefit from the legal consequences of the annulment.
In conclusion, the EMRA should not continue suspending activities based on the annulled provisions. Even if market activities are temporarily suspended, the courts that will adjudicate the matter should take the unconstitutionality into account.
IV. EXISTING LAWSUITS OF LICENSE HOLDERS WHOSE ACTIVITIES WERE TEMPORARILY SUSPENDED UNDER THE ANNULLED PROVISIONS
The situation of license holders whose activities were temporarily suspended by the EMRA should be examined based on whether the precautionary measure has become final or not.
If the measure has become final, either without recourse to the judiciary or after a lawsuit has been rejected, it can be said that these measures will not be affected by the Constitutional Court's decision. However, for those license holders awaiting a final decision on non-prosecution or acquittal, the Constitutional Court’s decision implies that the measure should be re-evaluated in light of changing circumstances in the investigation and prosecution phases.
Therefore, license holders should apply to the EMRA to request a reassessment of their situation under the Constitutional Court’s ruling, and the EMRA should evaluate whether there are grounds for continuing the suspension.
For precautionary measures that have not yet become final, courts should consider the unconstitutionality and issue rulings accordingly, as discussed above.
For further information and support, you can contact us at info@lbfpartners.com.
LBF Partners Law Firm
s.kayikci@lbfpartners.com