The first instance tax court decision in question is a leading decision in Turkish law in terms of the grounds on which it is based. We believe this tax court decision will also be approved by the Council of State. Case law of the European Court of Human Rights has rarely been used as a supportive element in Turkish courts. However, in the decision in question, the case law of the ECHR has been used for the first time by a Turkish tax court as the main foundational element of a decision. With this decision, in accordance with our defence arguments and for the first time in a tax related conflict, Turkish courts made a reference to the right to equality of arms and the right to a fair trial. In addition, in a conflict regarding transfer pricing, for the first time the ECHR France v. Henrich decision number 13616/881 has been referred to. For the reasons mentioned above, this dispute was more than a mere transfer pricing conflict. The decision is lighting the way for Turkish tax experts and will guide doctrine after it is approved by the Council of State and is starting to have an effect even now, at this early point. This decision will set an example for the courts of first instance in future conflicts and it is highly possible that the same grounds will be used in the courts in the future.

Facts of the case are as follows:

The Client resides in Istanbul and operates a business which imports and markets computers and measurement systems, in addition to offering technical services with respect to these products.

The tax inspection report, which was issued at the end of the tax inspection examining the corporate tax liability of the Client, alleges that the Client has been involved in disguised profit distribution because it purchased computers and technological products defined as falling in the "Desktops and Laptops Group" and the "Imaging and Printing Group" from its overseas intra-group company, at a price higher than that of an arm's length transaction.

A lawsuit was filed against the above mentioned assessments based on both procedural and substantive grounds. The very basic procedural defence was that the use of a secret comparable during the audit restricts our right of defence and our right to fair trial. Although the tax audit report was provided to the Client along with its annexes comprising numerous documents, any information on the comparable and related documents (although stated in the report) were not included in the annexes.

As to the substantive arguments, it has been set forth that the tax audit is not in compliance with transfer pricing methodology.

In accordance with our defense arguments, the court has ruled that the tax assessments are not based on rightful grounds since those grounds consist of a hidden comparable and so violate the equality of arms resulting from the right to fair trial which is protected under the Constitution and Article 6 of the European Convention of Human Rights.

This astonishing justification of the first instance tax court decision is pointing the way to new and important developments for taxpayer rights.

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