law

SEVERANCE PAY FUND : AN EMERGING IDEA OPPOSED BY MANY

Instigated in 1954, discussions over a possible severance pay fund are still ongoing. With this debate, the real question refers to the need and usage of this pay. To understand the actual debate and the proposed draft, the actual system and the past of the severance pay will be showed along with the proposed draft and the reactions from different sides of the society.

Nowadays, the severance pay system is regulated by the old Labor Act no. 1475 according to the transitional Article 6 of the new Labor Act no. 4857. The actual system is simple: there is no centralization of the severance pay system but only the duty for the employer to provide a severance pay to its employee when the criteria are met.

The actual requirements are as follow:

Being an employee
His/her work must have been terminated for one of the reasons indicated in the law
- Reasons explaining the rightful termination of the contract by the employee: health issues, immoral, dishonorable or malicious conduct or other similar behavior or force majeure (Article 24 of Labor Act no. 4857)
- Reasons explaining the unfair termination of the contract by the employer: reasons outside of immoral, dishonorable or malicious conduct or other similar behavior that are not supposed to lead to the termination of the contract (Article 25 of Labor Act no. 4857)
Exceptions :
- Military service for men or marriage for women can be a reason to terminate the contract and obtain the severance pay
- Qualification to receive retirement or disability pension is a reason to terminate and obtain the severance pay
- In case of death, his/her legal heirs can obtain the severance pay

This severance pay represents the salary of 30 days of work per year.

This system is criticized by many. As it represents an important lump sum that employers must pay, it hinders job flexibility. Moreover, it increases the recourse to informal ways in order to obtain or refuse to give the severance pay. Everyone wants to change it however nobody agrees on how it must be changed.

Concerning the proposed draft, there is only a version from 2002 issued by the Ministry of Labor and Social Security which is the sole available proposal that exists until now. It foresees a system where employers must pay every month to the fund for each of the employees an amount which is not less than 3% of the salary. There will occur administrative fines in case of non-payment of the said amount.

This fund will be managed in a quite transparent manner as the certified public accountants will have the duty to audit it every three month. The fund will be independent from the Ministry, will have its own budget and a legal personality. However, the proposed draft is not only adding a fund but also changing the conditions to obtain the severance pay.

The proposed draft comprises different type of employees in its text. The ones regulated by the Labor Act no. 4857, the ones by the Sector Regulations between Press Employees and Employers Act no. 5953 and the ones regulated by Maritime Labor Act no.854.

Indeed, here are the conditions stated by the proposed draft in order to obtain the severance pay:

Qualification by the employee to receive retirement or disability pension or a lump-sum payments from the institution he/she is subjected to.
Termination of the contract by the employee once he/she contributed to the fund for at least 10 years.
In case of death, his/her legal heirs can obtain the severance pay.

There are also two exceptions regarding:

Those who were working while they had their retirement pension and that the latter stopped. If they terminate their contract to receive their retirement pension again, they can obtain the severance pay.
Those paying the Society Security Support Contribution, they can only benefit from the severance pay in case of qualification for disability pension and death.

The employee, if entitled to receive the severance pay, will get 30 days of his/her gross salary for every year of full working time. If the employee has worked less than a year, the calculation will be in a pro-rata basis. The 30 days will be calculated according to the average obtained from his/her last year’s salary. However, the amount of the severance pay must be at least the amount of the minimum wage and maximum the retirement bonus of the highest civil servant.

The employee will be able to obtain the severance pay once he/she issued a document proving that he/she qualified for retirement or disability pension or that he/she received a lump-sum payment from the institution he/she is subjected to. If the employee is dead, his/her heirs must prove that they are his/her legal heirs. If the employee has worked 10 years or more, he/she can request it with a letter to the fund. After request, if it is not paid in 30 working days, legal interests can be added to it.

There will be 10 years of prescription period to request the severance pay from the fund otherwise it will be considered that the employee has waived his/her right to obtain this pay. Once the payment has been made, if the person starts to work again, another account will be made in the fund and the same conditions will apply all over again.

The transition is pretty simple in the proposed draft. Indeed, it recognizes that this new law will apply for all however the severance pay cumulated before the coming into force of this Act, will still be the sole responsibility of the employer. Employers can make a contract with their employees in order to take into account the old working time in the fund in order not to have to pay a lump sum along with the bonuses.

This version of the text has been fiercely opposed by many social partners including employees’ unions and employers’ unions. Some scholars explained the reasons underlying the opposition by arguing that this proposed draft is trying to shift the severance pay into a pension bonus.[1] They oppose the transformation as the system is not working well with it and as there is no large-scaled unemployment insurance that can compensate this shift. Indeed, if there were a decent unemployment insurance, the severance pay could be transformed into a pension bonus however it is not the case. Actually, the current system with a limited unemployment insurance and the severance pay is supposedly a good deal for those losing their job.

Other scholars tend to see that the main problem is the irrational fear of people towards funds. Indeed, they agree that, in the past, such funding system failed due to the mismanagement however they argue that this fund will be transparent and well managed with audits issued by certified public accountants[2]. In the preamble of the proposed draft, it is clearly written that any attempt to use the fund to fill the gap of the annual budget will be forbidden.

However, it is clear that this proposed draft limits the conditions to obtain the severance pay. Exceptions regarding the marriage of women and the military service of men are set aside and it remains only retirement, death, and contribution for ten years in order to obtain the severance pay. The ancient system allowed more people to request a severance pay. Also, the calculation did allow a very high level without limit for employees while this reform sets a maximum severance pay which is the retirement bonus of the highest civil servant. Those are the main reasons of opposition from labor unions. Also, one point of opposition from labor unions is the excessive flexibility that it would allow. Indeed, as employers will not have to pay a lump sum when they terminate the contract of their employee, they will be keener to fire.

The government which issued this draft is insisting on a wider amount of people which will really get this severance pay. Indeed, it is true that until now, bankruptcy and bad faith of the employer prevented an overwhelming majority to get their severance pay.

The government instigated this reform because of the employers. Indeed, the project was to cancel the lump sum paid by companies which was hindering their business when terminating a contract. Moreover, this bonus paid every month will be reduced from the tax assessment. However, as the employers and their unions think it is an untenable burden for them to pay every month a bonus to the fund for each employee, they are opposing this reform.. They are also afraid that the amount of the bonus to be paid can be increased. However, it remains that this reform can allow job flexibility.

To conclude, all parties agree that the system must be changed as 84% of employees did not receive any severance pay in 2015[3]. However, they are also against the proposed draft. The problem is that the Ministry wants to obtain a large consensus among social partners before passing the law through the Parliament. For this reason, it is doubtful whether this fund will be implemented or not.

[1] Ünsal Engin; Kıdem Tazminatı Fonu Kanun Tasarısı Taslağı Konusunda Bazı Düşünceler, TUHİS Cilt 21 Sayı2-3 s.34

[2] Uğur S., “Kıdem Tazminatında Fon Sistemi”, Çimento İşveren, cilt.23, ss.4-18, 2009

[3] HABERTURK (2017), Kıdem Tazminatı Fonu Kurulabilecek mi ? http://www.haberturk.com/yazarlar/omer-dincer/1565874-kidem-tazminati-fonu-kurulabilecek-mi

COLLECTION OF FOOTBALLERS’ RECEIVABLES IN TURKEY

Footballers in Turkey, either foreign or national, have different remedies in order to collect their receivables from their clubs. National remedies to collect players’ receivables are available for both Turkish and foreign players. Turkish Football Federation (“TFF” hereinafter) organizes a mandatory arbitration and accordingly the actions before Turkish courts are precluded. Concerning foreign players, they can claim their receivables before FIFA arbitration system.

TFF is regulated by the Constitution, by Law on The Establishment and Duties of the Turkish Football Federation no. 5894 and by internal status and directives.

Mandatory arbitration before the Dispute Resolution Committee

Article 56 of TFF Statutes specifies the scope of disputes solved by the Dispute Resolution Committee. It comprises disputes arising out between a club and its players in connection with a contract or any football-related matters. The jurisdiction of the Dispute Resolution Committee is exclusive, it means that there is no other legally possible way to solve a dispute in this context[1]. There is only a possibility of appeal before the Arbitration Committee.

In case that the player brings an action before the Dispute Resolution Committee and that the latter issues an award; if the player is not satisfied with the said decision, he has seven days to bring it before the Arbitration Committee which works as an appeal. Otherwise, the parties shall be considered having waived their right to appeal.

The decision of the Arbitration Committee is final and binding pursuant to the Article 59/3 of Turkish Constitution which regulates that “The decisions of sport federations relating to administration and discipline of sportive activities may be challenged only through compulsory arbitration. The decisions of Board of Arbitration are final and shall not be appealed to any judicial authority.”

There is no possible way to go to the Court of Arbitration for Sports in Lausanne, Switzerland.

Execution proceedings before the execution office

The execution proceedings before the execution offices are not recommended as the system is quite complicated in Turkey and also with the pending mandatory arbitration, any attempt to recover receivables can be stopped by the arbitration clause. However, in practice, execution proceedings are widely used among footballers and clubs. They are using their right to object to the payment order issued by execution offices. Upon the objection; an action for annulment of objection should be brought before the Court. This objection is mainly done in order to extend the length of proceedings and avoid transfer bans.

Voluntary Arbitration before the Dispute Resolution Chamber of FIFA (only for foreign players)

For foreign players, FIFA has its own Dispute Resolution Chamber (DRC). Foreign players can request an examination from both the TFF’s arbitration chamber and FIFA’s arbitration chamber. TFF clearly states its jurisdiction and also the jurisdiction of FIFA in the article 63(3) of its Statutes[2]. This arbitration system is only available for those cases implying “an international dimension”[3].

FIFA’s Regulation on the Status and Transfer of Players specifies the possibility of an explicit clause on the contract or collective bargaining agreement of the player which is referring to the sole possible adjudication before the national sport arbitration system[4].

There is a special procedure in FIFA concerning overdue payables. In case of an overdue payable, the player must put the club in default in writing with a deadline to comply with its financial obligations in at least ten days. In case of non-compliance; it is considered having overdue payables. Then, the player can request the examination of the Dispute Resolution Chamber of FIFA.

However, Dispute Resolution Chamber of FIFA is not a mandatory arbitration. Indeed, Article 23 states that the competence of FIFA is “without prejudice to the right of any player or club to seek redress before a civil court for employment-related disputes”. However, as TFF arbitration is mandatory in Turkey, there is no way for a foreign player to go to the court in Turkey to solve employment-related matters.

FIFA’s Dispute Resolution Chamber is constituted of a sole or three members to examine a case. It has 60 days to adjudicate the case and there is no fee to pay to FIFA for employment-related disputes. Along with the order to pay, FIFA can give disciplinary sanctions to the club.

In case of an award of the Dispute Resolution Chamber, there is a possibility of appeal before the Court of Arbitration for Sport in Lausanne, Switzerland.

[1] Article 22 of the Directive on the status and transfer of professional players: “All disputes arising from professional players’ contracts and sanctions given by clubs should exclusively be examined and awarded by the Dispute Resolution Committee. Their appeal may be made before the Arbitration Committee.”

[2] “The TFF shall have jurisdiction over internal disputes and FIFA over international disputes.

[3] Article 22/b of the Regulations on the Status and Transfer of Players stating the competence of FIFA

[4] Article 22/b of the Regulations on the Status and Transfer of Players stating the competence of FIFA: “employment-related disputes between a club and a player of an international dimension; the aforementioned parties may, however, explicitly opt in writing for such disputes to be decided by an independent arbitration tribunal that has been established at national level within the framework of the association and/or a collective bargaining agreement. Any such arbitration clause must be included either directly in the contract or in a collective bargaining agreement applicable on the parties. The independent national arbitration tribunal must guarantee fair proceedings and respect the principle of equal representation of players and clubs;”

WITHHOLDING TAX FOR FOREIGN E-COMMERCE

Technology is disruptive especially when it comes to State power. It overrides territorial borders and their rules on taxation. E-commerce is one of the elements that technology allowed. States are now trying to impose their borders against borderless worldwide internet. In Turkey, finance minister, Naci Agbal, promised the establishment of a withholding tax in order to impose tax on foreign-based e-commerce companies. The question arising out of this declaration is the way it will be done compared to the solutions found in France and China.

In the end of Spring 2017, Naci Agbal gave an interview to Habertürk[1] where he explicitly stated that its ministry is planning a withholding tax over foreign e-commerce transactions. Newspapers in Turkey have relayed this news as the coming of an equitable time[2]. The Finance Minister declared that this withholding tax will be taken by banks when the money is transferred from the customer to the e-commerce company. Indeed, he only refers to companies which are not registered in Turkey and that do not pay any taxes in Turkey. This is purported to bring an equal treatment between national e-commerce companies and foreign e-commerce companies. The former are paying all their taxes in Turkey while the latter were not paying anything in Turkey while capturing a portion of Turkish consumers. This is an unbalanced situation that the minister wants to end. To implement this tax, the finance minister promised to hire 100-200 more staff in the revenue administration in order to follow the implementation. He affirmed that this tax would be taken both for services and goods.

President of the Turkish Payment and Electronic Money Institution (ÖDED), Burhan Eliaçik, stated that online shopping on foreign e-commerce companies represented ₺5,4 billions (around €331 millions) in 2016. He foresees around ₺8 billions (around €972 millions) in 2020 and imagines the millions of tax that could be taken from this shopping.[3]

However, the declaration of the minister has been analyzed by some experts in different newspapers and problems of implementation seem to appear.

Indeed, the first problem seems to be the effect of these measures on Turkish e-commerce companies abroad. It is said that the bilateral tax agreements preventing double taxation will be applied and Turkish e-commerce companies selling abroad could be subjected to the same kind of tax in the country of performance.[4] This could hinder their benefits abroad.

The second problem is the case when the company is foreign however the seller is Turkish[5]. Indeed, there are different business models and some of them are just about linking the seller and the buyer. Hence; the following questions, “How could this automatic withholding tax know about these details?” “Will the bank have enough information to carry out this role of taking taxes from these transfers?” are legit questions because of the lack of information on this future withholding tax.

However, Turkish companies operating e-commerce websites are quite pleased with this news. The president of a well-known Turkish e-commerce website stated that the lack of taxation of foreign e-commerce companies led to an unfair competition. He even argues that this decision could act as an incentive to invest in Turkey.

The examples of France and China may be taken to have an idea of the current practices of other countries. In 8 April 2016, China established a tax on parcels with a limit of 2.000._CNY and pursuant to this regulation, only tax and VAT must be paid on 70% of the value of the declared goods on the parcel. However, above that level, customs duty must be added to it[6].

However, in France, it works differently: intra-European e-commerce is dealt differently than international e-commerce. Hence, for Europe, VAT registration is required when the turnover of the company in France exceeds €35.000. Otherwise, the company can impose the VAT of the country of exportation. However, outside the European Union, customs duty must be paid for each parcel and any VAT shall not be imposed until 22 euros. This loophole of products under €22 will not be available from 2018 as it does not bring a fair competition between national and foreign e-commerce companies[7]. However, the French system does not seem to work properly as some recent news emphasized on the massive loss due to the lack of implementation.[8]

As seen above, the regulation documents are still on progress. It would be interesting to see how Turkey will deal with this question considering the failure of France because of the European Union and due to the possibility of an easy fiscal dumping.

[1] BUSINESS HT (2017), E-Ticaret’e stopaj geliyor. http://www.businessht.com.tr/ekonomi/haber/1527447-e-ticaret-e-stopaj-geliyor

[2] HURRIYET (2017), E-ticarette adil dönem http://www.hurriyet.com.tr/e-ticarette-adil-donem-40488067

[3] AKSAM (2017), Yabancı e-ticaret sitelerine vergi yüz milyonlarca TL gelir yaratır http://www.aksam.com.tr/ekonomi/yabanci-e-ticaret-sitelerine-vergi-yuz-milyonlarca-tl-gelir-yaratir/haber-637264

[4] HUKUKI HABER (2017), E-ticarette adil dönem http://www.hukukihaber.net/ekonomi/e-ticarette-adil-donem-h93767.html

[5] DIGITAL AGE (2017), Haziran ayında bilişim hukuku gelişmeleri. http://digitalage.com.tr/haziran-ayinda-bilisim-hukuku-gelismeleri/

[6] MERIDIAN GLOBAL SERVICES (2016), Chine: taxe sur l’e-commerce étranger. https://www.meridianglobalservices.fr/Chine-taxe-sur-le-commerce-étranger/

[7] EUROPEAN COMMISSION – Press release : La Commission propose de nouvelles règles fiscales afin d’encourager le commerce électronique et de soutenir les entreprises en ligne au sein de l’UE. http://europa.eu/rapid/press-release_IP-16-4010_fr.htm

[8] LE FIGARO (2010), L’e-commerce contourne la fiscalité française. http://www.lefigaro.fr/societes/2010/04/07/04015-20100407ARTFIG00419-l-e-commerce-contourne-la-fiscalite-francaise-.php

Tag: law

SEVERANCE PAY FUND : AN EMERGING IDEA OPPOSED BY MANY

COLLECTION OF FOOTBALLERS’ RECEIVABLES IN TURKEY

WITHHOLDING TAX FOR FOREIGN E-COMMERCE