We hope you find the publication informative. CORPORATE 2 COMPETITION 5 TAX 8 TELECOMMUNICATIONS; MEDIA & TECHNOLOGY 17

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1 From Editors Welcome to the first edition of Birsel Legal Newsletter. It is with pleasure that we introduce our first Newsletter in the Spring of This Newsletter aims to provide a summary of notable legal developments and information on challenging legal issues in Turkish laws. We hope you find the publication informative. Best regards, Birsel Editors TABLE OF CONTENTS CORPORATE 2 COMPETITION 5 TAX 8 REAL ESTATE 11 PRIVACY AND DATA PROTECTION 14 TELECOMMUNICATIONS; MEDIA & TECHNOLOGY 17 ENERGY AND NATURAL RESOURCES 19 LAW OF OBLIGATIONS 22

2 CORPORATE The New Turkish Commercial Code at a Glance From a Company Law Point of View The former Turkish Commercial Code which came into force in 1957 required amendment due to the numerous social, economic and technological developments that had occurred since the fifty years of its enactment. Therefore, studies regarding preparation of a new Commercial Code to replace the Turkish Commercial Code of 1957 were undertaken over the last few years. As a result of these studies, the Grand National Assembly of Turkey recently enacted the new Turkish Commercial Code numbered 6102 (the New TCC ) which will come into force on July 1, The New TCC introduces new concepts to address the commercial needs of companies which were considerably affected by the new global economy. Furthermore, the New TCC aims to resolve certain obstacles faced by investors and establishments in the practice in Turkey. The most significant amendments enacted by the New TCC are primarily in the area of corporate law. These amendments were generally adopted from relevant provisions of EU Directives, in line with Turkey s obligations with respect to the adoption of acquis communutaire, as well as from innovations derived from the Corporate Law Reforms which had been adopted in several European Countries in the last quarter of the 20 th Century. The New TCC s amendments in the area of corporate law primarily target the structure, management, auditing and functioning of commercial companies. New provisions are also included to benefit from the latest developments in technology, aimed at facilitating the transfer and sharing of information; such as the obligation of companies to establish a web site and to provide a means to exercise the right to participate and vote in meetings of board of directors and general assembly of shareholders, via image and sound transmission in a digital environment. Adoption of comprehensive provisions regarding mergers and divisions of companies; permission to establish single-member companies; requiring supremacy of corporate governance principles over the management of joint stock companies, as well as independent and effective auditing; permitting joint stock companies to acquire their own shares; and reclassification of joint stock companies may be regarded as the most significant revisions brought by the New TCC in this area. It should be noted that these new provisions regarding joint stock companies are expected to trigger parallel amendments to related pieces of Turkish legislation such as the Capital Continued on Page 3 2

3 Markets Law and the Banking Law. In addition to the revisions already discussed, the New TCC also sets forth certain amendments concerning the structure of the board of directors and new criterion for membership to the board as summarized below: Repeal of Shareholder Criteria to Become a Board Member The precondition of being a shareholder to acquire board membership is repealed by the provisions of the New TCC. Accordingly, it will be possible for an outside expert, or other person, to become a board member, without being a shareholder. Additionally, as a natural consequence, the obligation of board members required by former TCC Art.313 to deposit shares with the company as a prerequisite of becoming a member is also repealed. Membership of Legal Entities Under the terms of the 1957 TCC, the right to acquire board membership was granted only to real persons. Furthermore, in accordance with the former TCC Art. 312 par. 2, a legal entity shareholder could not be a director. Real persons representing the legal entity could, however, be elected as a director, and each legal entity could be represented in the board by only one member. In accordance with the provisions of the New TCC, the capacity of being a director is now also granted to legal entities. It is now provided that once a legal entity is elected to the board of directors, one real person delegated by the legal entity shall be registered with the relevant trade registry together with the entity. Additionally the event of registration and announcement shall be published on the company s web site. The person who is registered on behalf of the legal entity shall have the exclusive right to participate in board meetings and vote (Art. 359 par. 2 of the New TCC). However, in contrast to the former system, the New TCC emphasizes that membership belongs to the legal entity. The person registered on behalf of the legal entity can not be regarded as a director. The abovementioned amendment also clarifies the issue of the liability of the legal entity, since under the New TCC the legal entity is itself deemed to be a board member. The difference of opinion which had resulted in Turkish practice from the silence of the former Code on the liability of the legal entity originating from the acts and transactions performed by its representative while acting as member of the board, is now expressly settled by the New TCC that the legal entity itself has the capacity and liability of a director. The New TCC also provides that the legal entity may, at any time, change the person who is registered as its representative (Art. 364).Art.334 of the New TCC maintains the provisions of the former TCC permitting the participation of public legal entities in corporate Continued on Page 4 3

4 board of directors. Board Membership of Foreigners Under the New TCC, at least one board member authorized to represent the company must reside in Turkey and be a Turkish citizen (Art. 359 par.1). In other words, with the exception of one member, the remaining board members are not required to reside in Turkey or to be Turkish citizens. Consequently, it is mandatory that, in the event that the board of directors comprises of only one member, this one member must be a Turkish citizen residing in Turkey. Education Requirement An additional requirement is provided by Art. 359 par. 3 of the New TCC regarding the qualifications of the directors. This section requires that at least one fourth of board members be highly educated, i.e. hold at least a bachelor degree. In the event that there exists only one board member, the condition of being highly educated shall not be applied. Dr. Ali Murat Sevi 4

5 COMPETITION NEW AGE FOR M&A AUTHORIZATIONS 2011 has brought new developments to Turkish Competition Law. Communiqué 1997/1 concerning Mergers and Acquisitions ( M&A ) was not fully satisfactory in practice for the Competition Board ( CB ) to review the M&A applications in detail. Consequently, the CB, while making decisions, extended the scope of Communiqué 1997/1 by way of de facto exercises. However, since there was no basis for such practice under the terms of the legislation, a new communiqué has been issued by the Presidency of Competition Authority numbered 2010/4 ( Communiqué 2010/4 ) as published in the Official Gazette dated 7 October 2010 and numbered 27722, which will enter into effect as of 1 January This article seeks to provide an overview on the implementation of Communiqué 2010/4. An important reform instituted by Communiqué 2010/4 is regulated under Article 5 of the same, according to which cases to be considered as merger or acquisition transactions are listed. It is further explicitly provided under this Article 5 that causing a permanent change in corporate control shall be a prerequisite for a transaction to be considered within the scope of Communiqué 2010/4. Thus, these reforms have given the actual practice of the CB a firm. In parallel with the above, cases not to be considered as merger or acquisition transactions are listed under Article 6 of Communiqué 2010/4. Article 6 provides in part that intra group transactions, and other transactions which do not lead to a change in corporate control, should neither be considered within the scope of Communiqué 2010/4 nor require authorization of the CB. Article 5 of Communiqué 2010/4 also establishes the scope of the term acquisition. It is stipulated that closely related transactions, which are subject to conditions or which are realized rapidly through securities within a short period of time will be considered as single transactions. While this is similar to how these transactions were done in practice, these kinds of transactions were not regulated under Communiqué 1997/1. In our view, the most significant amendment brought under Communiqué 2010/4 is the change in thresholds to be used while determining the M&A, subject to authorization of the CB. The market share threshold is no longer a criterion. With respect to M&A transactions, as of 1 January 2011, the CB will consider a new criterion based on total turnovers in Turkey besides global turnovers instead of market shares. Under Communiqué 2010/4, detailed calculation methods are also regulated with respect to such turnovers. According to the previous communiqué, the turnover to be taken into account was the one for the relevant product market in which the M&A is being effected. Continued on Page 6 5

6 In this respect, the most notable amendment, provided under Article 8 of Communiqué 2010/4, removes this criterion and sets forth that total turnover of all undertakings on which the transferee has control shall be taken into account without being limited to product market. The CB is currently working on a guideline regarding relevant undertaking, turnover and side limitations. With respect to the notification requirement, Article 10 of Communiqué 2010/4 for the most part reiterates the same procedure as the previous communiqué by admitting applications made jointly by the parties or by any of the parties or their authorized representatives. However, an additional requirement instituted by Communiqué 2010/4 requires the notifying party to inform the other party of the application. The same article also regulates that administrative fines will be imposed in accordance with Article 16 of the Law on the Protection of Competition (the Law ), on those who include false or misleading information in notification forms. In addition to the foregoing, a number of revisions have been made under Article 13 of Communiqué 2010/4 in relation to the assessment of the M&As. The most significant of these changes are as follows: The formation of a joint venture which has the goal or effect of limiting competition among undertakings and which would permanently fulfill all of the functions of an independent economic entity shall be assessed within the framework of Articles 4 and 5 of the Law. In case the CB decides to review the transaction under final examination, concurrent with its preliminary objection, it needs to notify the relevant parties, together with any other measures it deems necessary, that the merger or acquisition transaction has been suspended until the final decision and may not be implemented. An entirely new rule, Article 14 of Communiqué 2010/4 provides that undertakings may agree on commitments in order to eliminate any competition problems that may arise in respect of Article 7 of the Law. It shall be at the CB s discretion to specify conditions and obligations for ensuring those commitments to be fulfilled. Finally, the notification form attached to Communiqué 2010/4 is a more detailed form than the previously used form. Taking all of the changes made by Communiqué 2010/4 to this area of the law into consideration, it seems that M&A applications shall no longer be evaluated as limited to the creation of dominant position or strengthening of the dominant position as it was during the age of the previous communiqué. The new regulation shows us that the CB will review the possible effects of such transactions on vertical and affected markets more thoroughly and the decisions shall include more detailed analysis. Continued on Page 7 6

7 However, until the view of the CB is settled with decisions and the guidelines are issued with respect to the implementation of Communiqué 2010/4, how the abovementioned changes will be applied in practice is still an open question. Çağnur Alp Nazan Diri 7

8 TAX Assesment of latest amendments in taxation of gains derıved from marketable securities and other capital market instruments Temporary Article 67 of the Income Tax Law numbered 193 ( Law No 193 ), contains provisions relating to taxation of gains derived from alienation and retention of marketable securities and other capital market instruments, as well as taxation of deposit interests, repo gains and income that is derived from private finance institutions. These provisions, which are deemed to be in force between the dates of 1 January 2006 and 31 December 2015, were amended in 2010 upon the cancelation of Temporary Article 67/1 by the decision of Constitutional Court numbered 2006/119E and 2009/145K published in the official gazette dated 8 January 2010 and numbered (the Decision of the Constitutional Court ). Before the Decision of the Constitutional Court, Temporary Article 67/1 stated that limited taxpayers (i.e. real persons not being permanently resident in Turkey for a period longer than 183 days during one calendar year or legal persons who do not have any business place or permanent representative in Turkey) were subject to 0 % income tax withholding over gains within the scope of the said article. Under the original terms of this article, the rate of income was determined as 15 % for gains derived from marketable securities and other capital market instruments. However, because of serious increases that occurred during periods of May and June 2006 in interest rates of domestic governments bonds and exchange rates, the statement This rate is applied as 0 % for limited taxpayers as both real and legal persons was added to the end of the first paragraph of Temporary Article 67/1 through the Law numbered 5527, entered into force as of 7 July 2006 ( Law No 5527 ). This additional provision was cancelled by the Decision of the Constitutional Court on the ground that constitutional control must be made by evaluating the tax withholding from the standpoint of financial strength, that is, according to criteria of income level of the investors. The Decision of the Constitutional Court further set forth that if there is no difference in income level, residence of taxpayers could not be a reason for taxation discrimination. On this basis, as stated in the Decision of the Constitutional Court, if limited and full taxpayers are equal in terms of income level criteria, limited tax payers being subject to 0 % income tax withholding whilst full taxpayers are subject to 15 % income tax withholding is contrary to the principles of financial strength and equal treatment in taxation. To reflect the Decision of the Constitutional Court, new regulations were presented by the Law numbered 6009 ( Law No 6009 ) amending the Law No: 193 and Certain Laws and Decrees, the Decree of the Council of Ministers numbered 2010/926 ( Decree No 2010/926 ) and the General Communiqué on Income Tax Law numbered 277 Continued on Page 9 8

9 ( Communiqué No 277 ). Under the terms of Law No 6009, which entered into force on 1 October 2010, there is no longer any difference between the taxation of limited and full taxpayers with regards gains derived from alienation and retention of marketable securities and other capital market instruments. Consequently, at present, the rate of income tax withholding is determined as 0 % for the earnings which are derived from alienation and retention of marketable securities and other capital market instruments: by taxpayers falling under the scope of Article 2/1 of the Corporate Tax Law numbered 5520, i.e. joint stock companies, commandite companies whose share capital are divided into shares and limited companies which are established in accordance with Turkish Commercial Code and similar foreign companies, (collectively the Capital Stock Companies ) and by taxpayers established for the exclusive purposes of obtaining earnings from securities and other capital market securities and capital gains and using rights related thereto and which are accepted by the Ministry of Finance to have similar specifications with investment companies and mutual funds established in accordance with the Capital Market Law No Prior to these amendments, only capital stock companies and securities investment companies, which are limited taxpayers, were subject to 0 % income withholding taxes over their gains falling into the scope of Temporary Article 67/1 in accordance with the Decree of the Council of Ministers numbered 2006/10731 ( Decree No 2006/10731 ). However, through Law No 6009, all capital stock companies, which are either limited or full taxpayers, are subject to 0 % income tax withholding over their gains falling into the scope of Temporary Article 67/1. Therefore, there is no difference in taxation status of capital stock companies being limited taxpayers brought by Law No 5527 and therefore gains of these companies falling into scope of Temporary Article 67/1 continue to be subject to 0 % income withholding tax. However, gains of limited tax payers which are not qualified as capital stock companies are subject to 15 % income withholding tax as of 1 October 2010 in accordance with Law No By Decree No 2010/926, new income withholding tax rates which are variable depending on the type of securities and taxpayers were also brought in line with the Decision of the Constitutional Court. Accordingly, the income tax withholding rate applicable to earnings derived from trading in securities or other capital market instruments, future and options contracts executed based on the securities index, (excluding equities of securities investment companies) securities including warrants of intermediary institutions traded on Istanbul Stock Exchange Continued on Page 10 9

10 is determined as 0 %. Gains deriving from the above mentioned security types by either limited or full taxpayers are subject to 0 % income tax withholding. In this case the gains which are derived from the securities other than the above in accordance with Temporary Article 67/1 are subject to 10 % income withholding tax starting from 1 October 2010 according to Decree No 2010/926. As previously stated, the rate of income tax withholding applicable to earnings derived from alienation and retention of marketable securities and other capital market instruments by capital stock companies, and by taxpayers established for the exclusive purpose of obtaining earnings from securities and other capital market securities and capital gains and using rights related thereto and which are accepted by the Ministry of Finance to have similar specifications with investment companies and mutual funds established in accordance with the Capital Market Law No 2499, is set as 0 % as well by Law No Given that Decree No 2010/926 does not contain any amendment in this rate; all gains of these taxpayers, which are obtained within the scope of Temporary Article 67/1, are also subject to 0 % income tax withholding regardless of type of securities. Before Decree No 2010/926, gains of full taxpayers falling into scope of Temporary Article 67/2 and 67/3 were subject to 10 % income withholding tax whilst the rate applicable to limited taxpayers was 15 %. Under the amendments introduced by Decree No 2010/926, gains obtained by limited taxpayers within the scope of Temporary Article 67/2 and 67/3 have also been subject to 10 % income tax withholding. However, the provisions included in Decree No 2006/10731 providing that gains of mutual funds and investment companies falling into scope of Temporary Article 67/1,2,3 and 4 are subject to 0 % income tax withholding continue to be applicable. Sabahattin Erişir Özlem Kuşkucu 10

11 REAL ESTATE ONE STEP FORWARD OR JUST A SIMPLE PROCEDURAL CHANGE? While expectations of foreign investors involved in the Turkish real estate sector are growing, newly enacted legislation may be far from satisfying their needs. These new laws have raised many questions by investors regarding the acquisition of real property in Turkey by foreigners. Are these new laws promising improvements or just procedural simplifications with no substantive meat? Intensive real estate acquisitions by foreign investors were negatively affected by the annulment weapon of the Constitutional Court during the last two years. Yet, despite the attitude of the Constitutional Court, the intention of the current government to open the real estate market to the foreign investors has succeeded. This intention was reflected in the recent legislative changes in an effort to shed light on the road map to real estate market entrance. With this aim, the first crucial legal gap in the legislation enabling foreign acquisitions of real property rights, caused as a result of the annulment decisions of the Constitutional Court, was filled with the Amendment Law on the Land Registry Law numbered 5728 published in the Official Gazette on 15 July 2008 ( Amendment Law ). This Amendment Law, in contrast to the previous implementation, allowed real estate acquisitions in Turkey by foreigners to the extent that such acquisitions are in compliance with the scope of business of the foreign capital companies. Despite this legislative achievement, through which the Amendment Law opened a door to foreign capital companies, when taken together with the Regulation on Real Estate Acquisitions by Foreign Capital Companies dated 12 November 2008, governing the principles applied to the real estate acquisitions by foreign capital companies, the actual acquisition process still involved many difficult hurdles. For example the process was blocked with the long evaluation process of the Commission under the Governorship Provincial Directorate of Planning and Coordination established under each relevant province (the Commission ) and the requirement to obtain the prior opinion of Industry and Trade Provincial Directorate for the compliance of the acquisition with the articles of association of the foreign capital companies. However, on 06 October 2010, with the easing of certain procedural measures implemented by the Regulation On Real Estate and in-rem Right Acquisitions By Foreign Capital Companies (the New Regulation ), foreign investors have again taken a deep breath, at least with respect to the application stage for the acquisitions. The what is new question raised by the foreign investors is first answered by examining the detailed definition of foreign investor introduced by Article 3 of the New Regulation. Continued on Page 12 11

12 The definition of company in the former regulation, retained without change in the New Regulation, included the legal entities established or participated by the foreign investors in Turkey. The foreign investor definition in the New Regulation, is described as: a real person with foreign nationality; a legal entity established according to the laws of a foreign country; or, an international institution which incorporates a new company in Turkey or participates in an existing company in Turkey through share acquisition outside the Stock Exchange or acquisition of at least 10% shares or voting rights from the Stock Exchange. The most significant development brought by the New Regulation concerns the procedure for the evaluation process to acquire real properties or in-rem rights in line with the articles of association of the foreign capital companies. While the Commission still retains its discretion over the entire evaluation process, the prior opinion of the Industry and Trade Provincial Directorate on the compliance of the acquisition with the articles of associations is replaced by a simple undertaking to this effect from the foreign capital company. In addition to this improvement, reducing the application documents, limiting the clearance period requested from relevant governmental institutions for the Military Forbidden Areas, Security Zones and Strategic Regions and dropping the required voting quorum of the Commission from unanimity to a simple majority of the permanent members have all further simplified the process. Also in contract to the former regulation, the New Regulation excludes the mortgage from other in-rem rights and regulates the establishment of mortgages with direct application to the relevant Land Title Registry without applying to the Commission. Despite the appearance that the evaluation process at the application stage has changed considerably, continuation of the audit authority of the Commission, which will be performed after the acquisition of real estate ex-officio or upon demand of third parties, still remains to keep arguments alive that the acquisitions are requested to be kept under governmental control. As with the former regulation, the New Regulation also provides for control over whether the usage of acquired real estate and in-rem rights are in accordance with the framework of the company s articles of association. However, while the former regulation only provides for a general remedy period without any specification upon determination of any irregularity, it is explicitly set forth under Article 13 of the New Regulation that the Commission may grant an extra ad hoc remedy period of six months for the breaching company, the advantage of which is yet to be determined. In addition, Article 14 of the New Regulation empowers the Commission to request the disposal of real estate acquired or used against the provisions of the Title Deed Law or New Regulation. Such evaluation at the post-acquisition phase under this Article also seems to be highly controversial. When the total effect of the New Regulation is considered, it seems, at first impression, that certain criticized provisions of the former regulation have been amended and that the simplification of the procedure has been provided to comfort the foreign investors at some Continued on Page 13 12

13 level. However, the final impact of the New Regulation can only be understood as applied in practice over time. Until then the consequences of the New Regulation will continue to be debated in different arenas. Kaan Karaca 13

14 PRIVACY AND DATA PROTECTION DATA PROTECTION UNDER TURKISH LAW The significance of the protection of personal data is increasing in parallel with the development of the concept globally, and progress in the protection of personal rights in Turkey. However, the current Turkish law still lacks a harmonized and specific legislation on this issue although a draft law, as reviewed further herein below, has been in existence for some time now. The general principles of Turkish law in conjunction with sector specific legislation mainly protects recording, processing and/or disclosing of personal data to third persons made without the consent of the owner of such information. Article 135 of the Turkish Criminal Code numbered 5237 ( TCC ) establishes the criminal liability of individuals who act contrary to these requirements. Under this provision, Any individual, who records personal data illegally, shall be sentenced to imprisonment from six months to three years. Additionally, Article 136 of the TCC provides that any person who shares personal data with [a] third person, publishes or obtains personal data illegally shall be sentenced to imprisonment from one year to four years. Violations of these provisions are considered as public crimes and can therefore be investigated even if no complaint is made. In the event the violations are made by legal entities, security measures as regulated under TCC will be applied for those legal entities. Protection of personal data may also be achieved through an interpretation of certain provisions on civil rights of individuals for protection of their personal rights. Articles 24 and 25 of the Turkish Civil Code numbered 4721 set forth that any individual whose personal right is assaulted illegally may claim for protection of his/her personal rights from the judge against the individuals who caused such assault. The assault to the personal right may be determined to be illegal if the consent of the assaulted individual is not justified through any private or public benefit superior to such consent or use of an authorization granted by law. The most recent updates regarding data protection were enacted under the newly amended Article 20 of the Turkish Constitution as a result of the referendum in Turkey. Under the newly amended Article 20, everyone shall have the right to claim for protection of his or her personal data. Further, individuals shall be entitled to be informed of their personal data, to have access to the data, request the revision or removal of the data and learn whether or not the data is used according to right purposes. Personal data can only be processed as permitted under law or by express consent of the owner of the data. Principles and procedures necessary to implement these provisions regarding protection of personal data are regulated by law. Continued on Page 15 14

15 In contrast, the Draft Law on the Protection of Personal Data ( Draft Law ) prepared in line with the harmonization process of legislation required for Turkey s candidacy for EU membership, is still awaiting enactment and is currently before the relevant commission. It is expected that discussions on the Draft Law will commence sometime during the first half of Once in force, the Draft Law will apply to all legal and real persons including public entities. Under the terms of the Draft Law, personal data is defined as any kind of data including mental, psychological, physical, cultural, economic, social and similar data belonging to any real and legal persons. Which data cannot be processed, shared with or disclosed to third parties. Article 6 and Article 8 of the Draft Law provide exceptions for processing and sharing of data. Under Article 6, the express consent of the owner of data is required for processing of such data unless the processing of data is for the purpose of complying with obligations arising under law. Under Article 8, all real and legal entities are permitted to share personal data in order to fulfill their legal duties in certain situations such as national security, or national defense or criminal investigation. Paragraph 3 of Article 6 further sets out circumstances considered as Causes for Justification for the processing and sharing of personal data as follows: a) if, by reason of a mandatory provision of law, data is processed for the fulfillment of an official duty or a duty for public benefit, b) if the data is processed for the purpose of protecting the life or bodily integrity of a person who is not able to provide his/her consent or of a third person, c) if the personal data of the parties to an agreement is processed, to the extent it is directly related to the establishment and fulfillment of that agreement, d) if the data processed is publicly known because it was disclosed by the relevant persons or because the information exists in public registries, e) if data processing is mandatory for the rightful interests of the relevant person provided such processing does not damage the fundamental rights and freedoms and legal interests of the owner of the data, Additionally, Article 10 of the Draft Law provides that personal data may be processed, published and/or disclosed to third parties for the purposes of research, planning and statistics provided that such data contains no identifying information. Under Article 14 of the Draft Law, personal data may be sent abroad without the express consent of the data owner only if such personal data will be subject to equivalent and efficient protection rules in the foreign jurisdiction. Processing, disclosing, publishing, sharing or obtaining data illegally may be subject to punishment under the terms of Articles 135 to 138 of the TCC. The Draft Law also provides for the establishment of a database processing registry as well as the establishment of a Board of Personal Data Protection. Continued on Page 16 15

16 In sum, the Draft Law appears to meet the need of clearly defining the scope and limits of data protection. Once enacted, and the new organizations mentioned above have been formed, the express rules regulating data protection matters will provide a more secure environment. Most cases involving data protection, which up until now have been dealt with by way of interpretation of miscellaneous legislation, will hopefully be resolved more concretely under the terms of the Draft Law. Application of the Draft Law will also direct companies to carefully shape their business activities when utilizing their customers, suppliers or employers information. In order to fully effect the provisions of the Draft Law, specific rules and regulations applicable to specific sectors, shall be implemented under Turkish legislation. Melda Soymen 16

17 TELECOMMUNICATIONS; MEDIA&TECHNOLOGY FOREIGN OWNERSHIP RESTRICTIONS UNDER NEW RTUK LAW In line with Turkey s integration into the European Union (EU) and harmonizing its legislation with that of the EU, the Law on Establishment and Broadcasting Services of Radio and Televisions ( RTUK Law ), which incorporated provisions of the EU Directive on Visual-Audio Media Services, was passed by the Turkish parliament on 15 February The RTUK Law replaces the previous Law on Establishment and Broadcasting Services of Radio and Televisions, published in the Official Gazette dated 20 April 1994 and numbered ( Law No ). However, until new regulations under the RTUK Law come into force, the provisions of previous regulations, which are not contrary to the RTUK Law, shall remain in effect. The RTUK Law is designed to address many of the problems in this sector and to liberalize foreign ownership restrictions. The revisions were necessary because, the provisions of Law No regarding media ownership did not reflect the realities of the sector. Under the terms of Law No. 3894, foreign shareholders were permitted to hold up to 25% of the shares in one broadcasting company, which could operate one TV and one radio channel. Furthermore, regardless of the nationality, shareholders of broadcasting companies were not permitted to own privileged shares. Under the RTUK Law the issue of media ownership has been re-regulated and a more flexible approach in terms of foreign ownership has been provided. The RTUK Law provides that direct foreign shareholding participation in a media service provider may not exceed 50% of the paid-up capital, a marked increase over what was previously permitted. Furthermore, it is set forth that a foreign entity may become a direct shareholder in a maximum of two media service providers. A media service provider is now defined as a legal entity that has editorial responsibility in selecting the radio, television and on demand broadcasting services and decides on the manner of preparation and broadcasting of the same. Additionally, the RTUK Law introduces a new provision with respect to indirect shareholdings, not provided for under Law No Under this provision, if a foreign shareholder becomes an indirect shareholder in private Turkish radio and television companies, Turkish nationals must be appointed as the Chairman and Vice Chairman of the Board of Directors, a majority of the Board of Directors and the General Manager. Likewise, the majority of the votes in the general assembly of shareholders must be held by Turkish nationals. Apart from the above provisions governing foreign ownership restrictions, as a general requirement, regardless of nationality, the number of TV channels in which participation, direct or indirect, can be held is limited to 4 media service providers holding a terrestrial Continued on Page 18 17

18 broadcasting license. In addition, similar to Law No. 3894, no privileged shares are allowed to be held regardless of nationality of the shareholders. The RTUK Law further sets forth that in case of being a shareholder in more than one media service provider, annual commercial communication revenues of the media service providers in which a real person or a legal entity is a direct or indirect shareholder, must not exceed 30% of the total sector-specific commercial communication revenues. Violation of this rule requires that the party at fault rectifies the situation by transferring the shares in the broadcaster within a period of 90 days and if the violation is not so rectified, the Radio and Television Supreme Council ( RTUK ) may impose a fine of TL 400,000 per month of violation. Similar to Law No. 3984, a media service provider can only establish one radio, one television and one on demand broadcast service company. Further, political parties, unions, professional associations, co-operatives, associations, charities, foundations, local administrations and companies established or partially owned directly or indirectly by those entities and capital market institutions and real persons or legal entities that are shareholders in these entities, directly or indirectly, are not permitted to obtain a broadcasting license. These institutions are not permitted to be shareholders in media service provider institutions, either directly or indirectly. In contrast to Law No. 3984, it is possible for production, investment, export, import, marketing and finance enterprises and institutions to be shareholders of media service provider companies. Finally, share transfers of joint stock companies that hold broadcasting licenses are required to notify the RTUK within thirty days of the transfer. Approval of the RTUK must be obtained for any acquisition or merger of these companies and notification to the RTUK must be made within thirty days following such acquisition or merger. In light of the above, the RTUK Law increasing the limits of foreign ownership restrictions by providing more flexible provisions is a positive development to attract foreign investors. Up until now, foreign investment in the sector was effectively prevented because, with only 25 percent ownership permitted under Law No. 3894, foreign investors had no say in the management on companies in which they were involved. However, the issue of structuring foreign investments on the basis of indirect shareholding is still open to interpretation. It is not clear under the RTUK Law whether it is permissible for a foreign shareholder to control indirectly through contractual arrangements more than 50% of the shares. It is also unclear whether the Turkish nationality requirement required for indirect shareholding will be deemed to be satisfied if the relevant company is majority-owned by Turkish citizens or that is established under the Turkish laws regardless of the nationality of the shareholders. The above distinction may be important given that the latter interpretation may be deemed to enable foreign legal entities to hold indirectly up to 100% of the shares in a TV channel (limited to 4 channels). It will be vital for effective implementation of the new law for the RTUK to fill in these gaps by enacting secondary legislation or by amending the RTUK Law in the near future. This would also avoid any potential challenges against foreign acquisitions in the media sector. Ayşe Nilüfer TÜRKÇÜ, LL.M. 18

19 ENERGY AND NATURAL RESOURCES FINAL COUNTDOWN FOR PHOTOVOLTAIC ( PV ) PROJECTS: THE RER LAW AMENDMENTS HAVE BEEN ENACTED A new law (the Amendment Law ) drafted by the Ministry of Energy and Natural Resources ( MENR ) which aims to promote electricity generation by renewable energy resources and amends the current Renewable Energy Resources ( RER ) Law, was enacted on 29 December 2010 in the Turkish Parliament. The enactment of the Amendment Law, fills certain legal loopholes in the field of electricity generation from solar energy, which loopholes made a crucial impact on the actors in the market. As a result of this development, it is expected that PV projects, which is one of the most rapidly emerging technologies, will be an attractive investment for the energy market investors. The Amendment Law sets out a number of new provisions specific to PV projects, including: RER Support Mechanism The Amendment Law envisages the RER Support Mechanism, which provides principles and procedures governing incentives to be given to current or potential electricity generation license holders for operations that have already commenced or which will commence between 18 May 2005 and 31 December 2015 (the Specified Period ). These incentives include reduced fees, shortened timeframes and certain guarantees for the generation of electricity from renewable resources. The RER Support Mechanism is designed to provide a level of certainty and legal predictability provided the operations are commenced during the Specified Period. The most significant innovation instituted by the RER Support Mechanism is the guaranteed minimum fees to sell the electricity generated to the public, as well as a certain period for implementation of such guaranteed purchase prices. Prices are guaranteed prices for 10 years to license holders whose facilities have commenced or will commence operations during the Specified Period and which are subject to the RER Supporting Mechanism. In contrast, the amount of guaranteed prices and the implementation periods to be applied for RER facilities that commence operation after 31 December 2015, will be determined by the Council of Ministers. In any event the new guaranteed prices shall not exceed the guaranteed prices currently envisaged under the Amendment Law. Separate Pricing for PV Projects The RER Law provided a fixed price for the sale of electricity generated from all kinds of renewable energy resources in Euro cent per kwh. Continued on Page 20 19

20 However, the Amendment Law now sets forth separate prices for different forms of renewable energy resources. For example, under the terms of the Amendment Law, guaranteed prices for the sale of electricity generated by PV projects to the relevant distribution company are USD cent 13.3 per kwh. The Amendment Law further provides that relevant license holders shall benefit from the specified guaranteed prices for the first 10 years of their operation. Certainty in Multiple Applications There is no doubt that the possibility of multiple applications to the same property was an obstacle for investors prior to enactment of the Amendment Law. It is now provided that license applications for PV projects shall be rejected if the owner of the relevant land has previously filed a license application for generation of electricity from solar energy. This provision is designed to provide investors with a degree of legal security over projects to be launched on their property. Incentives for Use of Domestic Equipments Schedule 2 to the Amendment Law lists prices that will be added to the guaranteed prices for public purchases of electricity generated by PV projects (USD cent 13.3 per kwh), provided the generation facility using PV solar energy: (i) commences to operate before 31 December 2015; and, (ii) uses mechanic and electronic spare parts, components and/or equipment manufactured in Turkey. This incentive shall apply only for five years, starting from the operation date of the relevant PV project. Additional prices for PV projects set out in Schedule 2 are as follows: Facility Type Items Manufactured in Turkey Additional Price (USD cent/kwh) Photovoltaic Solar Energy generation facility 1- PV panel integration and solar structural mechanic production PV modules Cells forming the PV module Invertor Equipment focusing the sunray on the PV module 0.5 Continued on Page 21 20

21 Legal Newsletter Turky Turkey As set out in Schedule 2, by using items manufactured in Turkey in PV projects, the guaranteed purchase price can be increased up to USD cent 20.0 per kwh. In conclusion, there is good reason for the market actors in PV solar energy to welcome the separate pricing system, the implementation of purchase price guarantees for up to ten years, and the increased prices provided for the use of domestic equipment which incentives have been brought into effect by the Amendment Law. In particular, sector associations strongly believe that price guarantees with a 10-year period will attract banks to finance new PV projects in Turkey. On the other hand, pricing in USD instead of Euro has disappointed many investors. The draft version of the Amendment Law contained prices in Euro currency, as well as longer implementation periods for price guarantees, and the revisions in the Amendment Law, as enacted, disappointed investors expectations. Also, the limitation on the installed capacity of PV solar energy generation facilities to 600 MW caused market actors to think about the Amendment Law as being unable to go beyond simple expectations. Tolga Çabaklı Sezil Şimşek 21

22 LAW OF OBLIGATIONS NEW TURKISH CODE OF OBLIGATIONS With substantial efforts of the Turkish Parliament, the long awaited Code of Obligations (the New Code ) was finally enacted on January 11 th, 2011 and will enter into force on July 1 st, Although there have been occasional amendments in the Turkish Code of Obligations numbered 818 (the Code in effect ), which came into force on September 4 th, 1926, in the last 85 years, none were radical or significant. The fact that the Code in effect was not meeting modern needs and harmonization with the Turkish Civil Code, in force since January 1 st, 2002, as its complementary and inseparable part was needed; the entire revision of the Code in effect was required. Apart from the new arrangements there under, the wording of the articles have also been revised and simplified under the New Code. While numerous amendments have been made to the entire Code as a result of the New Code, only the most substantial of these amendments made in the General Provisions will be discussed in this article. Sending of unsolicited goods (Art.7): Under Art. 7, the sending of unsolicited goods, which is not regulated in the Code in effect, shall not constitute an offer and its recipient shall not be obliged to either return or keep such goods. However, the New Code is silent as to whether the recipient has a right to consume or sell the unsolicited goods. Requirements of written form and signature (Art.14-15): In parallel with the provision regarding electronic signatures, added on January 23, 2004 to the Code in effect, a provision which specifies that a secure electronic signature has the same force and legal effect as a handwritten signature was added to the New Code. With this provision, it is also accepted that texts sent via fax or similar communication devices are considered as being in written form provided that they are further confirmed. However, the provision is open to interpretation on the meaning of what constitutes confirmation. Standard Terms and Conditions (Art.20-25): Standard Terms and Conditions which were previously regulated in the Law on the Protection of the Consumer numbered 4077 regarding consumer relations are now regulated in the mandatory provisions of the New Code, which provisions are applicable to all types of contracts. Accordingly, the rules of validity to which the standard terms and conditions are subject, the sanctions for acting contrary Continued on Page 23 22

23 to these, and interpretation of the standard terms and conditions, have been clarified. Strict Liability for Dangerous Activities and Adjustment (Art.71): Although there were many specific laws with provisions regulating strict liability for dangerous activities, this was not regulated under the Code in effect. A provision on the general principles and conditions of strict liability for dangerous activities has been included in the New Code which provides a general definition of an enterprise posing a serious danger Under this new term, in the case of damage occurring as a result of the activity of an enterprise that poses a serious danger, the entrepreneur and the manager, if any, shall be jointly and severally liable for this damage. Even if the activity of the enterprise posing a serious danger is legally permitted, the damaged party has a right to claim compensation for their damages resulting from the activity of such enterprise. Prescription in Tort (Art.72), in Claim of Recourse (Art.73), and in Unjust Enrichment (Art.82): The prescription period of one year from the date on which the injured party learned cases of tort and unjust enrichment cases stated under the Code in effect has been increased to two years in the New Code. The prescription period of ten years from the date of occurrence of the event in tort or unjust enrichment remained the same in the New Code. However, according to both the Code in effect and the New Code; if the action for damages is derived from an offence for which criminal law envisages a longer limitation period, that longer period also applies to the civil law claim. A new provision regarding the recourse to the counterparty has also been regulated in the New Code, which provides that the prescription period in recourse is determined as two years from the date when the total compensation is paid and jointly liable persons are identified, and in any case no more than ten years from the date the action was performed. Interest (Art.88) and Default Interest (Art.120): Provisions regarding interest under the Code in effect, which had not been applied due to the Law on Legal Interest and Default Interest numbered 3095, are amended in parallel with the Law numbered 3095 in the New Code. Thus, the provision regarding the determination of interest rate under the New Code refers to the Law numbered 3095 and other related legislation. Default of the obligor in continuous contracts (Art.126): Since the provisions under the Code in effect regarding the default of the obligor were applicable only to contracts of instantaneous performance, a new provision regarding the results of the default of the obligor in continuous contracts is regulated under the New Code. Under this provision, in continuous contracts under the terms of which performance has begun, in case of default of the obligor, the obligee may: claim the performance and the damages for delay in performance; or, terminate the contract and claim the damages for termination of the contract before its lapse of term. Discharge (Art.132): While not regulated under the Code in effect, discharge is explicitly accepted as one of the conditions of the release of an obligation in both legal doctrine and practice. This concept is expressly adopted in the New Code which provides that no particular form shall be required for the discharge of an obligation by the agreement Continued on Page 24 23