Dialogue of the Deaf

Turkey, which has adopted an export-oriented growth strategy, is a party to regional trade agreements as a necessity for effective foreign trade. When it comes to regional trade agreements, we come across two different structures:
- Customs union,
- Free trade agreements (FTA) and preferential trade agreements.

CUSTOMS UNION AND FTA
A customs union is the non-collection of customs duties by the other party on goods in free circulation in one of the parties. There has been a customs union between Turkey and the EU since 1996. In order to be granted tax exemption, the goods must be in free circulation and must be shipped with an A.TR circulation document proving this. The condition for the goods to be in free circulation is that either the goods must be produced in the parties with all their inputs or all third country inputs used in production must be taxed. The free circulation principle is applied, but the origin of the goods is not important.
In free trade agreements, on the other hand, the non-collection of customs duties by the other party on goods produced in one of the parties and gaining origin status. Although some of them have been abolished, Turkey has free trade and preferential trade agreements with more than thirty countries or unions. In order to be granted tax exemption, the goods must have acquired origin status in accordance with the rules specified in the agreements and must be shipped with a document proving this, primarily the EUR.1 movement certificate. The condition for the goods to acquire origin is that they acquire the status of originating in that country in accordance with the rules determined by the agreement as a result of the workmanship performed, regardless of the origin of the inputs used within it. The principle of origin is applied, but the origin of the inputs used within it is not important.
Why did we explain these? It was just a small information that needed to be done to understand the problem.

TAXATION OF PRODUCTS PRODUCED IN FREE ZONE
Since free zones are considered to be outside of Turkey in terms of both customs and free zone legislation, sending goods to these areas is considered export, and bringing goods from these areas is considered import. If the goods are returned without undergoing any changes after being exported to free zones, they benefit from the returned goods exemption of the Customs Law. In this case, the SBSDE code is used in the customs declaration. This code can only be used for unchanged exported goods and goods covered by the A.TR circulation certificate brought from the EU to the free zone.

So far, no problem. However, if a product you export from Turkey is subject to production in the free zone, when it comes to taxation in the import of the final product obtained, the dialogue of the deaf begins.

First of all, in the taxation of goods subject to workmanship after being placed in the free zone, storage, preservation costs and ordinary handling costs are not included in the customs value according to Article 161 of the Customs Law.

According to Article 431 of the Customs Regulation; in case of the wish to put into free circulation goods produced using inputs originating from third countries in the free zone, customs duties are calculated on the inputs upon the request of the declarant, or on the final product if there is no request.

In addition; According to Article 155/4 of the Customs Law and Article 424 of the Customs Regulation; a “customs status certificate” can be issued indicating that the goods placed in the free zone are in free circulation. Naturally, the A.TR circulation certificate and the customs status certificate serve the same purpose. Both are documents that prove that the goods are in free circulation.
In the BILGE system, which is the customs system for making customs declarations, exemption is granted if the SBSDE code is selected for importing goods from the free zone, but the A.TR circulation document is requested. Since an A.TR circulation document cannot be issued for goods exported from Turkey to the free zone and received after processing, this code cannot be selected, therefore, the import regime decision is taxed with the tax rate applied to other countries. In the face of this situation, importers and customs consultants have made numerous applications regarding the application of a new code in the BILGE system, which is an extremely wrong practice for taxing goods of Turkish origin as if they were of third-country origin, no tax is collected for goods of the same nature within the scope of A.TR, and the removal of the unfair tax collected from Turkish goods.
The Ministry has stated that goods of Turkish origin in the free zone do not mean that they are goods in free circulation, that origin-based tax exemption is an application specific to free trade agreements, and that it is not possible to apply origin-based tax exemption and code in a matter that does not have a free trade agreement.

ORIGIN - FREE CIRCULATION DIFFERENCE
Goods in free circulation are not equal to goods of Turkish origin. For example, if you collect the customs duties of goods of Chinese origin that are entirely produced in China, they become goods of Chinese origin but in free circulation. You can issue an A.TR circulation document for this goods. In this case, it will be exempt from customs duty. However, since it is not a Turkish origin goods, it cannot benefit from the FTA concessionary tax rate in any way.

Let's assume that 99% of the inputs of goods produced in Turkey and of Turkish origin are of Turkish origin and 1% of the taxes are of Chinese origin. This goods are of Turkish origin. It benefits from the FTA concessionary tax. However, since it contains inputs that are not in free circulation at any rate, the goods are not in free circulation. Therefore, it cannot benefit from the right granted to goods within the scope of the A.TR circulation document.
However, this does not mean that goods in free circulation in Turkey and placed in free zones should be taxed. When a customs status certificate is issued for goods placed in the free zone and the importer requests taxation on inputs, the taxes on the goods covered by the status certificate (since it proves that the goods are in free circulation) are not collected. However, when it is said that no tax is collected on goods of Turkish origin, it also means that the taxes on inputs used during production in the free zone that are not in free circulation are not collected, although they gain Turkish origin status. Therefore, comparing goods covered by the A.TR circulation certificate with goods of Turkish origin is a meaningless discussion like comparing apples and pears.

Ultimately, we can say that this discussion has been put to an end with the Circular No. 2024/9 of the General Directorate of Customs and its article regarding the implementation of the Circular; “In case of a request for taxation on inputs in the import of the final product following its use in production in the free zone, the SBSDG code” was made and a regulation was made. However, we still have observations that the basic perspective on the subject has not been fully grasped. And there are still many people who argue that every problem experienced in this regard will be solved by opening a code to the BİLGE system instead of evaluating the issue on its own level.

I hope I have explained this topic sufficiently.