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Regulation on the non-use of crypto assets in payments that entered into force on 30.04.2021 has been the first regulation of crypto assets in Turkish Law.
We tried to briefly (!) explain this short but effective six-articles regulation, provided that it is longer than the regulation.
Purpose and scope of the regulation
According to the first article, the purpose of the regulation is;
The non-use of crypto assets in "payments”,
Not to be used crypto assets directly or indirectly in the provision of payment services and the issuance of electronic funds,
Not entering of payment institutions and electronic funds institutions into a wire process with the platforms that provide buying, selling, custody, transfer, or issue services regarding Crypto assets.
Crypto assets received legal recognition for the first time in Turkey with this regulation. Accordingly, a crypto-asset is accepted as assets that;
use distributed ledger technology or similar technology
is virtually created and distributed over digital networks,
is not qualified as nominal money, bank money, electronic money, payment instrument, movable property, or any other capital market instrument,
is considered intangible assets.
Some definitions will be needed to explain the amendment made with the regulation. Aside from the long definitions, examples will be easier and enough to understand.
● A payment system is a structure that has common rules and provides the necessary infrastructure for transactions to be carried out to ensure the realization of transfers of funds or movable assets arising from money transfer orders between three or more participants.
For example, the digital banking system established to enable Ahmet to transfer money to Ayşe through X Bank is a payment system.
● A payment account is an account opened on behalf of the sender or recipient and it is used in the execution of the payment process (deposit, transfer, and withdrawal of funds performed on the instruction).
For example, Ahmet's deposit account in Bank X is a payment account.
● Payment service is regulated by Law No. 6493. Accordingly, the following are considered as payment services:
Deposit to a payment account, withdrawal from a payment account, and other operating activities that enable these services,
Debit transactions involving the transfer of funds in the payment account provided by the sender and recipients' payment service provider, payment transactions with a payment card or similar means, regular payment orders and money transfers,
Issuance and receiving of the payment instrument (tools like card, mobile phone, password, etc. that is determined between the payment service provider and the customer and required to perform the transaction),
Money transfer,
A payment transaction (in short, non-cash payments) in which the sender's approval for the payment transaction is given via information or electronic communication device and the payment is made to the information or electronic communication operator that acts only as an intermediary between the user and the supplier of goods or services,
● Payment organizations; refer to legal entities authorized by law 6493 to provide payment services. Click here for payment organizations that are currently in business.
● Electronic money organizations refer to legal entities authorized to issue electronic money in accordance with law 6493. Click here for electronic money organizations that are currently in business.
● Electronic money refers to the monetary value that is issued in return for funds accepted by the electronic money institution, stored electronically, used to perform payment transactions, and accepted as a means of payment by real and legal persons other than the electronic money institution.
What the Regulation Provides
According to the regulation, crypto-assets cannot be used directly or indirectly in payment transactions, and services for their use cannot be offered.
A payment process refers to deposit, transfer, and withdrawal activities performed on the instruction. So that, crypto assets will not be able to be used in payment transactions that will be made by the payment institution and/or electronic money institutions.
This arrangement will only cover transactions with “payment systems”. In other words, there is no obstacle to the use of the crypto asset in exchange transactions that you will make without a bank or any brokerage firm. In other words, in exchange for goods or services, the buyer will be able to pay with cryptocurrency if the seller accepts.
In contrast, cryptocurrency cannot be used when making deposits, transfers, and withdrawals through banks, payment institutions, and electronic money institutions. For example, cryptocurrencies cannot be purchased from the ATM and be sent via EFT. It will be possible to transfer money to the cryptocurrency exchange platforms or withdraw money from them only through the bank. Because the regulation prohibits payment organizations and electronic money organizations from mediating activities related to crypto-assets.
As of 30.04.2021, when the regulation came into force, it will not be possible to deposit, withdraw or transfer crypto assets through electronic money institutions such as Papara and Ininal.
In the fourth article of the regulation, two more restrictions were introduced.
Banks, payment institutions, and electronic money institutions will not be able to perform activities in which crypto assets will be used directly or indirectly in the provision of the above-mentioned payment services and issuing electronic money. In simple terms; banks, payment institutions, or electronic money institutions;
will not be able to give BTC, ETH, etc. in exchange for TL or USD
will not be able to transfer, withdraw, invest, transfer funds, and make payments using the banking system.
● Payment institutions and electronic money institutions cannot mediate the purchase, sale, storage, transfer, or issuance of crypto assets to platforms or the transfer of funds from these platforms. Accordingly, cryptocurrency exchange platforms will only be able to transfer money through banks.
In summary
Although it contradicts the legal method, this Regulation seeks to remove payment institutions and electronic money institutions that offer commission-free or low-commission money transfers to crypto money exchanges from the system. All cryptocurrency transactions, including trading and transferring, are not prohibited.
I presume that the state is attempting to prevent crypto assets, which are created using cryptographic techniques and hence susceptible to decentralized transactions and are therefore untraceable, from being used in offenses such as money laundering.
For this reason, again, I presume that while the state cannot monitor the existence and transfer of cryptocurrencies, it has sought to conduct these transactions exclusively through banks to monitor the activities associated with the purchase and sale of cryptocurrencies in exchange for fiat money, bank money, or electronic money in the Republic of Turkey.
It seemed obvious that crypto assets were not legally accepted as “money.” The Regulation confirmed this. The Regulation recognized that crypto assets are intangible assets that cannot be classified as any capital market instrument. Despite this law, the legal status of cryptocurrencies, or contracts for purchasing and selling cryptocurrencies in return for fiat, bank, or electronic money, remains unknown.
Because this is not a case involving a legally recognized contract or asset, in this situation, it is fair to recognize that cryptocurrencies are a unique asset and that contracts for purchasing and selling are in nature somewhere between a sales and a barter contract. However, it would not be correct to make a clear definition at this point.
Additionally, it is believed that the Regulation paves the way for future laws on cryptocurrency taxes. In various countries of the world, cryptocurrencies are taxed as intangible assets or commodities. Due to the fact that it is widely acknowledged that crypto assets are not a capital market instrument under current rules, direct taxation of crypto assets is not conceivable at the moment. However, because the conversion of cryptocurrencies to fiat money can be done through banks in any event, the earnings achieved in this manner can be subject to income tax (maybe in the future, and perhaps, this is just a guess or a prophecy). In other words, the profits must be reported on the individual’s yearly income tax return. Otherwise, a fine might be applied on the basis that the fiat money deposited in the bank account during tax audits is not taxed (indeed, it is a prophecy!).
However, there is currently no regulation that directly addresses the taxation of crypto assets.
Question 1: How can it be determined whether or not the wallet addresses to be utilized by businesses belong to payment or electronic money institutions?
In fact, it will not be proven, nor will it be necessary. Specifically, there is no impediment to trading between cryptocurrency exchanges or platforms within the scope of the Regulation, as specified in the Regulation.
In other words, I can transfer 100-XRP from Binance to Gate; this is legal. Issues that the Regulation restricts/obstructs are as follows;
Crypto assets cannot be used for payments.
Cryptocurrency assets are not permitted to be utilized directly or indirectly in payment services or the issuance of electronic money.
Funds cannot be transferred between Payment Institutions, Electronic Money Institutions, and cryptocurrency platforms/exchanges.
In such a scenario, the restricted concerns apply to cases when a relationship between crypto-assets and fiat money is formed. Let’s start with a simple example to examine the question. I have 100-BNB. Currently, its approximate value is around 62,300-USD. The bank is the only place where I can exchange my 100 BNB for 62,300 USD. In other words, I won’t be able to convert these crypto assets into fiat currency unless I have access to a bank. At this point, we have a cryptocurrency exchange on one side and a bank on the other.
Payment Institutions and Electronic Money Institutions are monitored and regulated by the Central Bank of the Republic of Turkey. If you transfer money and funds to your account at these institutions by swapping fiat currency for crypto assets, you will be breaching the Regulation. For instance, Binance, one of the most prominent cryptocurrency exchanges now, has suspended withdrawals and deposits via Ininal and Papara as of 30.04.2021. (the date the Regulation came into effect). Thus, the only way to convert crypto assets into fiduciary money on Binance is through the bank now.
Whereas including money/fund transfer transactions with the crypto platform in these institutions’ account activities, which the CBRT and other financial institutions monitor, will violate the Regulation. As a result, it is believed that there will be no need to obtain the transaction parties’ information via anonymous wallet addresses.
Question 2: While the legislation does not prohibit the use of cryptocurrencies for direct payments, would be omitting the “Law on the Protection of the Consumer” create a conflict between two different legislations?
As previously stated, the Regulation prohibited the use of crypto assets in payments, payment services offering, and the issue of electronic money. One might argue that there is an inconsistency with the applicable legislation.
There is no definition of the concept of “payment” in the legislation. Rather than that, some concepts relating to “payment” were specified in Law No. 6493. By examining this, we may get a sense of the “payments” that the Regulation prohibits.
The activity of depositing, transferring, or withdrawing money on the sender’s or receiver’s order is characterized in the Law as a “payment transaction.”
Additionally, the term “payment service” is used to refer to transactions (withdrawal, automated payment, debiting, receiving a code by phone, money order, or other non-cash payments, etc.) as covered by Article 12.
We do not know whether the term “payment” in the Regulation means “payment transaction” or “payment service.” However, let us be cautious and take into account that the Regulation prohibits both. Even in this scenario, one cannot conclude that the use of cryptocurrencies is prohibited for purchases made without the involvement of a bank, payment institution, or electronic money institution.
Additionally, it should be remembered that freedom of contract is a constitutional right, and according to Article 13 of the Constitution, constitutional rights should be regulated by legislation. For instance, the requirement that the contract is “within the limitations specified by law” in article 26 of the Turkish Code of Obligations is a typical restriction on this freedom. In such a scenario, prohibiting crypto assets’ direct or indirect use for payment purposes or the supply of services for this aim will be considered unlawful.
Indeed, the payment transaction and the activities subject to the payment service are the transactions carried out through payment accounts. In this case, if a grocery store accepts, I can buy 1 kg of apples for 1-XRP today. This transaction will not be against the law.
The usage of crypto assets for direct exchange transactions was not and cannot be prohibited, as we noted in the annotation. Because purchasing an asset in return for an asset that is not accepted as money or capital, instruments constitute a barter arrangement and do not create a legal stumbling block. Here instead of crypto-asset, we can exchange it with chickpeas, precious metals, or even kisses.
On the other hand, they are not required to be regulated in the Law on the Protection of the Consumer. Because Law on the Protection of the Consumer evaluates two things while determining its scope:
Can one of the parties be considered as a consumer?
Is the relationship between the parties a consumer relationship?
If the answer to both of these questions is yes, the Law attempts to reveal findings that safeguard consumers’ interests. So, when we perform an exchange transaction in return for crypto money, does this operation loses its title as a consumer transaction or create a legal contradiction?
Consumer means a natural or legal person acting for commercial or non-professional purposes.
On the other hand, consumer transaction refers to all kinds of contracts and legal transactions (...) established between individuals (...) and consumers in the goods or service markets.
On the other hand, goods refer to movable properties for shopping, immovable properties for home or holiday reasons, and software, music, video, and similar intangible goods prepared for usage in an electronic environment.
In that situation, there is no harm in admitting that cryptocurrency assets represent an element of “commodity markets,” as defined by the Regulation. Of course, a transaction in the “Apple-XRP” pairing can be a consumer transaction.
Therefore, there will be no conflict between the special Regulation and the General Law on the Protection of the Consumer. Yet, let me add that it is admirable that the “Law on Consumer Protection,” which took effect in 2013, includes such a forward-thinking term.
Question 3: Are global payment intermediary institutions (Crypto Payment Processors/Gateways) that are not licensed in Turkey also considered "payment institutions or electronic money institutions"? If not, what might we anticipate as a result of trade activities conducted via these worldwide institutions?
Currently, Law No. 6493 regulates electronic money institutions and payment organizations.
Payment service operations may also be carried out through payment institutions, according to the Law. Payment institutions operate through banks.
The issue of electronic money is restricted to banks, PTTs, and electronic money institutions. Electronic money institutions carry out their activities through banks.
These organizations must be joint-stock companies established following Turkish Law. The CBRT, on the other hand, defines electronic money institutions and payment institutions based on a list that is updated on a regular basis. Only companies who have received the appropriate authorization are permitted to use this title.
Turkey began and progressed its crypto-asset rules in a somewhat more protective manner than other instances across the world, and this has continued. The method of limiting crypto assets was selected, in particular, in order to avoid money laundering and criminal income. In this regard, it is anticipated that wide-ranging limitations would be implemented first, followed by a progressive liberalization of the market over time. As a result, in the crypto money market, which is growing at the same rate as the rest of the economy, it will be impossible for global payment institutions to get directly involved in the national system within two to three years.
Turkey, on the other hand, holds a significant place in the world's cryptocurrency market. Consequently, it should be highlighted that if the door to electronic money institutions or payment institutions is opened, our country has the potential to develop into a favorable market for international corporations.
Question 4: Since traditional electronic payment options (credit cards) are global and have security standards established within the framework of our laws, which institution will be responsible for determining the security standards of cryptocurrency payment infrastructures that companies will provide directly to customers in our country's judicial system to sell their own goods and services? (ICTA?)
Unfortunately, it is not feasible to respond to this issue with the following statement: "If cryptocurrency becomes widely used one day, X will regulate, define, and oversee the security requirements in the payment infrastructures that are associated with it." As a result, it is impossible to predict which institution and which ministry will be responsible for this issue, especially given the nature of cryptocurrencies (such as the Ministry of Finance if it is accepted as money, or the Ministry of Commerce if it is accepted as a commodity or a security, respectively).
When we look at global examples, we see that the German Ministry of Finance accepts Bitcoin as a financial instrument and accounting unit; the Marshall Islands recognizes a cryptocurrency called Sovereign (SOV) developed on the Algogrand infrastructure as the official currency, and several other countries have tax regulations.
In our country, it is still uncertain who will have the last word. On April 28, 2021, Deputy Minister of Transport and Infrastructure, to which ICTA is adhered to, Omer Fatih Sayan, stated that the financial dimension of the issue is the most important element in the regulation of cryptocurrency and that they have taken "cyber security measures in their respective fields." This may conclude that the ICTA may have the authority to regulate a potential cryptocurrency payment security system.
On the other hand, it can be speculated that the BRSA, which has responsibilities such as establishing the security measures applicable to electronic payment methods, defining the actions to be taken, and inspecting financial institutions in accordance with its own legislation, may also be authorized in this regard. Due to the fact that the activities of banks and private financial institutions are included in the scope of the BRSA's responsibility and that it was established autonomously under Law No. 5411, it is believed that the BRSA is more closely associated with cryptocurrency payment security than other types of financial institutions.
A complete administrative organization will be required, in our opinion, if blockchain technology becomes widely adopted and crypto-assets begin to be utilized in commercial and legal transactions, as well as administrative activities. Consequently, necessary arrangements can be made in various matters, depending on the nature of the payment and the parties involved, the subject of supervision, or other concerns, by ensuring coordination with the central bank, ministries, supreme board, and presidential administrations among other things.
Question 5: As part of the current financial system, companies require that if foreign currency collections are converted into Turkish Lira, a "supplementary invoice" be issued if there is a value difference in the CBRT's exchange rate information between when collections were made and when the currency exchange was completed. Given that businesses can directly take cryptocurrencies in payment for their products and services, but the CBRT has not published any exchange rate data on the issue, so what might we expect in terms of value differences that may develop in the present financial system?
To begin, it should be highlighted that crypto-assets do not fall within the definition of money, foreign currency, capital instrument, security, commodity, or product under existing regulation. Therefore, this question can be answered relatively hypothetically.
Currency difference invoice (supplementary invoice) is issued within the scope of VAT Law No. 3065. It is retained to cover the additional revenue earned by one of the parties as a result of the increase in the exchange rate within accounts denoted in the Turkish Lira. According to Article 73 of the Constitution, tax liabilities are imposed, changed, or removed by Law. To put it another way, it is not feasible to invoice/tax an asset unless the legislation specifically states that the asset will be included in the tax base.
There is no law specifically relating to cryptocurrencies or the group of cryptocurrencies under existing tax legislation. In other words, it is not possible to answer the question clearly in practice in the current system.
While there are now no barriers to purchasing crypto assets, it is most definitely not possible to generate a supplementary invoice in this situation. In that regard, Article 5.3 of the VAT General Implementation Communiqué clarifies that the exchange rate difference shall be taxed only in transactions where the price is represented in foreign currency or is indexed to foreign currency. On the other hand, cryptocurrency is not a foreign currency, nor is it a foreign currency-indexed transaction. It is exchanged on independent exchanges and circulates in a decentralized, distributed ecosystem apart from fiat currency.
If we still want the person who buys cryptocurrency and gives something in return to pay tax, we need to make an assessment depending on which class we put the crypto asset in. (However, it is not possible to achieve these results in the current system).
In the case of cryptocurrency being treated as real money, shopping with TL fulfills the same function as it now does, and there is no additional tax liability for individuals who purchase cryptocurrencies. Aside from that, typical implications such as issuing invoices, collecting VAT, and subjecting income to taxation will manifest themselves.
If we say that cryptocurrencies are security, value increment tax can apply. If crypto assets are deemed securities, this tax is imposed on the difference between the cost at which the owner buys the crypto asset and the price at which it sells the crypto asset. Click here to calculate the value increment tax due to trading crypto assets if they are considered securities.
If it is acknowledged as a commodity, it will be necessary to make a dual distinction between it and other things. Because it is widely accepted that when goods are exchanged, a barter contract has been concluded. Individuals who make continuous sales throughout the year will have their income classified as commercial income and will be liable to VAT in accordance with applicable legislation. However, if constant transactions are not feasible, VAT will not apply since the revenue will be incidental, and a portion of the income (43,000-TL in 2021) will be excluded.
However, it is anticipated that cryptocurrency assets will be regulated separately in the future financial system. In reality, if we try to find the placement of cryptocurrency under these parameters, which were established long before the advent of crypto assets, we will not find the correct results. Due to the nature of crypto assets, they differ in several ways from traditional financial assets such as money and securities and commodities and other assets. Even though it can be considered a type of capital market instrument in our opinion, the Capital Markets Board asserts that crypto-assets cannot be deemed as capital market instruments or securities due to their intangible traits – i.e., the fact that they do not have any physical assets.
Question 6: If a publicly-traded company includes cryptocurrency in its equity and publishes this information, would this violate current laws or regulations? Is it possible that there is a factor that might negatively impact the CMB(Capital Markets Board) in this situation?
The issuers or related parties must communicate to the public any information, events, or developments that may impact the value and price of capital market instruments or the investment choices of investors in line with Article 15 of the Capital Market Law. Additionally, the incorporation of cryptocurrencies in a company's stock might be viewed as a subject that should be notified to the public via publication on the KAP (Public Disclosure Platform).
The Law makes no provision for the exclusion of cryptocurrency from public disclosure notices yet. Thus, even a brief scan of KAP reveals that, as of 18.11.2020, some information regarding cryptocurrency supply, cryptocurrency investments, and cryptocurrency exchanges has been made publicly available as Material Disclosures.
The Communiqué on Principles Concerning Public Disclosure of Material Events' article 20 and its sections regulate material event disclosures. This requires that the notification be provided to the appropriate stock exchange by 9:00 a.m. on the third business day after the day on which it occurs.
Ultimately, it is considered that this is not a violation of the Law, but rather a necessity. This criterion is met by a number of businesses, and there are no issues that might negatively trigger the CMB.
Regulation on the non-use of crypto assets in payments that entered into force on 30.04.2021 has been the first regulation of crypto assets in Turkish Law.
We tried to briefly (!) explain this short but effective six-articles regulation, provided that it is longer than the regulation.
Purpose and scope of the regulation
According to the first article, the purpose of the regulation is;
The non-use of crypto assets in "payments”,
Not to be used crypto assets directly or indirectly in the provision of payment services and the issuance of electronic funds,
Not entering of payment institutions and electronic funds institutions into a wire process with the platforms that provide buying, selling, custody, transfer, or issue services regarding Crypto assets.
Crypto assets received legal recognition for the first time in Turkey with this regulation. Accordingly, a crypto-asset is accepted as assets that;
use distributed ledger technology or similar technology
is virtually created and distributed over digital networks,
is not qualified as nominal money, bank money, electronic money, payment instrument, movable property, or any other capital market instrument,
is considered intangible assets.
Some definitions will be needed to explain the amendment made with the regulation. Aside from the long definitions, examples will be easier and enough to understand.
● A payment system is a structure that has common rules and provides the necessary infrastructure for transactions to be carried out to ensure the realization of transfers of funds or movable assets arising from money transfer orders between three or more participants.
For example, the digital banking system established to enable Ahmet to transfer money to Ayşe through X Bank is a payment system.
● A payment account is an account opened on behalf of the sender or recipient and it is used in the execution of the payment process (deposit, transfer, and withdrawal of funds performed on the instruction).
For example, Ahmet's deposit account in Bank X is a payment account.
● Payment service is regulated by Law No. 6493. Accordingly, the following are considered as payment services:
Deposit to a payment account, withdrawal from a payment account, and other operating activities that enable these services,
Debit transactions involving the transfer of funds in the payment account provided by the sender and recipients' payment service provider, payment transactions with a payment card or similar means, regular payment orders and money transfers,
Issuance and receiving of the payment instrument (tools like card, mobile phone, password, etc. that is determined between the payment service provider and the customer and required to perform the transaction),
Money transfer,
A payment transaction (in short, non-cash payments) in which the sender's approval for the payment transaction is given via information or electronic communication device and the payment is made to the information or electronic communication operator that acts only as an intermediary between the user and the supplier of goods or services,
● Payment organizations; refer to legal entities authorized by law 6493 to provide payment services. Click here for payment organizations that are currently in business.
● Electronic money organizations refer to legal entities authorized to issue electronic money in accordance with law 6493. Click here for electronic money organizations that are currently in business.
● Electronic money refers to the monetary value that is issued in return for funds accepted by the electronic money institution, stored electronically, used to perform payment transactions, and accepted as a means of payment by real and legal persons other than the electronic money institution.
What the Regulation Provides
According to the regulation, crypto-assets cannot be used directly or indirectly in payment transactions, and services for their use cannot be offered.
A payment process refers to deposit, transfer, and withdrawal activities performed on the instruction. So that, crypto assets will not be able to be used in payment transactions that will be made by the payment institution and/or electronic money institutions.
This arrangement will only cover transactions with “payment systems”. In other words, there is no obstacle to the use of the crypto asset in exchange transactions that you will make without a bank or any brokerage firm. In other words, in exchange for goods or services, the buyer will be able to pay with cryptocurrency if the seller accepts.
In contrast, cryptocurrency cannot be used when making deposits, transfers, and withdrawals through banks, payment institutions, and electronic money institutions. For example, cryptocurrencies cannot be purchased from the ATM and be sent via EFT. It will be possible to transfer money to the cryptocurrency exchange platforms or withdraw money from them only through the bank. Because the regulation prohibits payment organizations and electronic money organizations from mediating activities related to crypto-assets.
As of 30.04.2021, when the regulation came into force, it will not be possible to deposit, withdraw or transfer crypto assets through electronic money institutions such as Papara and Ininal.
In the fourth article of the regulation, two more restrictions were introduced.
Banks, payment institutions, and electronic money institutions will not be able to perform activities in which crypto assets will be used directly or indirectly in the provision of the above-mentioned payment services and issuing electronic money. In simple terms; banks, payment institutions, or electronic money institutions;
will not be able to give BTC, ETH, etc. in exchange for TL or USD
will not be able to transfer, withdraw, invest, transfer funds, and make payments using the banking system.
● Payment institutions and electronic money institutions cannot mediate the purchase, sale, storage, transfer, or issuance of crypto assets to platforms or the transfer of funds from these platforms. Accordingly, cryptocurrency exchange platforms will only be able to transfer money through banks.
In summary
Although it contradicts the legal method, this Regulation seeks to remove payment institutions and electronic money institutions that offer commission-free or low-commission money transfers to crypto money exchanges from the system. All cryptocurrency transactions, including trading and transferring, are not prohibited.
I presume that the state is attempting to prevent crypto assets, which are created using cryptographic techniques and hence susceptible to decentralized transactions and are therefore untraceable, from being used in offenses such as money laundering.
For this reason, again, I presume that while the state cannot monitor the existence and transfer of cryptocurrencies, it has sought to conduct these transactions exclusively through banks to monitor the activities associated with the purchase and sale of cryptocurrencies in exchange for fiat money, bank money, or electronic money in the Republic of Turkey.
It seemed obvious that crypto assets were not legally accepted as “money.” The Regulation confirmed this. The Regulation recognized that crypto assets are intangible assets that cannot be classified as any capital market instrument. Despite this law, the legal status of cryptocurrencies, or contracts for purchasing and selling cryptocurrencies in return for fiat, bank, or electronic money, remains unknown.
Because this is not a case involving a legally recognized contract or asset, in this situation, it is fair to recognize that cryptocurrencies are a unique asset and that contracts for purchasing and selling are in nature somewhere between a sales and a barter contract. However, it would not be correct to make a clear definition at this point.
Additionally, it is believed that the Regulation paves the way for future laws on cryptocurrency taxes. In various countries of the world, cryptocurrencies are taxed as intangible assets or commodities. Due to the fact that it is widely acknowledged that crypto assets are not a capital market instrument under current rules, direct taxation of crypto assets is not conceivable at the moment. However, because the conversion of cryptocurrencies to fiat money can be done through banks in any event, the earnings achieved in this manner can be subject to income tax (maybe in the future, and perhaps, this is just a guess or a prophecy). In other words, the profits must be reported on the individual’s yearly income tax return. Otherwise, a fine might be applied on the basis that the fiat money deposited in the bank account during tax audits is not taxed (indeed, it is a prophecy!).
However, there is currently no regulation that directly addresses the taxation of crypto assets.
Question 1: How can it be determined whether or not the wallet addresses to be utilized by businesses belong to payment or electronic money institutions?
In fact, it will not be proven, nor will it be necessary. Specifically, there is no impediment to trading between cryptocurrency exchanges or platforms within the scope of the Regulation, as specified in the Regulation.
In other words, I can transfer 100-XRP from Binance to Gate; this is legal. Issues that the Regulation restricts/obstructs are as follows;
Crypto assets cannot be used for payments.
Cryptocurrency assets are not permitted to be utilized directly or indirectly in payment services or the issuance of electronic money.
Funds cannot be transferred between Payment Institutions, Electronic Money Institutions, and cryptocurrency platforms/exchanges.
In such a scenario, the restricted concerns apply to cases when a relationship between crypto-assets and fiat money is formed. Let’s start with a simple example to examine the question. I have 100-BNB. Currently, its approximate value is around 62,300-USD. The bank is the only place where I can exchange my 100 BNB for 62,300 USD. In other words, I won’t be able to convert these crypto assets into fiat currency unless I have access to a bank. At this point, we have a cryptocurrency exchange on one side and a bank on the other.
Payment Institutions and Electronic Money Institutions are monitored and regulated by the Central Bank of the Republic of Turkey. If you transfer money and funds to your account at these institutions by swapping fiat currency for crypto assets, you will be breaching the Regulation. For instance, Binance, one of the most prominent cryptocurrency exchanges now, has suspended withdrawals and deposits via Ininal and Papara as of 30.04.2021. (the date the Regulation came into effect). Thus, the only way to convert crypto assets into fiduciary money on Binance is through the bank now.
Whereas including money/fund transfer transactions with the crypto platform in these institutions’ account activities, which the CBRT and other financial institutions monitor, will violate the Regulation. As a result, it is believed that there will be no need to obtain the transaction parties’ information via anonymous wallet addresses.
Question 2: While the legislation does not prohibit the use of cryptocurrencies for direct payments, would be omitting the “Law on the Protection of the Consumer” create a conflict between two different legislations?
As previously stated, the Regulation prohibited the use of crypto assets in payments, payment services offering, and the issue of electronic money. One might argue that there is an inconsistency with the applicable legislation.
There is no definition of the concept of “payment” in the legislation. Rather than that, some concepts relating to “payment” were specified in Law No. 6493. By examining this, we may get a sense of the “payments” that the Regulation prohibits.
The activity of depositing, transferring, or withdrawing money on the sender’s or receiver’s order is characterized in the Law as a “payment transaction.”
Additionally, the term “payment service” is used to refer to transactions (withdrawal, automated payment, debiting, receiving a code by phone, money order, or other non-cash payments, etc.) as covered by Article 12.
We do not know whether the term “payment” in the Regulation means “payment transaction” or “payment service.” However, let us be cautious and take into account that the Regulation prohibits both. Even in this scenario, one cannot conclude that the use of cryptocurrencies is prohibited for purchases made without the involvement of a bank, payment institution, or electronic money institution.
Additionally, it should be remembered that freedom of contract is a constitutional right, and according to Article 13 of the Constitution, constitutional rights should be regulated by legislation. For instance, the requirement that the contract is “within the limitations specified by law” in article 26 of the Turkish Code of Obligations is a typical restriction on this freedom. In such a scenario, prohibiting crypto assets’ direct or indirect use for payment purposes or the supply of services for this aim will be considered unlawful.
Indeed, the payment transaction and the activities subject to the payment service are the transactions carried out through payment accounts. In this case, if a grocery store accepts, I can buy 1 kg of apples for 1-XRP today. This transaction will not be against the law.
The usage of crypto assets for direct exchange transactions was not and cannot be prohibited, as we noted in the annotation. Because purchasing an asset in return for an asset that is not accepted as money or capital, instruments constitute a barter arrangement and do not create a legal stumbling block. Here instead of crypto-asset, we can exchange it with chickpeas, precious metals, or even kisses.
On the other hand, they are not required to be regulated in the Law on the Protection of the Consumer. Because Law on the Protection of the Consumer evaluates two things while determining its scope:
Can one of the parties be considered as a consumer?
Is the relationship between the parties a consumer relationship?
If the answer to both of these questions is yes, the Law attempts to reveal findings that safeguard consumers’ interests. So, when we perform an exchange transaction in return for crypto money, does this operation loses its title as a consumer transaction or create a legal contradiction?
Consumer means a natural or legal person acting for commercial or non-professional purposes.
On the other hand, consumer transaction refers to all kinds of contracts and legal transactions (...) established between individuals (...) and consumers in the goods or service markets.
On the other hand, goods refer to movable properties for shopping, immovable properties for home or holiday reasons, and software, music, video, and similar intangible goods prepared for usage in an electronic environment.
In that situation, there is no harm in admitting that cryptocurrency assets represent an element of “commodity markets,” as defined by the Regulation. Of course, a transaction in the “Apple-XRP” pairing can be a consumer transaction.
Therefore, there will be no conflict between the special Regulation and the General Law on the Protection of the Consumer. Yet, let me add that it is admirable that the “Law on Consumer Protection,” which took effect in 2013, includes such a forward-thinking term.
Question 3: Are global payment intermediary institutions (Crypto Payment Processors/Gateways) that are not licensed in Turkey also considered "payment institutions or electronic money institutions"? If not, what might we anticipate as a result of trade activities conducted via these worldwide institutions?
Currently, Law No. 6493 regulates electronic money institutions and payment organizations.
Payment service operations may also be carried out through payment institutions, according to the Law. Payment institutions operate through banks.
The issue of electronic money is restricted to banks, PTTs, and electronic money institutions. Electronic money institutions carry out their activities through banks.
These organizations must be joint-stock companies established following Turkish Law. The CBRT, on the other hand, defines electronic money institutions and payment institutions based on a list that is updated on a regular basis. Only companies who have received the appropriate authorization are permitted to use this title.
Turkey began and progressed its crypto-asset rules in a somewhat more protective manner than other instances across the world, and this has continued. The method of limiting crypto assets was selected, in particular, in order to avoid money laundering and criminal income. In this regard, it is anticipated that wide-ranging limitations would be implemented first, followed by a progressive liberalization of the market over time. As a result, in the crypto money market, which is growing at the same rate as the rest of the economy, it will be impossible for global payment institutions to get directly involved in the national system within two to three years.
Turkey, on the other hand, holds a significant place in the world's cryptocurrency market. Consequently, it should be highlighted that if the door to electronic money institutions or payment institutions is opened, our country has the potential to develop into a favorable market for international corporations.
Question 4: Since traditional electronic payment options (credit cards) are global and have security standards established within the framework of our laws, which institution will be responsible for determining the security standards of cryptocurrency payment infrastructures that companies will provide directly to customers in our country's judicial system to sell their own goods and services? (ICTA?)
Unfortunately, it is not feasible to respond to this issue with the following statement: "If cryptocurrency becomes widely used one day, X will regulate, define, and oversee the security requirements in the payment infrastructures that are associated with it." As a result, it is impossible to predict which institution and which ministry will be responsible for this issue, especially given the nature of cryptocurrencies (such as the Ministry of Finance if it is accepted as money, or the Ministry of Commerce if it is accepted as a commodity or a security, respectively).
When we look at global examples, we see that the German Ministry of Finance accepts Bitcoin as a financial instrument and accounting unit; the Marshall Islands recognizes a cryptocurrency called Sovereign (SOV) developed on the Algogrand infrastructure as the official currency, and several other countries have tax regulations.
In our country, it is still uncertain who will have the last word. On April 28, 2021, Deputy Minister of Transport and Infrastructure, to which ICTA is adhered to, Omer Fatih Sayan, stated that the financial dimension of the issue is the most important element in the regulation of cryptocurrency and that they have taken "cyber security measures in their respective fields." This may conclude that the ICTA may have the authority to regulate a potential cryptocurrency payment security system.
On the other hand, it can be speculated that the BRSA, which has responsibilities such as establishing the security measures applicable to electronic payment methods, defining the actions to be taken, and inspecting financial institutions in accordance with its own legislation, may also be authorized in this regard. Due to the fact that the activities of banks and private financial institutions are included in the scope of the BRSA's responsibility and that it was established autonomously under Law No. 5411, it is believed that the BRSA is more closely associated with cryptocurrency payment security than other types of financial institutions.
A complete administrative organization will be required, in our opinion, if blockchain technology becomes widely adopted and crypto-assets begin to be utilized in commercial and legal transactions, as well as administrative activities. Consequently, necessary arrangements can be made in various matters, depending on the nature of the payment and the parties involved, the subject of supervision, or other concerns, by ensuring coordination with the central bank, ministries, supreme board, and presidential administrations among other things.
Question 5: As part of the current financial system, companies require that if foreign currency collections are converted into Turkish Lira, a "supplementary invoice" be issued if there is a value difference in the CBRT's exchange rate information between when collections were made and when the currency exchange was completed. Given that businesses can directly take cryptocurrencies in payment for their products and services, but the CBRT has not published any exchange rate data on the issue, so what might we expect in terms of value differences that may develop in the present financial system?
To begin, it should be highlighted that crypto-assets do not fall within the definition of money, foreign currency, capital instrument, security, commodity, or product under existing regulation. Therefore, this question can be answered relatively hypothetically.
Currency difference invoice (supplementary invoice) is issued within the scope of VAT Law No. 3065. It is retained to cover the additional revenue earned by one of the parties as a result of the increase in the exchange rate within accounts denoted in the Turkish Lira. According to Article 73 of the Constitution, tax liabilities are imposed, changed, or removed by Law. To put it another way, it is not feasible to invoice/tax an asset unless the legislation specifically states that the asset will be included in the tax base.
There is no law specifically relating to cryptocurrencies or the group of cryptocurrencies under existing tax legislation. In other words, it is not possible to answer the question clearly in practice in the current system.
While there are now no barriers to purchasing crypto assets, it is most definitely not possible to generate a supplementary invoice in this situation. In that regard, Article 5.3 of the VAT General Implementation Communiqué clarifies that the exchange rate difference shall be taxed only in transactions where the price is represented in foreign currency or is indexed to foreign currency. On the other hand, cryptocurrency is not a foreign currency, nor is it a foreign currency-indexed transaction. It is exchanged on independent exchanges and circulates in a decentralized, distributed ecosystem apart from fiat currency.
If we still want the person who buys cryptocurrency and gives something in return to pay tax, we need to make an assessment depending on which class we put the crypto asset in. (However, it is not possible to achieve these results in the current system).
In the case of cryptocurrency being treated as real money, shopping with TL fulfills the same function as it now does, and there is no additional tax liability for individuals who purchase cryptocurrencies. Aside from that, typical implications such as issuing invoices, collecting VAT, and subjecting income to taxation will manifest themselves.
If we say that cryptocurrencies are security, value increment tax can apply. If crypto assets are deemed securities, this tax is imposed on the difference between the cost at which the owner buys the crypto asset and the price at which it sells the crypto asset. Click here to calculate the value increment tax due to trading crypto assets if they are considered securities.
If it is acknowledged as a commodity, it will be necessary to make a dual distinction between it and other things. Because it is widely accepted that when goods are exchanged, a barter contract has been concluded. Individuals who make continuous sales throughout the year will have their income classified as commercial income and will be liable to VAT in accordance with applicable legislation. However, if constant transactions are not feasible, VAT will not apply since the revenue will be incidental, and a portion of the income (43,000-TL in 2021) will be excluded.
However, it is anticipated that cryptocurrency assets will be regulated separately in the future financial system. In reality, if we try to find the placement of cryptocurrency under these parameters, which were established long before the advent of crypto assets, we will not find the correct results. Due to the nature of crypto assets, they differ in several ways from traditional financial assets such as money and securities and commodities and other assets. Even though it can be considered a type of capital market instrument in our opinion, the Capital Markets Board asserts that crypto-assets cannot be deemed as capital market instruments or securities due to their intangible traits – i.e., the fact that they do not have any physical assets.
Question 6: If a publicly-traded company includes cryptocurrency in its equity and publishes this information, would this violate current laws or regulations? Is it possible that there is a factor that might negatively impact the CMB(Capital Markets Board) in this situation?
The issuers or related parties must communicate to the public any information, events, or developments that may impact the value and price of capital market instruments or the investment choices of investors in line with Article 15 of the Capital Market Law. Additionally, the incorporation of cryptocurrencies in a company's stock might be viewed as a subject that should be notified to the public via publication on the KAP (Public Disclosure Platform).
The Law makes no provision for the exclusion of cryptocurrency from public disclosure notices yet. Thus, even a brief scan of KAP reveals that, as of 18.11.2020, some information regarding cryptocurrency supply, cryptocurrency investments, and cryptocurrency exchanges has been made publicly available as Material Disclosures.
The Communiqué on Principles Concerning Public Disclosure of Material Events' article 20 and its sections regulate material event disclosures. This requires that the notification be provided to the appropriate stock exchange by 9:00 a.m. on the third business day after the day on which it occurs.
Ultimately, it is considered that this is not a violation of the Law, but rather a necessity. This criterion is met by a number of businesses, and there are no issues that might negatively trigger the CMB.
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