Turkey's Doğan can ’weather storm’

For the details of the tax fine

Speaking to reporters in Istanbul yesterday, Soner Gedik, chief financial officer of the DoÄŸan Media Group, or DMG, said the record tax fine of 862 million Turkish Liras ($513 million) imposed on the company last Wednesday lacked objective criteria.

"Our seven companies were taken under inspection 11 months ago," he told journalists. "And this inspection covered a period of five to six years, while normally such tax inspections cover only one or two years. Plus, our defensive statement was not taken by auditors."Â

Gedik was effectively answering Nurettin Canikli, a top lawmaker for the governing Justice and Development Party, who claimed DMG had "technically engaged in tax evasion."

Record fine

The record fine was imposed by a team of 10 government tax auditors on grounds that a 25 percent stake of DoÄŸan TV was sold to Axel Springer not on Jan. 2, 2007, as company documents show, but at the end of December 2006. The second claim is that the group paid no value added tax due to its sale of equity shares to Axel Springer for $481 million, while another claim is that financial expenses associated with acquisitions may not be recorded as expense and thus are not tax deductible.

According to the audit report, the three claims resulted in a delinquent tax of 149 million liras plus 713.5 million liras in penalties, amounting to the record punishment. Displaying a copy of the closing memorandum between DMG and Axel Springer, dated Jan. 2, 2007, Gedik also showed the receipt that showed the associated tax was paid in May 2007. Gedik also recalled the VAT Law, which says delivery of share certificates is exempt from value added tax. "The total value of all publicly disclosed acquisitions completed in Turkey, including the Privatization Administration, between the years 2003 and 2008 is nearly $128 billion," he said. "If such transactions are to be subject to VAT, the authorities should say so and start examining all these transactions."

Gedik also said financial expenses associated with the acquisition of other companies’ shares can be directly expensed and are tax deductible, quoting tax experts and a 1997 opinion issued by the Finance Ministry.

"We have 70,000 small investors and now this levy will stay like a Sword of Damocles above our heads until the courts decide," Gedik said, adding that the decision might take two to seven years.

"We would have chosen to accept arbitration to protect our shareholders, despite the fact that we are on the right side, but as the levy involves the grave crime of tax fraud, that path is also closed," he said.

Gedik said the company would have to disclose assets equal to the levy as collateral to the Treasury until the legal process ends. Such a big amount, which may remain blocked for years, will impact DMG inevitably, but the company can weather the storm, he said. "Our financials are extremely strong."

Speaking to the Wall Street Journal, Aydın Doğan, chairman of Doğan Holding, which also has interests in energy and property sectors, said the levy is based on "political pressure."

"The levy against DMG followed months of increasingly angry denunciations from [Prime Minister Recep Tayyip] Erdoğan of ’made-up news’ about corruption from [Aydın] Doğan's media group and others," the Journal said.

"He could not put up with this and wanted to silence us. We refused to accept silence. The situation with the government got out of control," DoÄŸan, 72, told the U.S. newspaper. "ErdoÄŸan came to power using democracy. He is a product of democracy, but he can accept democracy only for himself. He cannot accept side components of democracy such as free media."

Daily News is a DoÄŸan Media Group publication.