National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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involved in one particular transaction whereby multiple VATs were ruled out. In addition, as a
consequence of gaining ‘bank’ status with the 2005 Banking Law No. 5411, their transactions
were exempted from the VAT and they became subject to Bank and Insurance Transactions
Tax.
While ijara sukuk issuance became possible with legal development in April 2010, tax related
issues made the issuance of (domestic) sukuk issuance disadvantageous. In February 2011,
Law offering tax amnesty, No 6111, was enacted to facilitate ijara sukuk by “reducing the
withholding tax on such sukuk [structures] to 10% and exempting sales from value-added,
stamp and corporate taxes… Further legislation includes the exemption from taxes on revenue
for sukuk certificates with a minimum tenor of five years. Certificates with shorter tenors
would still be subject to tax, ranging from 3% to 10% (Thomson Reuters, 2015: 94).
Accordingly, through such amendments, ijara sukuk transactions are exempted from “value
added tax, stamp duties, corporate tax, title deed registration fees, and notary public fees. The
withholding tax on sukuk was reduced to 10%. Further measures exempted sukuk with tenors
in excess of five years from taxes on revenue” (Thomson Reuters, 2015: 91). In proactively
encouraging the expansion of the sukuk market, a number of favourable tax treatments and
certain tax exemptions are provided for sukuk issuance by the amendments of the Turkish tax
legislation impacting the Corporate Tax Law (Law No 5520), VAT Law (Law No 3065), Charges
Law (Law No 492), Income Tax Law (Law No 193), Stamp Tax Law (Law No 488). Hence, tax
amendments have facilitated the ijara sukuk with the first domestic sukuk being issued on
October 2011 by Kuveyt Turk Bank.
It is true that with the necessary amendments, ijara sukuk is exempted from double taxation
and is provided with the above mentioned other tax incentives. In recent legislation on 9th
August 2016, a similar facilitation was extended to other sukuk structures. However, it should
be noted that “the application of revenue taxes of 3% to 10% to short-term sukuk remains a
constraint on the growth of that market segment” (Thomson Reuters, 2015: 91).
Dispute Settlement and Conflict Resolution Framework and Institutions
Being a secular country with civil law, Turkey, by definition of the constitution, is not able to
provide any specific Shari’ah provision for legal matters and disputes. Therefore, similar to
disputes in other business and commercial activity, Islamic finance related disputes are dealt
with at the civil courts within the remits of legal provisions of the country where the cases are
adjudicated.
In an attempt to become a global financial centre in line with the İstanbul International
Financial Center Program, Turkey aims to make Istanbul as an Arbitration Centre for which the
Law on the Istanbul Arbitration Centre (Law No. 6570) was issued in the Official Gazette on
29/11/2014. By becoming effective on 01/01/2015, the law established Istanbul Arbitration
Centre (ISTAC).
In recent years, Turkey has undertaken a number of law reforms to provide a modern and
dynamic arbitration system, for which UNCITRAL Model Law has been adopted and certain
amendments were introduced to the Turkish Constitution. For example, Article No 125 of the
Constitution was amended to allow for the arbitration of large-scale concession agreements
(Levush, 2014). The issuance of the International Private and Procedure Law (IPPL), No. 5718
on 12/12/2007, and the International Arbitration Law (IAL), No. 4686 on 21/06/2001