IS IT POSSIBLE FOR THE COMPANY LOCATED IN TURKEY CREDIT EXTENSION TO COMPANY IN ABROAD? 18 June 2020

IS IT POSSIBLE FOR A COMPANY TO LEND TO ANOTHER COMPANY?

When evaluating this matter, it will first be necessary to determine whether it is possible for a company to extend credit to another company. In this context, when the regulations in the legislation are analyzed, it is seen that there is no clear regulation regarding the lending of a company to another company.

On the other hand, when looking at the other regulations on this subject, it is concluded that these transactions can be done under certain conditions.  While evaluating the issues that are not clearly regulated, it will be necessary to determine based on the existing provisions. In this regard, it should be noted that the lending activity is a state privilege. However, the government can transfer this privilege to some institutions specified in the legislation and allows lending to be carried out. These organizations are; Banks are institutions such as Financial Institutions and Factoring Companies.

On the other hand, when the provisions in the Turkish Criminal Code are examined, it is revealed that transactions such as lending, for the purpose of earning a gain, by individuals who do not have the authority to lend money as specified in the legislation, will constitute usury crimes.

As a result of these regulations, it is concluded that it is not possible for a company to extend credit to another company or person. In addition, it seems that these transactions are possible among the related companies in the light of some regulations. Because, in commercial life, it has become necessary in many respects to provide loans between group companies or companies within the same Holding structure.

A COMPANY WHICH IS LOCATED IN TURKEY, UNDER WHAT CIRCUMSTANCES CAN GIVE CREDIT ANOTHER COMPANY LOCATED ABROAD?

As stated above, it is not possible for companies that do not have a connection to extend credit to each other. In addition, there are basically two regulations regarding the legal ground for companies registered in Turkey to grant loans to another related company registered in abroad. One of these is “Communiqué Concerning the Protection of the Value of Turkish Currency No. 2008-32/34” and the other one is “Capital Movements Circular”.

However, these arrangements have been made for the group companies or companies within the Holding. Because, it is indeed forbidden for companies, other the ones having special licenses such as banks, financial leasing companies, factoring companies, to grant loans.

In terms of Communiqué No. 2008-32 / 34

According to Article 11 of the Communiqué No. 2008-32 / 34; it is possible for  persons/entities resident in Turkey to open foreign currency or Turkish Lira loans to partnerships abroad, parent company or group companies abroad.

In terms of the Capital Movements Circular

There is a similar regulation in the 38th article of the circular. According to this; it is regulated that borrowing may be possible within the same Holding or group companies.

"In accordance with the foreign exchange regulations, residents in Turkey can obtain foreign-currency loans from banks and financial institutions. Therefore, it is not possible for a firm to extend foreign-currency loans to another firm. Banks and Financial institutions notify the companies, that they have determined to act in this way with applications such as bridge loans, to the Ministry. However, it is possible to carry out the transaction within the same holding or within group companies provided that the transfer is made in Turkish Lira.

It is possible to Banks, Financial Institutions and other establishments to be determined by the Ministry to give foreign currency and Turkish Lira loans to companies abroad.”

In addition, according to article 48 of the Circular; It is possible to persons/entities resident in Turkey to open foreign currency or Turkish Lira loans to partnerships abroad, parent company and group companies abroad.

• Loans must be used through banks.
• Before the transfer of this loan amount, a copy of the loan agreement and trade registry records stating that the company abroad is a group company or parent company must be submitted to the bank by the company resident in Turkey.
• These loans cannot be used in the form of a current account that does not have a certain maturity. In addition these loans cannot be used in the form of a variable interest rate, or as a revolving loan, enabling credit or repayment at different dates.
• These loans can be transferred directly abroad. It can also be transferred to the company's bank accounts in Turkey as foreign currency or Turkish Lira.
• The bank checks whether the loan repayment has been made in accordance with the Circular, if it comes back with the statement of the loan repayment.

In terms of the Turkish Commercial Code

Article 358 of the Turkish Commercial Code regulates that companies can lend money to their partners under certain conditions. Accordingly, in order to issue a loan agreement between the group companies, in addition to the above regulations, the following conditions must be met.

• The parent company should not have any debt arising from its capital commitment.
• The company's profits must meet the losses of previous years.

CONCLUSION

As a result; although the lending process is a government privilege, the government can transfer this privilege to banks and financial institutions. On the other hand, it is only possible for companies to extend credit to each other if the companies in question are group companies or have an affiliate relationship. This point does not contain a difference for the companies which is located in Turkey or abroad.