Efe Kerem Sözeri
Nov 07 2017

Turkish cronyism: Even better than a Maltese tax haven

THE HAGUE - Turkish newspaper Cumhuriyet revealed new connections between the Turkish political leadership, the business elite and their offshore accounts. According to documents obtained by the International Consortium of Investigative Journalists (ICIJ) Turkey's Minister of Energy Berat Albayrak and his businessman brother Serhat Albayrak  set up multiple shell companies in Malta, in their role as executives of Çalık Holding, between 2003 and 2009.

As part of a tax evasion scheme, Çalık Holding established four companies in Sweden, then these companies set up eight shell companies in Malta where corporate tax can be as low as 5 percent for foreign shareholders, as opposed to 22 percent in Turkey.

Cumhuriyet's Çiğdem Toker wrote that Turkey had passed a law in 2006 to enforce higher taxes on transactions to and from tax havens, but the government had made the law inoperable by not publishing the list of countries deemed to be tax havens.


In a simplified way, tax evasion schemes work by registering shell companies in a tax haven, and making transactions between them to hide the money trail from authorities:

  • A Turkish company, Company A, wants to buy raw material from Africa, then produce goods in Turkey and sell them on the domestic market
  • Shareholders of Company A set up two offshore companies, Company B and Company C, in a tax haven jurisdiction
  • Company B purchases the raw material worth $10 million and sells it to Company C for $20 million
  • Company C then sells the raw material to (main) Company A for $20 million
  • Company A produces and sells the goods, earns $22 million, and declares a taxable $2 million in profits, while its real profit is $12 million.

(Adapted from Cumhuriyet)


Read Cumhuriyet's news article in Turkish here:

 

 

In response to the Paradise Papers allegations, Çalık Holding admitted its ownership of the shell companies, arguing that setting up companies in foreign countries is a part of their global business operations and was perfectly legal. However, its also added that the companies in Malta had been shut down, and the Swedish companies were being dissolved.

That was because Çalık had found a more feasible plan: pushing a tax amnesty law in Turkey.

Back in May, two investigative journalists, Craig Shaw and Zeynep Sentek, found evidence of Çalık Holding's tax evasion scheme via Malta and Sweden. But after matching the financial documents with the leaked email archive of Berat Albayrak, they were also able to uncover how and why the Maltese option was abandoned.


Berat Albayrak started working at Çalık as a fresh business major in 1999. His father, journalist and conservative politician Sadık Albayrak, was friends with Erdoğan. Albayrak and Erdoğan's daughter, Esra, got married in 2004. After working for eight years at the company, Albayrak became the CEO of Çalık in 2007 at the age of 29. Albayrak left the company in late 2013, and started writing a column at Sabah, the newspaper Çalık bought during his term. In the 7 June 2015 elections, he won a seat at the Turkish Parliament for the ruling AKP and within four months, he was appointed as Turkey's minister of energy and natural resources.


A few months into his new job, Albayrak received an email from Şafak Karaaslan, a former colleague who set up the tax scheme in Malta and Sweden. Karaaslan attached a draft bill that provisions foreign capital to be transferred to Turkey, with zero percent tax, and no questions asked. Karaaslan also provided a briefing to sell the bill to the public, such as avoiding the term "tax amnesty", but using the phrase "wealth peace" and highlighting its presumed benefits to the Turkish economy.

"Varlık Barışı" ("Wealth Peace") was indeed the Turkish government's choice of words for legalised money laundering.

Read The Black Sea's original investigation here: