Turkey: Intercompany loans

Author: | Published: 11 Jul 2016
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Işıl Ökten Lara Battal

Multinational enterprises sometimes need their subsidiary in Turkey to grant loans to their parent company located abroad.

Under the communiqué related to decision 32 entitled the Protection of the Value of Turkish Currency, 2008-32/34 (the Communiqué) and the Capital Movements Circular issued by the Central Bank of Turkey (the Circular)Turkish entities can grant loans to their parent companies located abroad.

The Circular regulates these loans. It stipulates that the following items must be delivered to the bank making the money transfer:

  • trade registry records indicating that the loan beneficiary located abroad is a parent company of the Turkish subsidiary that will extend the loan;
  • a written statement of the Turkish subsidiary extending the loan; and,
  • a copy of the loan agreement between the Turkish subsidiary as the lender and its parent company as the borrower.

As per Article 358 of the Turkish Commercial Code No. 6102 (the TCC), the loan agreement between the Turkish entity and its parent company should be executed under the following conditions:

  • the parent company's capital commitments due to the Turkish subsidiary (being its shareholder) must have been performed; and,
  • the Turkish subsidiary's reserve funds and profits must be sufficient to cover its previous year's losses.

Finally, if the parent company causes any loss to the Turkish subsidiary by forcing it to lend to its detriment, the parent company is obliged to either compensate the Turkish subsidiary's losses within the same financial year or provide a method for compensation within the same financial year. If the parent company fails to compensate, the shareholders and creditors of the Turkish subsidiary may commence proceedings against the parent company and its directors for the compensation of losses.

Işıl Ökten and Lara Battal