The statute of limitations is governed by two distinct procedural laws in public law. In contrast to the statute of limitations in private law, the statute of limitations in public law also encompasses a prescription period. The fact that the statute of limitations, which the public authorities are obliged to consider ex officio, has a prescriptive feature is in the public interest.

In this manner, the state relinquishes its own rights and receivables at the conclusion of a specified limitation period in favour of the debtor taxpayer. Consequently, the statute of limitations on a receivable results in the state relinquishing a portion of its budgetary revenues, thereby leading to a loss of revenue. Therefore, while the statute of limitations is advantageous to the debtor, the public authority, which occupies the creditor position, experiences a disadvantage.

Conversely, Article 114 of the Tax Procedure Law No. 213 (TPL No. 213) establishes the statute of limitations for tax assessment in cases of conditional tax exemptions and exceptions. In such instances, the statute of limitations is set at five years from the beginning of the calendar year following the date of the violation of the condition.

One of the most illustrative examples of conditional tax exemptions and exceptions is that pertaining to the tax exemptions and exceptions provided for project-based grants under the Instrument of Pre-Accession Assistance (IPA) Framework Agreements signed between the European Union (EU) and Turkey. These exemptions and exceptions, which are subject to both general and special conditions in terms of implementation, are utilised solely by the Union Contractors during the activity period. Conversely, only the grant beneficiaries benefit in terms of their results during the monitoring period, which continues for five years after the activity. In the event of contract termination or a partial repurchase decision being made, whether during the activity period or the post-activity monitoring period, the statute of limitations for the exemptions and exceptions utilised will commence on the date of the violation.

Accordingly, a proper understanding of what the date of infringement means for the calculation of the limitation period for project-based EU grants benefiting from tax exemptions and derogations under the IPA is important to highlight the tax problems that Union contractors or beneficiaries will face in the event of an infringement.

The statute of limitations represents a practise that constrains the tax collection power of the state within the constitutional limits that favour the taxpayer. This is done with the aim of ensuring the public interest. This is because the public authority relinquishes public revenue in favour of the citizen. Furthermore, the statute of limitations for assessment, which must be taken into consideration by tax administrations in the TPL, is determined as five years from the beginning of the calendar year following the year in which the event giving rise to the tax occurred. As the statute of limitations is a forfeiture period, it must be considered ex officio by the administration. Consequently, any assessment, notification, accrual or collection transactions made after these periods have passed will be invalid by law.

However, the regulation set forth in Article 114 of the Tax Procedure Law concerning the statute of limitations for conditional exemptions and exceptions is designed to facilitate the collection of the tax receivable that has not been collected due to the aforementioned rights in the event that the conditions under which these exemptions and exceptions are applied cease to exist or become invalid. In other words, it is a security measure that extends the normal limitation period for levying taxes within the period that will ensure the permanence of the conditions in order to prevent the state from losing tax revenue.

The pre-accession assistance instrument agreements signed between Turkey and the EU Commission, specifically the IPA Framework Agreements, are international agreements that have been duly entered into force. These agreements stipulate the applicationofnumeroustaxexemptionsandexceptionsregardingexpenditures,purchases,andconstruction works to be made within the scope of EU projects carried out with IPA funds in Turkey. The aforementioned tax exemptions and exceptions are implemented through the issuance of General Communiqués by the Revenue Administration. These General Communiqués regulate the procedures for the implementation and cancellation of these privileges in accordance with the Framework Agreement.

The distribution of financial assistance to candidate and potential candidate countries under IPA is based on the rationale that it should be project-based. In accordance with the value of the procurement, services and works to be carried out under these grants, the EU procurement rules shall apply. In other words, organisations in Turkey that benefit from project-based financial assistance and are designated as grant beneficiaries are precluded from undertaking procurement, service and construction works within the scope of these projects themselves. In this instance, a contractor from the European Union is selected through a competitive bidding process, operating as a third-party entity distinct from the grant beneficiary. Conversely, there are certain types of projects in which the roles of the Grant Beneficiary and the Union Contractor can be combined.

The rationale for this is that the Union Contractor implementing a project funded with EU financial assistance in an IPA beneficiary country, including Turkey, is prevented from paying local taxes with respect to the EU funds used. This is in accordance with the articles of the Framework Agreements signed by the IPA beneficiary countries regulating tax  exemption, which state that “Taxes, customs and import duties and charges and/or taxes with equivalent effect shall not be financed from financial assistance.”

The tax exemptions and exceptions established under the IPA Framework Agreements are conditional exemptions, subject to several conditions, one of which is fundamental. The fundamental prerequisite is the existence of a valid Union Agreement. The remaining conditions pertain to the application of each tax exemption and are necessary for its continued validity. In the event of a breach of any of these conditions, the exemption in question is cancelled only for that specific tax type. Consequently, in the event of the termination of the agreement, all tax exemptions and exceptions utilised within the scope of that agreement will be revoked, and the statute of limitations will commence for the total tax loss and penalties. Conversely, in the case of a breach of the terms of the agreement regarding a specific expenditure, the statute of limitations will only commence for the assessment to be made in terms of the amount of tax exemption and exemption utilised for that expenditure.

The most significant issue is that taxpayers, who already possess limited knowledge of tax legislation, are unaware that the tax exemptions and exceptions they benefit from as a result of project-based EU grants are of a conditional nature.

To determine the most appropriate statute of limitations to be applied to the exemptions and exceptions provided under the IPA, it is necessary to consider three different situations. The first scenario pertains to the termination of the Union Contract within the designated activity period. The second scenario encompasses the ineligible expenditure and the subsequent termination of the Union Contract in the post-implementation phase, starting at the conclusion of the activity period. The third scenario involves the transfer of depreciable economic assets (ATİK) purchased without VAT and SCT under the Union Contract to the Grant Beneficiary or the ultimate Grant Beneficiary.

In light of the fact that the five-year statute of limitations for tax assessment, as set forth in Article 114 of TPL, commences on the date when the conditions for exemption and exemption for EU projects cease to exist, it is evident that the Union Contractor, the executor of these projects, and the in the event of the termination of the contract for any reason or partial repurchase during the five-year monitoring period, which commences at the conclusion of the contract period, the Grant Beneficiary, whether a natural or legal person, may be subject to significant tax penalty assessments.

It is therefore crucial to guarantee that the Union Contractor and the Grant Beneficiary possess a comprehensive understanding of the potential implications of the tax exemptions and exceptions outlined in the IPA Framework Agreements, particularly in the context of EU grant support.

Therefore, this study will examine the general nature of the statute of limitations and the application of the statute of limitations for assessment and conditional exemptions and exceptions. In addition, it will investigate the circumstances in which the statute of limitations starts to run in cases of termination of Union Contracts benefiting from conditional tax exemptions and exceptions under the IPA, partial buy-back and transfer of depreciable economic assets to the grant beneficiary/final grant beneficiary.

This study aims to address a gap in the existing literature on this topic by providing valuable insights into the statutes of limitations and taxation principles relevant to Contracting Authorities, Union Contractors, and Grant Beneficiaries operating in this field.

The study is primarily based on an analysis of tax laws and the provisions of the IPA Framework Agreement and its General Communiqué,whichregulate tax exemptions. Additionally, the study draws upon insights from other academic studies to expand the scope of its analysis.