TL 3.76 billion tax fine jolts Doğan

The Finance Ministry inflicted a punishing fine of TL 3.76 billion ($2.53 billion) on the company for evading tax regarding its accounts for a time period covering 2005, 2006 and 2007.

The harsh blow of the record fine was imposed due to the findings of investigations by inspectors that Doğan companies had concealed profits from the share transfers among the partners and had avoided paying corporate tax and value-added tax (VAT) on the revenues from transfers.

The investigation reports also asserted that the fines didn't include late payment penalties on these debts, which will later be calculated and added to the total amount. The calculation of the late payment penalty will start from 2005 and will cover the time period until the projected time of the clearance of the debts. This is estimated to create a tremendous cost to the company considering that the rate of default penalty is 2.5 percent monthly for 2009 alone.

Doğan Holding will be able to negotiate with Finance Ministry officials to ask for a discount on the amount of the fine as the door of conciliation is open. The company has 30 days to open a lawsuit for the cancellation of the fine and for initiating talks for resolving the tax dispute.

Doğan Yayın's initial reaction was to blame the Finance Ministry officials of acting indiscriminately against the group and of assessing the laws incorrectly. The company sent a written statement yesterday to the Public Disclosure Platform to announce that the Finance Ministry Revenues Controllers had notified the results of 15 Tax Investigation Reports -- bearing the dates of Aug. 10 and Aug. 25 on their covers -- on Monday evening to Doğan TV Holding, D Yapım Reklamcılık ve Dağıtım, Doğan Prodüksiyon Hizmetleri and Alp Görsel İletişim Hizmetleri, which are all Doğan Yayın Holding companies.

A view of the Doğan media center in İstanbul, including the headquarters of the group's leading TV stations and papers. In yet another tax irregularity case, the Finance Ministry inflicted a fine of TL 3.76 billion ($2.53 billion) on Doğan Group subsidiary Doğan Yayın Holding that runs newspapers such as Hürriyet and Milliyet, numerous magazines and TV channels. Media mogul slapped with successive tax fines This is not the first case the Doğan Group is facing for its alleged misconduct over taxes. Doğan Yayın was ordered to pay TL 826 million in February for tax irregularities connected with the sale of a 25 percent stake in its television unit to German publisher Axel Springer. It is appealing that ruling. Just last week, having detected irregularities in the company's tax operations in the years 2004, 2005 and 2006 following detailed investigations, the Finance Ministry levied a TL 24.74 million fine on media mogul Doğan Media Group's Hürriyet Gazetecilik. The Capital Markets Board (SPK) last year accused four executives of causing losses at Hürriyet Gazetecilik and Doğan Gazetecilik by purchasing paper and publishing supplies from offshore companies instead of direct producers and took the case to court. Petrol Ofisi also sustained a blow of a TL 985 million tax fine in 2007 but paid only TL 275.3 million after reconciling with the Finance Ministry. The government has denied the fines are politically motivated and that it is singling out Doğan. "The massive size of the potential liability and the uncertainty attached to the situation is likely to weigh on sentiment on group shares," wrote Sezgi Bizce, an analyst at Finans Invest who downgraded her rating of Doğan Yayın to "underperform" following news of the fine. The Halkalı Tax Office had already placed a lien on Doğan TV in late July, issuing an injunction on a 53.9 percent share of the firm as financial assurance against the TL 826 million fine on Doğan Yayın Holding. The finance  ministry  will also knock on the doors of the holding to place a lien on their assets. The new fine is about the equivalent of four-fifths of Doğan Yayın and Doğan Holding's combined market value of $3.08 billion. Doğan Holding shares in İMKB nosedive drastically following hefty tax fine As of 3:15 p.m., shares of Doğan Yayın and its parent Doğan Holding both tumbled 20.1 percent to TL 1.31 and 20 percent to TL 1.08, respectively, amid concerns the group might struggle to raise the collateral it would need to support its appeal. The main share index was off 0.36 percent. Hürriyet Gazetecilik shares were down 20.89 percent, Doğan Burda shares dropped 17.5 percent, Doğan Gazetecilik shares plummeted 15.1 percent, Milpa shares fell by 15.8 percent, Çelik Halat by 8.58 percent, Ditaş Doğan by 6.25 percent and Ray Sigorta by 1.88 percent.

The statement summarized the investigation reports saying that the Finance Ministry had imposed a round-figure fine of TL 3.76 billion, consisting of TL 1.88 billion in tax arrears, another TL 1.88 billion for tax evasion, TL 60,000 for irregularities and TL 282,173 for special irregularities.

Doğan Yayın Holding accused the Finance Ministry's controllers in its statement of using their personal evaluations while conducting the investigations rather than “generally accepted approaches.” It also claimed that the controllers proposed conditions that are not included in the Corporate Tax Law while performing the investigations. The written statement, carrying the signatures of the Holding's board member Soner Gedik and coordinator Murat Doğu, argued that all the transactions and share transfers were completely in accordance with the current laws and that the tax fine was manifestly wrong. The investigation reports found that a number of share transfer transactions involving Doğan Yayın Holding had fallen foul of Articles 19 and 20 of the Corporate Tax Law since the control in the management of the companies hadn't changed as a result of these transfers.

However, revenues controllers deemed in their reports that the share transfer transactions had to be conducted on their equivalence value rather than the book value. The company, on the other hand, insists that “the transactions in question were ordinary sales of shares” and they needed to be done on the book value. So, the ministry bureaucrats took the difference between the equivalence value and the book value of the shares and levied tax fines on this difference.

The company said Articles 19 and 20 of the law don't include any rule that banishes the transfer of shares, which doesn't cause a change in the administration, from benefiting from tax exemptions. “Considering the generally accepted and built-in applications, this is the first time we have encountered such an exercise of calculating VAT for certificated stocks,” the company said in its statement.

The fine was the second major fine this year for Doğan Yayın, which announced in the statement that it would pursue all legal means, including negotiations, to resolve the tax dispute. "It's inevitable this will have a negative effect on our country, which has a long-standing corporate culture and developed capital markets ... especially during a period when it needs foreign financing and resources," it said in a statement.