Franchise Royalty Audits and Underreported Sales in Turkey

on July 21, 2026

Introduction

Royalty payments are one of the principal financial elements of a franchise relationship.

A franchisor generally grants the franchisee the right to use its trademark, business model, operational know-how and commercial system in return for an initial fee and continuing payments. Continuing royalties are commonly calculated as a percentage of the franchisee’s gross sales, net sales, turnover or another contractually defined revenue base.

This model creates a structural information imbalance.

The franchisee receives payments directly from customers and records the daily transactions of the outlet. The franchisor normally does not participate in each retail transaction and must rely on sales reports, point-of-sale systems, invoices and other records supplied by the franchisee.

Where the franchisee reports sales accurately, the percentage-based royalty model can align the commercial interests of both parties. As the outlet’s revenue increases, the franchisor receives higher royalties while the franchisee retains the remaining operating income.

Where sales are concealed, incorrectly classified or excluded from the royalty base, the franchisor may receive materially less than the amount contractually due.

Underreporting may occur through deliberate conduct, accounting mistakes, unclear contract drafting or technical inconsistencies between different sales channels.

Common examples include:

Cash sales not entered into the point-of-sale system;
Marketplace sales excluded from turnover reports;
Delivery-platform payments recorded after commission deductions;
Gift-card sales omitted entirely;
Sales processed through an affiliated company;
Complimentary or discounted products recorded incorrectly;
Cancelled orders not reconciled;
Service fees, delivery charges or membership payments excluded without contractual authority;
Returns reported without supporting documentation;
Manual invoices not transferred to the central software.

A royalty audit is the process through which the franchisor or an authorised independent auditor compares the franchisee’s reported turnover with the underlying commercial records.

A properly structured audit may examine commercial books, invoices, electronic records, bank and payment data, point-of-sale reports, marketplace statements, inventory movements and supplier purchases.

However, the franchisor does not have an unlimited right to enter the franchisee’s systems, review unrelated commercial information or process employee and customer data without legal safeguards.

The scope of the audit must be established by the franchise agreement and implemented consistently with Turkish commercial law, civil procedure, confidentiality and personal data protection rules.

This guide explains franchise royalty audits and underreported sales in Turkey, including the definition of the royalty base, record-keeping obligations, contractual audit rights, evidentiary issues, penalties, default interest, termination and dispute resolution.

Legal Nature of a Franchise Royalty

A continuing franchise royalty is a contractual payment made in return for the franchise package and the ongoing rights or services supplied during the relationship.

Depending on the business model, the royalty may compensate the franchisor for:

Trademark use;
Operations manuals;
Know-how;
Continuing training;
Network management;
Quality control;
Software;
Product development;
Central support;
Brand reputation;
System improvements.

Turkish law does not impose one mandatory method for calculating franchise royalties.

The parties may agree on:

A percentage of gross sales;
A percentage of net sales;
A fixed monthly fee;
A minimum guaranteed royalty;
A fixed fee plus a turnover percentage;
Different percentages for physical and online channels;
Tiered royalty rates;
A per-unit or per-customer calculation.

The royalty mechanism is governed primarily by the franchise agreement and the general contractual-performance rules of the Turkish Code of Obligations.

Where the franchisee does not pay the amount properly due, Article 112 provides that the debtor must compensate the loss caused by non-performance or improper performance unless it proves that no fault is attributable to it.

The clarity of the royalty clause is therefore essential.

The franchisor cannot conduct a reliable audit if the agreement does not define which transactions form part of the royalty base.

Defining Gross Sales

The most important drafting issue is the definition of “Gross Sales.”

The contract should define the term independently rather than relying on its ordinary accounting meaning.

A comprehensive definition may include every amount received or receivable from the sale of goods and services through the franchised business, regardless of:

Payment method;
Sales channel;
Location of the customer;
Identity of the entity collecting payment;
Whether the order is fulfilled at the physical outlet;
Whether the sale is recorded by an intermediary platform.

The definition should address physical, digital and indirect transactions expressly.

Potentially included revenue may consist of:

Cash sales;
Credit-card and debit-card sales;
Bank transfers;
Website sales;
Mobile application sales;
Marketplace transactions;
Delivery-platform transactions;
Click-and-collect orders;
Telephone and messaging-app orders;
Catering;
Corporate customer sales;
Membership fees;
Subscription income;
Service charges;
Delivery fees;
Gift cards and vouchers;
Sales through temporary locations;
Sales made by affiliated companies using the franchise system.

The contract should also define permitted deductions.

Common exclusions may include:

VAT and other taxes collected on behalf of public authorities;
Genuine customer refunds;
Properly documented cancellations;
Discounts actually granted to customers;
Tips collected exclusively for employees;
Sale of approved fixed assets;
Insurance proceeds unrelated to sales;
Amounts collected solely as deposits and later returned.

The parties should decide whether marketplace and delivery-platform commissions are deducted before or after the royalty calculation.

If the royalty is calculated on the amount paid by the consumer, a platform commission will normally be an operating expense of the franchisee rather than a reduction of gross sales.

If the parties intend to calculate the royalty on net platform proceeds, this should be stated expressly.

Gift Cards, Vouchers and Loyalty Points

Gift cards create a timing issue.

A royalty clause should determine whether revenue is recognised:

When the card is sold;
When the card is redeemed;
When the card expires unused;
Through a combination of those events.

The same payment should not be included twice.

Where one franchisee sells the gift card and another franchisee redeems it, the central system should allocate the sales and fulfilment value properly.

Loyalty points also require clear treatment.

The agreement should explain whether points are treated as:

A customer discount;
A centrally funded promotion;
A franchisee-funded promotion;
A form of payment;
A deferred marketing cost.

Ambiguity concerning gift cards, vouchers and loyalty programmes can create substantial differences between reported turnover and cash received.

Discounts, Refunds and Cancelled Transactions

The franchisee should not be required to pay royalty on a sale that was genuinely cancelled and fully refunded.

However, the audit clause should prevent artificial or unsupported deductions.

The franchisee may be required to retain:

Original sales receipt;
Refund receipt;
Customer request;
Payment reversal record;
Inventory return record;
Manager approval;
Platform cancellation report.

Unusually high refund levels may justify further review.

The audit should distinguish among:

Genuine customer returns;
Duplicate transactions;
Chargebacks;
Fraudulent payments;
Promotional discounts;
Employee discounts;
Unrecorded cash refunds.

A general spreadsheet prepared after the audit request should not automatically be treated as sufficient proof of every deduction.

Related-Party and Off-System Transactions

Underreporting may occur where business is redirected through another entity.

For example, the franchisee may:

Invoice corporate customers through a related company;
Process online sales through a shareholder’s business;
Use a second point-of-sale terminal;
Collect delivery income through a separate bank account;
Sell franchised products under another trade name;
Provide franchised services through an affiliated company.

The royalty clause should apply to all transactions arising from use of the franchise system, brand, premises, employees, know-how or customer channels.

The agreement should not allow royalties to be avoided merely by changing the invoicing entity.

At the same time, the franchisor should not claim royalties on unrelated activities carried out lawfully by the franchisee outside the franchised business.

The contract should identify:

Permitted ancillary businesses;
Shared premises;
Related-party transactions;
Mixed invoices;
Allocation methods;
Separate accounting requirements.

The Franchisee’s Commercial Record-Keeping Duties

Franchise audit duties exist alongside the franchisee’s statutory duties as a merchant.

Article 64 of the Turkish Commercial Code requires every merchant to keep commercial books in a manner that clearly shows commercial transactions and financial position. The books must allow a third-party expert to understand the activities and financial condition of the business within a reasonable period, and the development of business activities must be traceable from the records.

The same provision requires the merchant to preserve copies of documents connected with the business in written, visual or electronic form. Commercial records must be complete, accurate, timely and orderly, and electronic records must remain accessible and readable during the retention period.

These statutory requirements support the operation of a franchise audit.

A franchisee should not maintain one set of information for tax and commercial purposes and a separate incomplete system for royalty reporting.

The audit clause may impose more detailed contractual reporting duties, but it should remain compatible with the franchisee’s statutory accounting structure.

Ten-Year Retention of Commercial Records

Article 82 of the Turkish Commercial Code requires merchants to retain commercial books, inventories, financial statements, commercial correspondence and supporting accounting documents in an organised manner.

The statutory retention period for the listed books and documents is ten years, beginning from the end of the relevant calendar year. The law also permits qualifying records to be stored electronically, provided that they remain accessible and can be made readable within an appropriate period.

A franchise agreement should establish a contractual retention period consistent with these obligations.

The records relevant to royalties may include:

Commercial books;
Sales invoices;
E-invoices;
E-archive invoices;
Cash-register records;
POS reports;
Bank records;
Marketplace statements;
Delivery-platform reports;
Supplier invoices;
Inventory counts;
Refund records;
Customer contracts;
Monthly royalty reports;
Correspondence concerning corrections.

The end of the franchise relationship should not permit immediate destruction of royalty records.

The franchisor may need to conduct a final audit after termination, while the franchisee may need the same records to defend itself against an audit claim.

What Should a Royalty Audit Examine?

A royalty audit should not rely on one source of data.

The most reliable approach is to reconcile several independent systems.

Point-of-Sale Records

The point-of-sale system may show:

Transaction date and time;
Product or service;
Quantity;
Price;
Discount;
Tax;
Payment method;
Refund;
User account;
Outlet;
Order channel.

Auditors should examine manual price changes, deleted orders, open checks, voided transactions and administrator activity.

Cash-Register and Daily Closing Reports

Daily closing or Z reports may be compared with:

Monthly royalty reports;
Accounting records;
Bank deposits;
Inventory usage;
Tax declarations.

Repeated differences require explanation.

Invoices and Electronic Documents

Invoices are important evidence of sales, but not every consumer transaction may be represented through an individual conventional invoice.

The audit should examine all electronic and physical sales documents applicable to the business model.

Credit-Card and Bank Records

Payment records can reveal sales not included in the central reporting system.

The audit may compare:

Credit-card settlement reports;
Bank deposits;
Virtual POS statements;
Payment institution reports;
Marketplace transfers;
Delivery-platform transfers.

The franchisor should access only the business records reasonably necessary for the royalty review and should not demand unrelated personal banking information.

Marketplace and Delivery Reports

Third-party platforms may deduct:

Commission;
Delivery cost;
Campaign contribution;
Refund;
Advertising expenditure;
Payment-service fee.

The audit should distinguish gross consumer sales from the net amount transferred to the franchisee.

Inventory and Supplier Purchases

Inventory analysis may reveal inconsistencies between product usage and reported sales.

For example, a restaurant may report sales significantly below the number of product units suggested by its ingredient purchases.

Inventory-based estimates should be used cautiously.

Differences may result from:

Waste;
Spoilage;
Employee meals;
Samples;
Theft;
Measurement differences;
Opening or closing inventory;
Incorrect recipes.

The agreement should establish reasonable inventory and waste-recording procedures.

Customer and Booking Systems

Service franchises may need to reconcile:

Appointments;
Memberships;
Course registrations;
Hotel reservations;
Treatment packages;
Service completions;
Prepaid balances;
Customer invoices.

The relevant audit sources depend on the sector.

Contractual Audit Rights

The franchisor’s audit authority should be stated expressly.

A well-drafted clause should regulate:

Who may conduct the audit;
Notice period;
Audit frequency;
Records covered;
Audit location;
Digital access;
Relevant period;
Confidentiality;
Business disruption;
Cost allocation;
Consequences of discrepancies.

An unrestricted right to inspect the franchisee “at any time and for any purpose” creates unnecessary uncertainty.

The clause should distinguish between:

Routine audits;
Targeted audits based on reasonable suspicion;
Final audits after termination;
Emergency preservation of records;
Regulatory or tax investigations.

A routine audit might require reasonable advance notice and take place during normal business hours.

A suspected fraud audit may justify shorter notice where advance warning could permit records to be altered or destroyed.

Frequency of Audits

The agreement may permit:

One routine audit per year;
Additional audits where a material discrepancy is discovered;
Additional audits where reporting is repeatedly late;
A final audit following termination;
Continuous automated system access.

The franchisee should not face repeated disruptive audits without a legitimate reason.

Conversely, the franchisor should not be limited to one audit where clear evidence of continued underreporting appears later.

A balanced clause may state that routine audits are limited but that the limit does not apply in cases of:

Reasonable suspicion;
Material discrepancy;
Fraud;
Record destruction;
Regulatory request;
Repeated reporting breach.

Independent Auditors and Confidentiality

The franchisor may conduct the audit through its own finance department or an independent accountant.

The agreement should require the auditor to preserve the confidentiality of information unrelated to the royalty calculation.

The franchisee may operate other businesses or possess commercially sensitive information concerning:

Supplier prices;
Employee remuneration;
Customer contracts;
Financing;
Trade secrets;
Other brands;
Tax strategy.

The franchisor should receive the information reasonably necessary to verify the royalty, not unrestricted access to every aspect of the franchisee’s business.

The auditor’s report may provide:

Period reviewed;
Records examined;
Methodology;
Reported sales;
Corrected sales;
Discrepancy;
Additional royalty;
Interest;
Audit costs;
Reservations and limitations.

The franchisee should receive an opportunity to review and respond before a final contractual default is declared.

Automated Access to POS and Cloud Systems

Many franchise agreements require the franchisee to use central software that allows the franchisor to view sales in real time.

This may reduce the need for traditional periodic audits, but it does not eliminate all disputes.

Questions may still arise concerning:

Off-system sales;
Incorrect channel mapping;
Deleted transactions;
Refund classification;
Manual invoices;
System outages;
Integration errors;
Platform deductions;
Data ownership.

The agreement should identify whether the central system is:

The definitive royalty record;
One source of evidence;
Subject to reconciliation;
Controlled by the franchisor;
Maintained by a third-party provider.

Where the franchisor controls the software, it should preserve system logs and correction history.

It should not be permitted to rely on a system discrepancy while preventing the franchisee from accessing the same underlying records.

Personal Data Protection During Audits

Royalty records may contain personal data relating to:

Customers;
Employees;
Delivery personnel;
Suppliers;
Platform users;
Franchisee representatives.

An audit right does not eliminate the requirements of Personal Data Protection Law No. 6698.

The audit should be designed to use aggregated or minimised information where customer-level identification is unnecessary.

The parties should determine:

Whether the franchisor acts as an independent data controller;
Whether it acts as a processor;
Which data categories are accessed;
The legal basis;
Retention;
Access controls;
International transfers;
Deletion after the audit.

The Personal Data Protection Authority explains that data controllers must prevent unlawful processing and access, preserve personal data and adopt appropriate technical and administrative measures. Where data are processed on behalf of a controller by another party, security responsibility also affects that processor. Controllers must also conduct or commission the audits necessary to ensure compliance.

The Authority’s security guidance recommends role-based access, regular user-activity logging, prompt incident reporting and secure preservation of evidence relating to improper system activity.

A royalty auditor should therefore not receive permanent unrestricted access to identifiable customer data where aggregate turnover records are sufficient.

Audit Logs and Record Integrity

Digital evidence is only reliable where its integrity can be tested.

The franchise system should preserve logs showing:

User identity;
Login time;
Transaction creation;
Modification;
Cancellation;
Refund;
Export;
Administrator access;
System error;
Integration failure.

Audit logs can help determine whether a discrepancy resulted from deliberate manipulation or a technical problem.

The contract should prohibit:

Deleting audit logs;
Sharing user credentials;
Using unauthorised software;
Operating a parallel cash register;
Altering transaction dates;
Backdating refunds;
Disabling integrations.

The parties should also establish a procedure for system outages.

A franchisee should not be accused of concealment merely because central software failed temporarily, provided that the franchisee recorded the transactions through an approved alternative process and uploaded them after restoration.

What Constitutes Underreported Sales?

Underreported sales occur where the franchisee reports a royalty base lower than the amount required under the agreement.

The discrepancy may be:

Intentional;
Negligent;
Technical;
Interpretative;
Temporary.

Not every difference constitutes fraud.

For example, the parties may disagree about whether delivery fees, platform commissions or gift cards fall within gross sales.

A well-drafted agreement should distinguish:

Reporting Error

A good-faith accounting or technical mistake corrected promptly.

Material Underreporting

A discrepancy exceeding a defined percentage or monetary threshold.

Repeated Underreporting

Several discrepancies within a specified period, even if each is below the materiality threshold.

Intentional Concealment

Deliberate diversion, deletion or misclassification of sales.

Different consequences may apply to each category.

Audit Cost Allocation

The franchisor may bear the cost of routine audits as an ordinary network-management expense.

The agreement may shift the cost to the franchisee where the audit discovers a material underpayment.

A common mechanism provides that the franchisee pays reasonable audit costs where the discrepancy exceeds:

A stated percentage of reported sales;
A stated percentage of royalties;
A specified monetary amount;
Any amount where intentional concealment is established.

The clause should define “audit costs.”

These may include:

Accountant fees;
Travel;
Data extraction;
Technical examination;
Inventory count;
Translation;
Expert assistance.

The franchisor should not use audit costs as an unlimited penalty.

The costs should be reasonable, documented and connected with the audit.

Payment of Additional Royalties

Where an audit identifies underreported sales, the franchisee may be required to pay:

Additional royalty;
Advertising contribution calculated on the omitted sales;
Technology or other turnover-based fees;
Default interest;
Audit costs;
Contractual penalty;
Proven damages.

The additional royalty is not a penalty. It is the unpaid principal contractual debt.

The due date should be determined under the agreement.

If the royalty had a fixed contractual payment date, the franchisee may have entered default automatically when that date passed.

Under Article 117 of the Turkish Code of Obligations, the debtor generally enters default following a creditor’s notice, while notice is unnecessary where the performance date was determined jointly or through a contractually authorised notification.

The Turkish Commercial Code also states that, unless otherwise agreed, interest on a commercial debt begins when the agreed maturity expires or, where there is no fixed maturity, from the date of notice.

The audit clause should state whether interest runs:

From the original royalty due date;
From the audit invoice date;
From formal notice;
From the end of a dispute period.

Default Interest

The agreement may establish a contractual default-interest rate, subject to applicable mandatory limitations.

Where no valid contractual rate applies, the relevant statutory commercial-interest rules should be considered.

The franchisor should calculate interest separately for each royalty period rather than applying one arbitrary date to the entire audit difference.

The franchisee should receive a schedule showing:

Corrected monthly sales;
Applicable royalty percentage;
Additional royalty;
Original due date;
Interest period;
Payments or credits.

Transparency improves the possibility of settlement and reduces disputes over arithmetic.

Contractual Penalties for Underreporting

A franchise agreement may impose a penalty where sales are underreported.

Possible formulas include:

Fixed amount;
Multiple of unpaid royalty;
Percentage of omitted sales;
Increasing amount for repeated breaches;
Penalty applicable only to intentional concealment.

Articles 179 to 182 of the Turkish Code of Obligations regulate contractual penalties, including their relationship with performance and damages. Where the penalty relates to non-performance or improper performance, the legal result depends on the wording and classification of the clause.

Franchisees generally operate as merchants.

Article 22 of the Turkish Commercial Code provides that a merchant debtor cannot request reduction of a contractual penalty merely on the ground that the agreed amount is excessive.

This makes advance drafting particularly important.

The contract should prevent one reporting discrepancy from triggering several overlapping penalties without a clear basis.

A balanced provision may distinguish between:

Accidental difference;
Material negligence;
Repeated underreporting;
Deliberate concealment.

Can the Franchisor Claim Both the Royalty and the Penalty?

The unpaid royalty and a penalty for dishonest reporting protect different interests.

The royalty represents the payment that should have been made.

The penalty may protect the franchisor against the additional risk, investigation cost and breach of trust caused by concealment.

The agreement may therefore permit the franchisor to claim:

Unpaid royalty;
Interest;
Reasonable audit costs;
A separate penalty.

However, the wording should be clear.

Where the penalty is drafted as a substitute for the principal debt rather than an additional remedy, the legal consequences may differ.

The agreement should also address whether damages exceeding the penalty may be claimed and how duplicate recovery will be prevented.

Termination for Underreported Sales

Not every audit difference should justify termination.

Immediate termination may be commercially and legally more defensible where the franchisee:

Operated a parallel sales system;
Deleted transactions deliberately;
Used a related company to conceal turnover;
Falsified documents;
Repeated underreporting after formal warnings;
Refused to provide records;
Destroyed evidence;
Interfered with audit access.

A small accounting error corrected promptly should ordinarily be treated differently.

The agreement should define whether underreporting becomes a material breach when:

The discrepancy exceeds a percentage;
The discrepancy exceeds a monetary amount;
It occurs repeatedly;
It is intentional;
It continues after a cure notice.

The franchisor should preserve evidence before terminating.

A termination based only on an unverified preliminary audit may expose the franchisor to a wrongful-termination claim.

Refusal to Permit an Audit

The agreement should state the consequences of refusing or obstructing an authorised audit.

Obstruction may include:

Denying access;
Delaying repeatedly;
Providing incomplete extracts;
Deleting records;
Changing passwords;
Preventing the auditor from copying relevant information;
Refusing to identify related accounts.

The franchisor may respond through:

Formal notice;
Cure period;
Interim relief;
Contractual penalty;
Suspension of certain rights;
Termination;
Court proceedings for production of documents.

The response should remain proportionate.

The franchisee may have a legitimate reason to object where the requested audit is outside the contractual scope, excessively broad, conducted by a competitor or inconsistent with data protection obligations.

Commercial Books as Evidence

A royalty dispute will often require examination of the franchisee’s commercial books.

Article 83 of the Turkish Commercial Code permits the court in a commercial dispute to order the production of the parties’ commercial books either on its own initiative or upon a party’s request.

Where the books are produced, Article 84 provides that the parts relevant to the dispute are examined with the participation of the parties and copies may be taken where necessary.

Article 222 of the Code of Civil Procedure regulates when commercial books may have evidentiary value.

The court may order production on its own initiative or upon request. For the books to be accepted as evidence, they must be kept completely and properly, the required opening and closing certifications must have been completed and the records must confirm one another.

Properly maintained books do not automatically prove every royalty calculation.

The court may compare them with:

The opposing party’s books;
Invoices;
POS reports;
Bank records;
Platform statements;
Expert analysis;
Contractual definitions.

Failure to Produce Documents

Articles 219 and 220 of the Code of Civil Procedure require parties to produce documents in their possession on which they or the opposing party rely.

Electronic documents may be submitted through printouts and, when requested, in an electronic format suitable for examination.

Where the court determines that a requested document is necessary and is held by the opposing party, it may grant a definitive period for production.

If the party fails to produce it without an acceptable excuse, the court may, depending on the circumstances, accept the other party’s statement concerning the document’s content.

A franchisee should therefore not assume that refusing contractual audit access will prevent the records from being examined in litigation.

Equally, the franchisor should identify requested documents precisely rather than demanding every record of the business without demonstrating relevance.

Expert Examination

Royalty disputes commonly require an expert accountant or financial expert.

The expert may be asked to:

Interpret the royalty calculation defined by the court;
Reconcile reporting systems;
Compare commercial books;
Examine electronic data;
Calculate additional royalties;
Calculate interest;
Identify missing periods;
Assess inventory inconsistencies;
Review audit methodology.

The legal interpretation of the agreement belongs to the court or arbitral tribunal, not the financial expert.

The parties should therefore present clear arguments concerning:

Meaning of gross sales;
Permitted deductions;
Treatment of VAT;
Treatment of commissions;
Gift-card timing;
Related-party sales;
Audit-cost clauses;
Penalties.

An expert should not be asked to decide abstractly what the contract legally means without judicial direction.

Preservation of Evidence and Interim Measures

Where there is a genuine risk that electronic records will be altered or destroyed, the franchisor may consider procedural measures to preserve evidence.

Depending on the circumstances, this may involve:

Notarial determination;
Court-ordered evidence determination;
Expert imaging of systems;
Preservation notices;
Interim measures;
Requests to third-party platforms;
Securing logs and backups.

The requested measure should be specific and proportionate.

A broad request to seize every computer at the franchise outlet may disrupt the business and expose unrelated personal data.

The objective should be to preserve the records necessary to determine the royalty dispute.

The franchisee should also preserve evidence proving system errors, authorised deductions and refunds.

Limitation Periods

The applicable limitation period should be determined according to the legal character of the claim and the specific agreement.

Each periodic royalty instalment may have its own due date and limitation analysis.

The parties should not delay the audit until records, employees or digital systems are no longer available.

The franchise agreement may establish shorter contractual audit-notification periods, but contractual wording cannot necessarily change every statutory limitation rule applicable to commercial claims.

A final audit should normally be conducted promptly after:

Expiry;
Termination;
Transfer;
Closure of an outlet;
Change of control.

Mandatory Commercial Mediation

A dispute between franchisor and franchisee concerning unpaid royalties, interest, penalties or damages will generally be commercial where it relates to both parties’ commercial enterprises.

Turkish Commercial Code Article 5/A requires an application to mediation before filing commercial lawsuits whose subject is payment of a sum of money arising from receivable or compensation claims.

A royalty claimant should therefore assess the mediation requirement before commencing court proceedings.

The mediation application should identify:

Audit period;
Reported sales;
Corrected sales;
Royalty percentage;
Additional royalty;
Interest;
Audit costs;
Penalty;
Other claims.

A detailed audit schedule can make settlement more likely.

The parties may agree on:

Payment plan;
Partial waiver of penalties;
Independent re-audit;
Revised reporting system;
Additional security;
Compliance monitoring;
Continuation or termination of the franchise.

Arbitration Clauses

International and major domestic franchise agreements may provide for arbitration.

The arbitration clause should cover:

Royalty disputes;
Audit-access disputes;
Document production;
Interim relief;
Confidentiality;
Expert determination.

The parties should decide whether accounting disputes must first be submitted to an independent expert.

An expert-determination clause may be appropriate for arithmetic issues but should not deprive the tribunal of authority over legal questions, fraud allegations, termination and damages.

Drafting Recommendations for Franchisors

A franchisor should ensure that the agreement:

Defines gross sales comprehensively;
Identifies permitted deductions;
Covers every physical and digital channel;
Regulates gift cards and loyalty points;
Covers related-party transactions;
Requires standardised reporting;
Gives access to relevant POS and platform data;
Requires retention of supporting records;
Permits routine and cause-based audits;
Protects confidential and personal data;
Requires preservation of system logs;
Defines material underreporting;
Regulates audit-cost allocation;
Provides interest and penalty rules;
Distinguishes error from deliberate concealment;
Includes proportionate termination rights;
Preserves post-termination audit authority;
Coordinates audit rights with commercial books and litigation.

The franchisor should also use data analytics to identify anomalies consistently rather than targeting franchisees arbitrarily.

Drafting Recommendations for Franchisees

A franchisee should negotiate:

A precise royalty base;
Clear exclusions;
Reasonable notice;
Limits on routine audit frequency;
Independent auditors;
Confidentiality;
Restricted access to unrelated information;
Data-minimisation requirements;
Reasonable cost-shifting thresholds;
Cure rights for good-faith errors;
Caps on penalties;
A dispute process before termination;
Access to the audit report;
The right to submit corrections and explanations.

The franchisee should maintain one consistent and auditable reporting structure.

Managers and employees should be trained not to:

Process off-system sales;
Share user accounts;
Delete transactions improperly;
Use personal bank accounts;
Delay platform reconciliation;
Make unsupported refunds.

Franchise Royalty Audit Checklist

Before conducting or responding to a royalty audit, the parties should confirm that:

Gross sales are defined.
All sales channels are included or excluded expressly.
VAT treatment is clear.
Refunds and discounts are documented.
Platform commissions are treated consistently.
Delivery charges are regulated.
Gift-card recognition is defined.
Related-party transactions are covered.
POS records are complete.
Bank and payment reports are available.
Marketplace statements are preserved.
Inventory movements are recorded.
Commercial books are properly maintained.
Records are retained for the required period.
Audit notice complies with the contract.
Auditor confidentiality is documented.
Personal data access is minimised.
System access is role-based.
Audit logs are preserved.
Discrepancy methodology is explained.
The franchisee can respond to preliminary findings.
Additional royalty is calculated monthly.
Interest dates are shown.
Audit costs are documented.
Contractual penalties do not duplicate the same loss.
Termination is reserved for material or intentional breaches.
Evidence is preserved lawfully.
Mediation or arbitration requirements are reviewed.

Conclusion

Franchise royalty audits and underreported sales in Turkey are primarily governed by the franchise agreement, but the audit process operates within the broader framework of Turkish commercial, contract, procedural and data protection law.

The starting point is a precise definition of gross sales.

The agreement should regulate cash, card, digital, marketplace, delivery, corporate, subscription and related-party transactions. It should also define taxes, refunds, cancellations, discounts, commissions, gift cards and other deductions.

Without a clear royalty base, an audit may reveal numerical differences without resolving whether the franchisee has breached the agreement.

The franchisee’s contractual reporting duties are reinforced by its statutory duties as a merchant.

Commercial books and records must show business transactions and financial position clearly. Records and supporting documents are generally subject to a ten-year retention obligation.

A reliable audit should reconcile several independent sources, including point-of-sale records, commercial books, invoices, payment statements, platform reports, inventory and customer systems.

The franchisor’s audit right should be broad enough to identify concealment but limited to information relevant to the franchise relationship.

Customer and employee information must remain protected. Access should be role-based, logged, confidential and limited to the minimum information necessary.

Underreporting should not be treated as one uniform category.

A technical or good-faith accounting error should be distinguished from repeated, material or deliberate concealment.

The ordinary financial consequence is payment of the additional royalty, related turnover-based contributions and applicable interest. Audit costs and contractual penalties may also be claimed where the agreement provides for them.

A merchant franchisee should not assume that an excessive contractual penalty will be reduced automatically, because Article 22 of the Turkish Commercial Code restricts such reduction claims.

Termination should generally be reserved for material or intentional conduct, such as parallel sales systems, falsified records, deliberate deletion, repeated concealment or refusal to permit a lawful audit.

In litigation, commercial books may be ordered for production and may have evidentiary value where they satisfy statutory requirements. A party that refuses to produce necessary documents without an acceptable excuse may face adverse evidentiary consequences.

Claims for unpaid royalties, interest, penalties and damages will commonly be commercial monetary claims requiring pre-litigation mediation before proceedings in Turkish courts.

The strongest franchise royalty system is not based only on punishment after underreporting occurs.

It combines precise drafting, integrated technology, consistent reporting, controlled access, periodic reconciliation and a fair process for correcting genuine mistakes.

Frequently Asked Questions

What is a franchise royalty audit?

It is an examination of the franchisee’s sales and financial records to determine whether royalties and other turnover-based fees were reported and paid correctly.

Does Turkish law determine the franchise royalty percentage?

No. The percentage or calculation method is primarily determined by the franchise agreement.

What should gross sales include?

The agreement should address physical sales, online orders, delivery platforms, marketplaces, corporate customers, subscriptions, gift cards and related-party transactions.

Is VAT normally included in the royalty base?

This depends on the contract. VAT collected for the public authority is commonly excluded, but the wording should be express.

Are delivery-platform commissions deducted before calculating royalties?

Only where the agreement permits this. Otherwise, the gross consumer sale may remain the relevant basis.

Can a franchisor inspect the franchisee’s bank accounts?

Only to the extent contractually authorised and reasonably necessary. Unrelated personal or commercial information should not be accessed.

Can the franchisor access customer-level data?

Only where a lawful basis exists and the information is necessary. Aggregated sales information should be preferred where individual identity is unnecessary.

How long must commercial records be retained?

The Turkish Commercial Code generally requires the listed commercial books and supporting documents to be retained for ten years.

Can marketplace reports be used in an audit?

Yes. Marketplace and delivery-platform statements may be compared with reported turnover and payment records.

What happens if the POS system fails?

The franchisee should use the approved alternative procedure, preserve the transactions and upload or reconcile them once the system is restored.

Is every reporting difference fraud?

No. A difference may result from an accounting error, technical failure or contractual interpretation dispute.

Can the franchisee be charged for the audit?

Yes, where the contract provides for cost shifting, commonly after a material discrepancy is discovered.

What is a material discrepancy?

The agreement should define it through a percentage, monetary amount, repeated conduct or intentional concealment.

Can the franchisor claim the unpaid royalty and a penalty?

Potentially yes, where the agreement clearly provides for separate remedies and the same loss is not recovered twice.

Does interest run from the audit date?

Not necessarily. It may run from each original royalty due date where the debt had a fixed maturity.

Can underreporting justify immediate termination?

Deliberate or repeated concealment may justify immediate termination where the contract permits it. Minor correctable errors should be treated differently.

What if the franchisee refuses the audit?

The franchisor may issue a formal notice, seek document production, claim contractual remedies or terminate where the refusal constitutes a material breach.

Can commercial books prove the royalty amount?

They may be important evidence where properly maintained, but they will usually be examined with invoices, POS reports, platform statements and other records.

What happens if a party refuses to produce necessary documents in court?

The court may, under the applicable conditions, accept the opposing party’s statement concerning the document’s content.

Is an expert accountant required?

Royalty disputes frequently require accounting or financial expertise, particularly where several systems and periods must be reconciled.

Can the franchisor conduct a surprise audit?

This depends on the contract. Short-notice audits may be justified where there is reasonable suspicion of fraud or record destruction.

Should the franchisee receive the audit report?

A fair process should generally allow the franchisee to review the findings and submit explanations or corrections.

Can the audit continue after termination?

Yes, where the agreement preserves a post-termination audit right concerning periods during which the franchise was operating.

Is mediation mandatory?

Commercial court claims for payment of royalties, interest, penalties or damages generally require pre-litigation mediation under Turkish Commercial Code Article 5/A.

Can a royalty dispute be resolved through arbitration?

Yes, where the franchise agreement contains a valid arbitration clause covering the dispute.

This article provides general legal information as of July 2026 and does not constitute legal, accounting, tax or audit advice. Royalty disputes should be assessed according to the franchise agreement, reporting systems, commercial records, contractual audit rights and the facts of the specific franchise relationship.

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