A company acquisition may appear complete when the share transfer is registered, the purchase price is paid and the buyer takes control of management.

Then, several months later, a tax inspection notice arrives.

The tax authority claims that the company:

• underreported corporate tax before the acquisition;
• deducted fictitious invoices;
• failed to declare VAT correctly;
• incorrectly applied withholding tax;
• has unpaid social security or public liabilities;
• recorded transactions improperly;
• participated in transactions involving false or misleading invoices; or
• faces tax penalties and default interest relating entirely to the period when the seller controlled the business.

The buyer may immediately ask:

“I did not create this tax liability. Can I recover it from the seller?”

Under Turkish law, the answer can be yes, but it is not automatic.

The legal result depends primarily on:

1. whether the transaction was a share acquisition or an asset/business acquisition;
2. whether the target is a limited liability company or another corporate form;
3. what the Share Purchase Agreement (“SPA”) says about historical tax liabilities;
4. whether the seller gave tax representations and warranties;
5. whether there is a specific tax indemnity;
6. whether the liability was disclosed during due diligence;
7. whether the seller knew of and concealed the tax risk; and
8. whether the buyer can prove the amount of loss caused by the undisclosed liability.

The most important practical principle is this:

The tax authority’s right to collect and the buyer’s right to recover against the seller are two different legal relationships.

A contract between buyer and seller may allocate the economic burden of a historical tax liability to the seller.

But that contract does not necessarily prevent the tax authority from pursuing the company—or, in certain cases, the new shareholder.

1. Start With the Transaction Structure: Share Deal or Asset Deal?

The first question should always be:

What exactly did the buyer purchase?

There is a major difference between:

Share Deal

The buyer purchases shares in an existing company.

The company itself remains legally the same entity.

Its:

• tax identification;
• assets;
• liabilities;
• contracts;
• employees;
• receivables;
• debts; and
• historical tax exposure

remain with that company.

Only the identity of the shareholder changes.

Asset or Business Deal

The buyer acquires certain assets, a business or an enterprise rather than the shares of the company itself.

Different rules concerning transfer of liabilities may apply.

Article 202 of the Turkish Code of Obligations provides that a person who takes over a business or pool of assets together with its assets and liabilities becomes responsible toward creditors for the debts associated with that transferred business following the statutory notification or announcement mechanism. The former debtor may also remain jointly liable for a statutory period.

The distinction must therefore be made before analysing seller liability.

2. In a Share Deal, the Tax Debt Remains a Debt of the Company

Suppose Buyer acquires 100% of Target Ltd. on 1 July 2026.

In 2027, the tax administration concludes that Target Ltd. underpaid corporate tax in 2024.

The company is still the same taxpayer.

The fact that:

• the shareholder changed;
• management changed; or
• the buyer knew nothing about the underlying tax problem

does not normally erase the company’s liability toward the tax authority.

Therefore, from the tax administration’s perspective:

the historical tax debt remains attached to the target company.

The buyer’s problem is economic.

The buyer purchased a company believing that its net value was, for example, TRY 100 million.

If a previously undisclosed TRY 20 million tax liability subsequently appears, the business may actually have been worth substantially less.

The buyer must then ask whether the economic loss can be shifted back to the seller.

3. Limited Liability Companies Create an Additional Personal Risk

The situation becomes particularly serious when the target is a Turkish limited liability company.

Article 35 of Law No. 6183 on the Procedure for Collection of Public Receivables contains a specific shareholder-liability regime.

Where a public receivable cannot be collected or is understood to be uncollectible from a limited liability company, shareholders may be held directly liable in proportion to their shareholding.

Even more importantly for acquisitions, Article 35 provides that where a shareholder transfers his or her share, the transferor and transferee may be held jointly responsible for public receivables relating to the period before the transfer, within the statutory framework.

This means that purchasing a Turkish limited company with historic public debts may expose the buyer to substantially more than a decline in the value of the investment.

The buyer may face statutory collection risk as the new shareholder.

4. The SPA Cannot Bind the Tax Authority

This point is frequently misunderstood.

Imagine the SPA states:

“All tax liabilities relating to periods before Closing shall be borne exclusively by the Seller.”

This clause is extremely valuable.

But it does not normally mean that the tax office must pursue only the seller.

Tax liability and public-receivable responsibility are determined by mandatory public-law rules.

Private contracts cannot simply change the taxpayer or statutory tax responsibility as against the administration.

A 2024 decision of the Tax Litigation Chambers Board of the Council of State emphasized that private agreements concerning share transfers cannot remove statutory responsibility for public receivables and that private arrangements concerning taxpayer status or tax responsibility do not bind the tax authority.

Accordingly:

External relationship:
The tax authority may pursue whoever is legally liable under tax and public-receivable law.

Internal relationship:
The buyer may then seek reimbursement from the seller under the SPA or other private-law rules.

That distinction should be expressly explained to every buyer before closing.

5. The Best Protection Is a Specific Tax Indemnity

In professionally drafted M&A transactions, the strongest protection is usually not a generic statement that the company has “no debts.”

The SPA should contain a specific tax indemnity.

A typical commercial allocation might provide that the seller must compensate the buyer or target for taxes arising from:

• any period ending before Closing;
• any taxable event occurring before Closing;
• tax returns filed before Closing;
• incorrect or incomplete filings made before Closing;
• tax audits concerning pre-Closing periods;
• tax penalties;
• default interest;
• withholding-tax exposure;
• VAT exposure;
• stamp duty;
• customs liabilities;
• payroll-related taxes;
• social security liabilities; and
• tax consequences arising from transactions undertaken under seller control.

Tax indemnities for historical periods are standard protection mechanisms in share acquisitions, and market practice frequently provides longer survival periods for tax and social-security warranties than for ordinary business warranties.

6. Representations and Warranties Are Equally Important

The seller should also provide detailed factual confirmations.

For example:

All tax returns required to be filed by the Company have been duly and timely filed.

All taxes due and payable have been paid.

The Company has not received any tax inspection notice other than those disclosed.

There is no pending tax audit, tax litigation or tax settlement process except as disclosed.

The Company’s accounting records accurately reflect its tax liabilities.

The Company has not used false or misleading invoices.

All withholding obligations have been properly fulfilled.

All tax provisions and reserves reflected in the financial statements are adequate.

No material tax liability relating to a pre-Closing period has been omitted from the financial statements.

If one of these statements proves false, the buyer has a clearly identifiable contractual breach.

That is much easier to litigate than relying solely upon abstract statutory theories after the dispute has arisen.

7. Example: How a Tax Warranty Works

Assume:

Purchase price: TRY 80 million

The SPA states:

“Seller represents and warrants that all corporate income tax, VAT, withholding tax and other public liabilities relating to periods ending on or before Closing have been fully declared and paid.”

One year after Closing, the tax administration assesses:

• TRY 6 million principal tax;
• TRY 4 million tax loss penalty; and
• TRY 2 million interest.

Total exposure:

TRY 12 million

The assessment relates entirely to a period when the seller owned and controlled the company.

If the warranty and indemnity provisions are properly drafted, the buyer can potentially demand that the seller compensate the agreed recoverable loss.

The buyer does not need to argue merely:

“This was unfair.”

The buyer can argue:

“The contractual representation was false and the tax indemnity expressly allocates this pre-Closing liability to the seller.”

That is a far stronger litigation position.

8. What If the SPA Says “No Undisclosed Liabilities”?

A general no undisclosed liabilities warranty may also become important.

For example:

“The Company has no liabilities or obligations, whether actual, contingent, accrued or otherwise, except those fairly disclosed in the Financial Statements or Disclosure Letter.”

A historic tax exposure may fall within such a clause even if no final tax assessment existed at Closing.

This matters because many tax risks are technically “contingent” at Closing.

For example:

The company used questionable invoices in 2024.

The shares are sold in 2026.

The tax inspection begins in 2027.

The tax assessment becomes final in 2028.

The underlying risk did not first arise in 2028.

The taxable conduct existed before Closing.

A well-drafted SPA therefore focuses on the underlying event, not merely on the date when the tax authority finally issues the assessment.

9. What If There Is No Tax Indemnity in the Agreement?

The buyer’s position becomes much more complicated—but not necessarily hopeless.

Potential legal grounds may include:

• breach of contractual representations;
• breach of general contractual obligations;
• seller’s liability for defects;
• fraudulent misrepresentation;
• mistake;
• pre-contractual liability; and
• damages resulting from deliberate concealment.

Article 219 of the Turkish Code of Obligations provides that a seller may be responsible where the sold subject lacks represented qualities or contains material, legal or economic defects that eliminate or substantially reduce its value or expected benefit. The seller may be liable even if unaware of certain defects, subject to the requirements of the applicable liability regime.

The application of statutory defect rules to corporate share transfers, particularly where the economic defect is located within the underlying company rather than the legal title to the share itself, is not entirely straightforward and remains the subject of doctrinal and judicial debate.

This is precisely why sophisticated transactions should not leave the question to default statutory rules.

10. Hidden Tax Debt Can Be an Economic Defect in the Shares

Consider a simplified valuation.

The buyer values the company as follows:

Assets: TRY 150 million
Known liabilities: TRY 50 million

Net enterprise value:

TRY 100 million

The buyer therefore agrees to pay TRY 100 million for all shares.

After Closing, a historic TRY 25 million tax liability appears.

If that liability had been known during negotiations:

Assets: TRY 150 million
Actual liabilities: TRY 75 million

Actual economic value:

TRY 75 million

The buyer may argue that it effectively overpaid TRY 25 million because the company’s undisclosed liability negatively affected the economic value of the shares.

Turkish case law has encountered precisely this type of dispute involving company debts that existed before a share transfer but were not reflected in the company’s records.

The legal result, however, can be highly fact-sensitive.

11. A 2024 Court of Cassation Decision Shows Why Contract Drafting Matters

In Yargıtay 11th Civil Chamber, E. 2023/3513, K. 2024/5674, dated 8 July 2024, purchasers argued that a company whose shares they had acquired had a pre-existing liability that was not shown in the company records and that the later payment of the debt reduced the economic value of the shares.

The majority ultimately upheld dismissal of the buyers’ claim based on the particular facts and evidential circumstances of that dispute.

Significantly, however, the dissenting opinion took a different approach. It emphasized that financial statements and balance sheets should accurately reflect liabilities and reasoned that an undisclosed pre-transfer debt could negatively affect the company’s net assets and therefore the value of the transferred shares. The dissent considered that the impact on the purchase price should have been determined through expert valuation.

The practical lesson is more important than the result of one individual case:

A buyer should not assume that Turkish courts will automatically reimburse an undisclosed company liability merely because it emerged after Closing.

The SPA should establish the liability regime in advance.

12. What If the Seller Deliberately Concealed the Tax Debt?

The buyer’s position may become significantly stronger if there is evidence of deliberate concealment.

For example:

• the seller received a tax inspection notice before Closing but did not disclose it;
• tax consultants warned management of material exposure;
• an internal report identified fictitious invoices;
• accounting personnel informed management of undeclared tax;
• the seller removed documents from the data room;
• the seller gave an express false statement that no tax audit existed; or
• the seller intentionally manipulated the balance sheet.

Article 36 of the Turkish Code of Obligations provides that a party induced to enter into a contract through the other party’s fraud is not bound by the contract even where the resulting mistake would not otherwise qualify as fundamental.

Under Article 39, the right to invoke fraud is subject to a one-year period beginning from discovery of the deception if the affected party wishes to declare that it is not bound by the agreement or seek restitution on that basis.

Depending on the facts, the buyer may therefore consider:

• avoidance of the transaction;
• damages;
• contractual indemnification; or
• alternative remedies.

In large acquisitions, however, unwinding the entire transaction may be commercially impractical.

A damages or indemnification claim is often the more realistic remedy.

13. Due Diligence Does Not Eliminate the Need for Seller Warranties

Sellers frequently argue:

“You conducted due diligence. You should have discovered the problem.”

This defence must be assessed carefully.

Due diligence is important, but it does not automatically permit the seller to conceal information.

The buyer cannot reasonably discover information that:

• was removed from the records;
• was incorrectly recorded;
• was never disclosed;
• depended on management knowledge unavailable to the buyer; or
• involved deliberate accounting manipulation.

However, where the risk was clearly disclosed in the data room or could easily have been identified from documents the buyer received, the seller’s defence becomes substantially stronger.

Therefore, acquisition disputes often turn on a detailed reconstruction of the due-diligence process.

14. The Disclosure Letter Can Destroy a Warranty Claim

A strong tax warranty may be defeated if the relevant risk was properly disclosed.

For example, the SPA states:

“There are no ongoing tax investigations.”

But the Disclosure Letter states:

“The company is currently subject to a VAT examination covering the 2023 and 2024 financial years.”

The buyer may have difficulty later claiming that the existence of the audit was undisclosed.

This is why the phrase “fairly disclosed” becomes extremely important.

A seller should not be able to hide a TRY 50 million tax risk inside thousands of unrelated documents and later argue that the buyer theoretically had access to the file.

A well-drafted SPA should define what qualifies as proper disclosure.

15. Tax Due Diligence Should Look Beyond Existing Tax Debt Certificates

A buyer should not ask only:

“Does the company currently owe taxes?”

That question is too narrow.

A company may have no recorded tax debt today and still have significant future tax exposure arising from previous conduct.

A proper tax due diligence should therefore analyse:

• corporate tax returns;
• VAT returns;
• withholding returns;
• payroll taxes;
• stamp duty;
• customs;
• social security liabilities;
• tax inspection reports;
• settlement commission files;
• pending tax litigation;
• VAT refund claims;
• related-party transactions;
• transfer pricing;
• shareholder current accounts;
• questionable expense deductions;
• inventory records;
• related companies;
• cash transactions;
• invoices from high-risk suppliers; and
• unusually large tax provisions or reversals.

The buyer is not merely searching for an existing debt.

The buyer is searching for events capable of becoming a debt after Closing.

16. False Invoice Exposure Is Particularly Dangerous

One of the most serious acquisition risks in Türkiye concerns invoices alleged by the tax administration to be false or misleading.

A company may appear financially healthy at Closing.

Later, an investigation into one of its suppliers may cause earlier invoices to be questioned.

The target may then face:

• reassessed tax;
• VAT adjustments;
• tax loss penalties;
• default interest; and
• potentially more serious consequences depending on the facts.

A buyer acquiring a company with substantial historical invoice exposure should therefore consider a separate warranty or indemnity specifically addressing:

• false invoices;
• misleading invoices;
• suppliers subject to adverse tax reports;
• unusual supplier concentrations; and
• historical VAT deduction practices.

A generic “all taxes have been paid” clause may be insufficient for a high-risk target.

17. A Tax Indemnity Should Cover More Than the Principal Tax

Suppose a pre-Closing tax problem creates:

Principal tax: TRY 5 million

Tax penalty: TRY 5 million

Interest: TRY 3 million

Professional fees: TRY 500,000

The buyer’s economic loss may therefore be significantly greater than the principal tax itself.

A carefully drafted definition of Loss may include, subject to negotiation and enforceability:

• assessed taxes;
• penalties;
• default interest;
• legal costs;
• expert costs;
• accounting costs; and
• other direct losses arising from the tax claim.

If the agreement says merely:

“Seller shall pay any unpaid tax,”

the buyer may face arguments concerning the remaining loss.

18. Should Tax Claims Be Subject to the General Liability Cap?

This is a major negotiation point.

An SPA may provide:

General warranty cap:

20% of the purchase price

But if a hidden tax liability amounts to 40% of the purchase price, the buyer could remain severely exposed.

Buyers therefore frequently negotiate separate treatment for:

• tax claims;
• title warranties;
• fraud;
• deliberate concealment;
• fundamental warranties; and
• identified specific risks.

Tax and social-security warranty periods are also commonly aligned more closely with applicable statutory limitation periods rather than the shorter survival period applicable to ordinary operational warranties.

19. Escrow and Holdback Can Be More Valuable Than a Judgment

Winning a claim against the seller has limited value if the seller no longer has assets.

For this reason, buyers should consider mechanisms such as:

Escrow

Part of the purchase price remains in a controlled account for an agreed period.

Holdback

The buyer retains part of the purchase price until identified risks expire.

Deferred Consideration

Part of the price becomes payable later.

Bank Guarantee

The seller provides security for indemnification obligations.

Set-Off Rights

The buyer may deduct verified claims from deferred purchase-price payments.

These mechanisms can turn contractual protection into actual recoverability.

20. What If the Seller Distributed the Purchase Price and Has No Assets Left?

This is one of the worst scenarios.

The buyer successfully proves that:

• the tax liability relates to the seller’s ownership period;
• the seller breached the SPA; and
• TRY 30 million must be reimbursed.

But the seller has:

• transferred the purchase price abroad;
• distributed funds;
• sold major assets; or
• become insolvent.

The buyer may then have a strong judgment but weak recovery prospects.

In a transaction involving substantial historic tax risk, post-closing security should therefore be considered before the money leaves the buyer’s control.

21. Limited Company Buyers Should Conduct an Additional Article 35 Analysis

Where the target is a limited liability company, acquisition counsel should separately analyse Article 35 of Law No. 6183.

The due-diligence question should not merely be:

“How much tax does the target currently owe?”

It should also be:

“Could a historical public receivable become collectible from the new shareholder under Article 35?”

This becomes especially important where:

• the company has weak assets;
• there have been historic tax irregularities;
• tax audits are pending;
• significant tax assessments are expected;
• the seller is leaving Türkiye;
• the company has used aggressive tax planning; or
• the seller refuses to provide a comprehensive tax indemnity.

The presence of these factors should directly affect purchase-price negotiations.

22. Asset Deals Require a Different Liability Analysis

Sometimes parties believe that acquiring the business rather than the shares automatically avoids all historic liabilities.

That assumption can also be dangerous.

Under Article 202 of the Turkish Code of Obligations, acquisition of a business with its assets and liabilities can result in statutory responsibility for existing business debts following the prescribed notification or announcement mechanism.

Additional tax, employment, commercial and regulatory rules may also apply depending on how the transaction is structured.

Therefore:

Share deal = historic liabilities remain within the same company.

Asset/business deal = liability migration must be analysed separately.

Neither structure should be chosen without liability modelling.

23. A Practical Litigation Strategy After a Hidden Tax Debt Appears

If a tax liability appears after Closing, the buyer should act systematically.

Step 1 — Determine the Relevant Tax Period

Identify exactly when the taxable event occurred.

Was it before or after Closing?

Step 2 — Review the SPA Immediately

Examine:

• tax representations;
• general warranties;
• tax indemnities;
• disclosure provisions;
• notice requirements;
• claim deadlines;
• caps;
• baskets;
• de minimis thresholds;
• fraud carve-outs; and
• dispute-resolution clauses.

Notice provisions may contain strict contractual deadlines.

Step 3 — Preserve the Tax File

Obtain:

• inspection reports;
• tax assessment notices;
• penalty notices;
• settlement records;
• tax court files;
• accounting records; and
• correspondence with tax advisers.

Step 4 — Determine What the Seller Knew

Review:

• board minutes;
• management emails;
• accountant correspondence;
• tax adviser reports;
• audit files;
• internal memoranda; and
• due-diligence disclosures.

Seller knowledge may materially affect liability.

Step 5 — Establish the Economic Loss

The claim should not remain abstract.

Calculate:

• principal tax;
• penalties;
• interest;
• professional expenses;
• reduction in company value; and
• other recoverable losses under the SPA.

Step 6 — Send Contractually Compliant Notice

Do not simply send an informal email.

Follow the SPA’s notification mechanism precisely.

Step 7 — Protect Recovery

If there is evidence that the seller may dissipate assets, consider appropriate interim judicial protection where legally available.

Step 8 — Coordinate the Tax Defence and Seller Claim

The buyer should not unnecessarily accept an incorrect tax assessment merely because the seller agreed to indemnify the loss.

Many SPAs require the buyer to:

• challenge the tax assessment;
• allow the seller to participate;
• obtain consent before settlement; or
• mitigate loss.

These provisions must be followed.

24. How the SPA Should Be Drafted Before the Acquisition

For a buyer, a strong tax section should ordinarily address at least the following:

Historical period allocation

Who bears taxes attributable to the period before Closing?

Tax representations

Are all returns accurate and all liabilities disclosed?

Specific tax indemnity

Must the seller reimburse pre-Closing tax liabilities irrespective of warranty breach?

Penalties and interest

Are these included?

Tax audits

Who controls ongoing inspections and litigation?

Notification

How quickly must the buyer inform the seller?

Settlement

Can the buyer settle without seller approval?

Time limits

How long do tax claims survive?

Caps

Are tax claims subject to the general liability cap?

Fraud

Are fraudulent concealment claims excluded from contractual limitations?

Security

Is any purchase price retained?

These questions should be resolved before Closing—not after the audit begins.

25. The Most Important Difference: Warranty Claim vs Tax Indemnity

These concepts are sometimes treated as identical, but they serve different functions.

Warranty

The seller states:

“No unpaid tax liability exists.”

The buyer normally argues that this statement was false.

Tax Indemnity

The seller agrees:

“If tax relating to a pre-Closing period becomes payable after Closing, I will compensate you according to the contractual mechanism.”

The indemnity may therefore operate even where proving a false factual statement would be difficult, depending on how it is drafted.

For historic tax exposure, a well-drafted tax indemnity is usually considerably more effective than relying exclusively on general warranties.

26. Can the Buyer Recover the Entire Purchase Price?

Not necessarily.

The remedy depends on:

• the contract;
• the seriousness of the breach;
• whether avoidance is sought;
• whether fraud existed;
• the amount of loss;
• causation;
• valuation evidence; and
• contractual limitations.

A TRY 2 million undisclosed tax exposure in a TRY 500 million acquisition will not ordinarily justify treating the transaction in the same way as a previously concealed TRY 300 million liability.

Proportionality and economic impact matter.

27. A Simple Example

Assume Buyer purchases all shares of Target Ltd. for:

TRY 120 million

The financial statements show:

Known liabilities: TRY 30 million.

After Closing, a tax audit relating to the seller’s period results in:

Tax: TRY 12 million
Penalty: TRY 12 million
Interest: TRY 6 million

Total:

TRY 30 million

The SPA contains a specific pre-Closing tax indemnity.

The transaction analysis may become:

1. The tax authority claims against Target Ltd.
2. Target or Buyer challenges the assessment where appropriate.
3. If the liability becomes payable, the company suffers the loss.
4. Buyer serves notice under the SPA.
5. Seller must indemnify the recoverable amount under the agreed terms.

If Target is a limited liability company, Article 35 exposure must additionally be analysed because statutory shareholder responsibility for public receivables may arise independently of the SPA.

Conclusion: Closing Does Not Close Historic Tax Risk

A company acquisition does not erase the target’s past.

In a share acquisition, the corporate entity survives unchanged, together with the legal and financial consequences of its historical operations.

A tax exposure created years before the acquisition may therefore appear only after the buyer has paid the purchase price and taken control.

Whether the buyer can recover that loss from the seller depends largely on how the acquisition agreement allocated historical tax risk.

The strongest buyer protection normally combines:

tax due diligence + detailed tax representations + specific tax indemnity + disclosure controls + adequate claim periods + security for seller obligations.

Where these protections exist, an undisclosed pre-Closing tax liability can often be converted into a contractual reimbursement claim against the seller.

Where they do not exist, the buyer may have to rely on more uncertain remedies involving defect liability, misrepresentation, fraud, valuation loss or general contractual principles.

And in Turkish limited liability company acquisitions, there is an additional warning that should never be ignored:

the buyer may not merely acquire the company’s shares—the buyer may also enter a statutory public-debt liability regime under Article 35 of Law No. 6183.

For that reason, the correct question before purchasing a company is not:

“Does the company have any tax debt today?”

It is:

“Is there anything in the company’s past that can become a tax debt tomorrow—and if it does, who has contractually agreed to pay for it?”

That question should be answered before the purchase price is transferred.