US embassy cable - 02ANKARA9181

UNCLAS ANKARA 009181 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
USDOC FOR 4212/ITA/OEURA/CDP/DDEFALCO 
STATE PASS USTR - NOVELLI AND BIRDSEY 
 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, PREL, TU 
SUBJECT: TURKISH GOVERNMENT FULLY RESOLVES CITIBANK TAX 
PROBLEM 
 
REF: ANKARA 8255 
 
 
Sensitive but Unclassified.  Not for internet distribution. 
 
 
1.  (SBU) Citibank General Manager for Turkey Mark Robinson 
informed us December 23 that Turkish Finance Minister Kemal 
Unakitan reversed a Finance Ministry tax assessment of 
Citibank and its foreign clients who invest in Turkish 
T-bills through Citibank.  As described reftel, a Finance 
Ministry tax inspector had earlier denied Citibank's clients 
the preferred foreign investor tax rate on T-bill income (11 
percent versus the normal rate of 44 percent), and made an 
enormous assessment of back taxes.  Citibank received the 
formal MinFin letter canceling this assessment December 28. 
Robinson thanked us for Embassy's help in resolving this tax 
problem. 
 
 
Comment:  A Victory, But Also An Explanation 
for Turkey's Risk Premium 
-------------------------------------------- 
 
 
2.  (SBU) Unakitan's action to cancel this tax assessment 
averts potential damage to the T-bill market. Citibank wanted 
this claim resolved before year-end, at which time fund 
managers would have had to disclose this tax claim to their 
investors.  Unakitan's action also gives us an early example 
of the new GOT's interest in helping to resolve foreign 
investment tangles with the Turkish bureaucracy. 
 
 
3.  (SBU) Nevertheless, as Citibank country risk manager 
Peter Rossiter commented, this kind of outrageous tax 
assessment helps explain why there is a large risk premium on 
Turkish T-bills. Unpredictability of regulatory and legal 
treatment is a big factor.  Rossiter said Citibank would 
follow up this victory by working with the Turkish Ministry 
of Finance to clarify the tax regulatory treatment of foreign 
investors and thus ensure that such assessments won't be 
levied in the future. 
PEARSON