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Daily Israel Report

Turkish Airlines Investigated for Tax Fraud in Israel

Turkish Airlines' Israeli office is being investigated for alleged tax evasion amounting to over 1.5 million shekels.
By Elad Benari
First Publish: 7/30/2013, 5:43 AM

Turkey tourism booth
Turkey tourism booth
Yoni Kempinski

Turkish Airlines' Israeli office is currently being investigated for alleged tax evasion amounting to over 1.5 million shekels ($418,000), the Justice Ministry said Monday, according to the Israel Hayom daily.

The newspaper quoted a statement published by the Ministry which said that the Tel Aviv District Prosecution's Taxes and Economics Department is considering pressing criminal charges against the company as well as the head of its local office, Fatih Dogan, for failing to meet Israel's Tax Authority guidelines for foreign companies operating in Israel.

The decision is pending a hearing before the head of the Taxes and Economics Department, attorney Mina Zamir, reported Israel Hayom.

Turkish Airlines in considered one of the world's leading international carriers, and was ranked the seventh-best airline in the world in 2012 and the fastest-growing airline worldwide in 2011.

The company's Israeli office numbers dozens of Turkish employees, whose wages are subjected to both Turkish and Israeli tax laws, noted Israel Hayom.

The Tel Aviv District Prosecution believes that between 2006 and 2010 the airline filed false tax reports in Israel, and that the wages paid to the company's Turkish employees, which were deposited in their bank accounts in Istanbul, were higher than the wages declared in Israel for taxation purposes.

This method allegedly allowed Turkish Airlines' Israeli office to pay its employees "under the table" and avoid deducting taxes that should have been paid to the Israeli authorities.

The investigation into the matter was made public in December 2012, following several months of undercover work by the Tax Authority. Turkish Airlines' office in Tel Aviv was raided by Tax Authority agents, who seized company records and well as several computers, reported Israel Hayom.

Should the hearing conclude that Dogan and Turkish Airlines deliberately perpetrated fraud, they -- alongside the accountants who filed the reports on their behalf -- could be charged with tax evasion, tax fraud, filing false tax reports and falsifying corporate tax records.

A statement by Turkish Airlines, carried by the financial daily Globes, said that the airline "is in compliance with the tax laws and regulation of every country it operates in, including Israel. The company employs the services of Israeli tax advisers and it relied on their advice, which proved wrong. Once we were alerted to the situation, the company made sure to pay the missing taxes. Turkish Airlines will present its case before the [Tel Aviv District] Prosecution and we are sure that our explanation will fall on sympathetic ears."

Israel and Turkey’s relationship has been strained in recent years and the rift between the two countries deepened in May 2010, when Israeli commandos raided a Turkish vessel trying to breach the maritime blockade imposed on Gaza.

Nine Turks died on the Mavi Marmara, which refused Israeli orders to dock at the Ashdod Port. When the ship refused, the commandos boarded it, encountering violence from the members of the IHH organization who were on board and who attacked them with clubs and knives. The soldiers had no choice but to open fire.

Under pressure from U.S. President Barack Obama, Prime Minister Binyamin Netanyahu apologized in March to Turkish Prime Minister Recep Tayyip Erdogan for the deaths of nine Turks in the 2010 flotilla.

Netanyahu, in addition to the apology, agreed to compensate the families of the nine Turks, while Erdogan promised to cancel the legal proceedings his country launched against IDF officials.

Reports have indicated that Israeli and Turkish officials have made progress in talks on compensation for the Marmara incident, but a deal is yet to be finalized.

Last week, however, Turkey’s Deputy Prime Minister Bulent Arinc said that his country will not be satisfied with Israel simply paying compensation to the Marmara victims. The Jewish state, he said, must acknowledge that the money it is paying to the victims is a result of its committing a wrongful act.

A poll released earlier this month found that Israelis are unhappy with the apology to Turkey. 85% of respondents said the chances of their going on vacation to Turkey in the near future are very low.

Only 28% of Israelis believe that relations between Israel and Turkey under Erdogan will improve in the near future, while 42% think relations will stay the same and 30% believe they will deteriorate further.

Most Israelis (71%) believe Israel's apology to Turkey was not justified, while only 29% think it was, the poll found.