State hits Doğan Media Group with new $2.5 bln tax fine

Turkish tax authorities have unleashed a record tax fine against the Doğan Media Group, or DMG, Turkey’s biggest media group and the publisher of the Hürriyet Daily News & Economic Review. The move comes nearly eight months after Prime Minister Recep Tayyip Erdoğan lashed out at Chairman Aydın Doğan during an election rally.

In a statement to the Istanbul Stock Exchange on Tuesday, DMG said the tax levy, totaling 3.755 billion Turkish Liras ($2.5 billion), was delivered Monday evening by Finance Ministry officials. The fine is the result of 15 separate investigations on the 2005, 2006 and 2007 records of Doğan TV Holding, D Yapım Reklamcılık ve Dağıtım, Doğan Prodüksiyon Hizmetleri and Alp Görsel İletişim Hizmetleri, all companies under the umbrella of DMG. The fines are for taxes that the DMG units allegedly should have paid, stemming from share sales between group companies, according to officials.

DMG late Tuesday afternoon said it would ask the Finance Ministry to re-evaluate a demand for it to pay the fine. In an e-mailed statement, Chief Financial Officer Soner Gedik said the company did not break any laws about share transactions between group companies. The assessment by tax officials was “subjective,” he wrote.

In a statement earlier in the day, DMG said the tax reports that resulted in the record fine were “argued on conditions that are not covered by law and relied heavily on personal assessments.”

“[Company] practices criticized in these tax reports are in accordance with legal regulations and the Finance Ministry’s communiqués and circulars,” said the DMG statement, which bore the signatures of Gedik and DMG Coordinator Murat Doğu. “Against all claims in the tax inspection reports, the named [DMG] affiliates will use every legal right at their disposal, including reconciliation.”

Monday’s tax fine dwarfs the previous fine unleashed in February, as the Prime Minister repeatedly called on the public to boycott Doğan newspapers. On Feb. 18, DMG announced that it had received a bill for $592 million in back taxes and fines, stemming from the sale of a 25 percent stake in its television unit to Axel Springer of Germany. The Finance Ministry claimed that the Doğan company recorded the sale as taking place in 2007 when it actually happened in 2006, while DMG had said the money did not arrive until Jan. 2, 2007, adding that even if the Finance Ministry’s claims were true, the situation created no unfair advantage to DMG.

Straining company finances

The new fine is “a very large sum indeed, and it will put a great strain on the company,” Bloomberg quoted Berna Kurbay, an analyst at BGC International in Istanbul. “It’s the first time a charge of this extent was brought against a listed company in Turkey.”

Doğan may need to sell assets or hold a rights issue to raise money to pay the fine, even if it negotiates with tax authorities for a reduction, Kurbay said.

Many in Turkey and abroad think the fines are of a political nature, while some say the government is intent on “creating its own media” and sees DMG, which owns two of Turkey’s biggest and most influential newspapers Hürriyet and Milliyet, as the biggest obstacle. Such claims received even more attention after the Sabah-ATV media group, previously seized by the state-owned Savings Deposit and Insurance Fund, was sold to Çalık Holding, whose media arm Turkuaz includes PM Erdoğan’s son-in-law as its top manager. After the sale, the group is widely regarded to be treading a path that backs government policies.

The European Union, which is holding membership talks with Turkey, has expressed concern about the feud previously. Jose Manuel Barroso, president of the European Commission, said in March that it threatened “pluralism and freedom of the press.”

Television channels and a newspaper were among 219 companies the authorities seized from another of Erdoğan’s perceived political rivals in 2004. Cem Uzan, who ran against Erdoğan in a general election two years earlier, and his family were accused by prosecutors of embezzlement and fraud in the $6 billion collapse of a bank they owned. The Uzans, still at large, said the move was motivated by politics.

The Daily News is a Doğan Media Group publication.