1. In the ZID of the VAT, in the part for changes to the DOPK, in § 41 items 1 and 2 of the PZR KRIB proposes that this paragraph be dropped and not accepted, since the statements contained in it are unfair and would create tension in the business . Ours reasons for the position expressed above look like this:
- The main problem of the proposal to introduce a single account is related to the violation of the principle of financing the insurance system in Bulgaria, namely that it is financed by insurance contributions specified in the law. This principle was adopted in order to realize two of the main rights of citizens provided for in art. 51 and 52 of the Constitution of the Republic of Bulgaria, namely the right to public and health insurance. Moreover, in Art. 52, para. 2 of the Constitution expressly states that health care is financed by employers, by personal and collective insurance contributions. The insurance system is financed through the social and health insurance contributions, which are paid in the order and manner provided for in the Social Insurance Code (SSI) and the Health Insurance Act (HIS), in order to guarantee the use of rights by country of citizens. The principle of fund organization of the health and social insurance systems has been introduced in both the CSR and the PHI, and both mentioned laws strictly regulate the revenues of the National Health Insurance Fund (NHIF) and the funds of the State Social Insurance Fund (DOO) - art. 23 of the Health Protection Act and Art. 18, 21, 23, 25 and 26a of the CSO, as the National Assembly annually adopts a law on the budget of the NHIF and the LLP, which also includes the budget of each of the LLP funds. In this sense, the possible acceptance of the proposal will lead to a contradiction with constitutional provisions, on the one hand, and on the other hand, it will create a conflict with the specified texts of the CSR and the PPE;
- With the proposed approach, the opposite problem is also present, namely, the insurance contributions, which have a legally defined, target purpose - to finance the insurance system, will be used to repay tax liabilities, and from there to finance activities that by law are financed from the budget, based on tax revenues. Against the obligation to provide insurance, there are always certain rights that the insured persons enjoy, which is why it is important at any moment to know whether the obligation has been fulfilled and, accordingly, the rights that derive from it. For this reason, in Art. 179, para. 1 of the Tax and Insurance Procedural Code (TIPK) stipulates that the contributions paid to the National Revenue Agency (NAA) are transferred to the relevant accounts of the Social Insurance Institution in the National Insurance Institute (NII), in the collection account of the National Insurance Institute and the "Guaranteed Receivables of employees" until the end of each working day, respectively para. 2 of the same text, states that the NRA transfers the contributions for additional mandatory pension insurance within 30 days of their receipt from the specialized account to the account of the relevant pension fund. Texts with identical content are also contained in the PPE - Art. 41, para. 2, and in CSR - Art. 159, para. 2 and 3. The proposal to drop Art. 179, para. 1 of the DOPC leads precisely to the violation of the principle of purposeful use of insurance contributions and their use for repayment of tax obligations, while at the same time creating a collision with the cited texts of the Health Insurance and Social Insurance Act. In its Decision No. 5 of 29.06.2000, the Constitutional Court of the Republic of Bulgaria also made a clear distinction between the nature of taxes and social security contributions, explicitly stating that social security contributions do not have the nature of a tax, because against them the insured person receives the right to corresponding benefits, while the tax is a state claim that is owed gratuitously;
- However, insofar as, for employed persons, the obligation to pay insurance is on their insurer, they should not suffer negatives from his illegal behavior, provided that it is envisaged that his obligations will be automatically paid off, in the order of their occurrence. This injustice is particularly evident in relation to the part of the insurance contribution which is at the expense of the insured persons and which is deducted from their remuneration. In practice, it will turn out that with the money of those working for him, the insurer will repay tax obligations that are entirely at his expense;
- On the other hand, however, taking into account the fact that the obligation to pay insurance contributions is not their obligation, the legislator has provided that employed persons do not lose their rights due to the fact that their insurer has not fulfilled its obligation to pay insurance contributions - Art. 109, para. 4 of the Health Protection Act and Art. 9, para. 1, item 1, art. 41, para. 1, 49, para. 1, Art. 54b, para. 1 of CSR. At the same time, however, in Art. 109, para. 1 of the Health Protection Act, and in Art. 9, para. 1, item 4, art. 41, para. 1 and 49 of the CSR, it is explicitly stated that self-insured persons enjoy insurance rights only if they have paid their due insurance contributions, which means that if they have older tax liabilities that will be paid off with their contributions insurance contributions, they will not be able to enjoy insurance rights, regardless of the fact that they have fulfilled their obligations to the insurance system;
– The same problem is also present in the case of supplementary mandatory pension insurance (DZPO), due to its specificity and the need for personalization of insurance contributions for a universal and professional pension fund. With this type of insurance, the proposed approach is inapplicable, including because it is not possible to partially repay the obligations and make only part of the contributions to a universal and occupational pension fund. Due to the fact that the pension from a universal and/or from an occupational pension fund was determined only on the basis of the funds received on the individual account of the insured person in the relevant fund - art. 169 of the CSR and in the event that the contributions have not been received for it, it will not be able to exercise rights;
- In addition, the moment of receipt of the insurance contribution in a universal or professional pension fund is extremely important for the Social Insurance Institution, since the contributions in these funds are invested and yield is accrued on them, which also directly affects the amount of the pension. For this reason, in case of late transfer of the contribution by the NRA to the social security fund in which the person is insured, he can make claims to the NRA for lost benefits;
– The proposal for the application of the single account to the activity under the PPE creates prerequisites for the redistribution of funds to the individual items, which is a violation of Art. 129, para. 8 of the Social Insurance Code. When the social security contributions paid for the period for which they are due were used to repay old social security obligations, there is a real danger that the persons to whom the social security contributions apply for different periods will be different. This means that insurance contributions of some insured persons will be paid for the benefit of other insured persons. In addition, for one of them, an insurance event (old age, disability or death) may have occurred in the meantime, and the corresponding payment has become due, before the insurance contribution has been transferred to the relevant fund. The most serious problem would be for insured persons in a universal or occupational pension fund, who will exercise their right to a pension and, because it is determined on the basis of the contributions actually received in the respective fund, they will not be able to exercise rights, regardless of the fact that they were transferred by their insurer, but the funds received in the single account were used to repay old tax or insurance obligations.
KRIBB also suggests in § 41. in art. 169, para. 4 to add a text - "unless in a payment document or in some other way the desire for repayment by the debtor is explicitly stated".
Motives: KRIB believes that the constitutional rights of debtors cannot be taken away. Each payment order mentions the reason for payment and to which period it refers.
2. In § 13 of the draft law, KRIB proposes to completely restore the provisions of the repealed VAT, valid until 31.12.2006, including the right to a tax credit for cars and motorcycles, namely:
1. In art. 70, paragraph 1
a) point 4 is amended as follows:
item 4 "a motorcycle or a passenger car is acquired, except in cases where the person performs their main activity with them;"
b) point 5 is amended as follows:
item 5 "the goods or service are intended for the maintenance, repair, improvement and operation of motorcycles and cars under item 4;"
Motives:
KRIB considers that the proposed text of § 13, item 1 of the Bill does not correspond with the reasons set forth by the European Commission in letter EUPilot 2781/11. The proposed proposal fully complies with the provisions of Article 65, Paragraph 1, Items 2 and 3 of VAT (repealed).
3. In § 38. – The following amendments should be made to the additional provisions:
1. In § 1:
a) in item 18 – sentence three is deleted and a new sentence is added: "Truck vehicle" is the one defined in the Road Traffic Act.
Motives:
KRIB believes that VAT should comply with the special law on the classification of trucks.
b) omission of item 18a.
Motives:
KRIB considers that the introduction of a definition of the concept of "Main activity" in the additional provisions of the law does not correspond to the recommendations of the European Commission in letter EUPilot 2781/11, because in the legal framework at the date of Bulgaria's accession to the European Union, a similar provision did not exist in VAT (repealed).
4. In the ZID of VAT, in the section for changes to ZKPO:
– In "§ 43 from the project, KRIB proposes to drop the texts related to:
"base of estimated tax profit" in Art. 83, paragraph 1;
KRIB does not accept the proposals related to the amendment of Art. 86, Art. 87, Art. 89, also those in "new art. 87a". KRIB offers to remain the provisions of the current ZKPO,related to the basis for determining the advance payments due for corporate tax.
Motives: Given the amendments in Art. 89 of the ZKPO, KRIB considers that it is inadmissible for the persons obliged under this law to be sanctioned for incorrect planning as a result of the existing economic crisis, which does not allow companies to implement effective budget systems of their income and expenses. Also, in the proposals for sanctions for deviations from the specified, with regard to the basis for determining advance payments of corporate tax, there is no text ordering interest obligations from the treasury, for a situation in which the state has received advance corporate tax, which at the end of the accounting year turns out to be overdue and not due. Given the provisions in the ZKPO and DOPK, in the case of undue/overdue amounts for taxes and insurances, it turns out that the business is in an unequal position for its obligations, compared to those of the state. Moreover, no interest is due for overpaid corporate tax under the current ZKPO.
II. KRIB'S PROPOSALS FOR AMENDMENTS TO THE VALUE ADDED TAX (VAT) ACT BEYOND THE PROPOSED DRAFT
KRIB has witnessed the expansion of the chain of risky companies in Bulgaria, which, through fictitious supplies or document crimes, cause a serious loss to the tax authorities, and we welcome the tax administration's fight against such incorrect companies. At the same time, it should be mentioned that bona fide enterprises do not have legal mechanisms to counteract the incorrect companies and the possibilities are exhausted by taking only preventive actions, as far as this is applicable, given the current legislation. That is why KRIB proposes changes that are aimed at improving the actions of the tax administration on the one hand and on the other hand transpose European legislation into the Bulgarian tax system:
1. Proving reality ofthe delivery
1.1. Factual situation and problems in connection with proving "reality of delivery":
In Bulgaria, at the moment, the recognition of a tax credit in the companies receiving goods or services is highly threatened given the regular conclusions of the tax administration about the lack of "reality of the supply". Revenue authorities examine multiple documents to support "reality of supply" without the same being legislated or comprehensively enumerated in existing tax laws. The leading factor is the subjective judgment of the examining tax authority, non-acceptance of the documents created in the companies as proof of actual delivery is the basis of non-recognition of the right to a tax credit due to the conclusion that no delivery has been made.
Motives: The right of any taxable person to deduct tax credit on purchases made by him cannot be limited, except in cases where that person knew or should have known that the transaction was part of a scheme to avoid or evade VAT obligations . For this purpose, the revenue authorities should properly establish, on the basis of objective evidence, that there is VAT fraud, and that the taxable person knew or should have known about it. Therefore, in cases where the taxable person has a valid invoice, meeting the requirements of the law, with which the material-legal and formal requirements for exercising a tax credit are fulfilled, the revenue administration cannot refuse the right to deduct VAT without first proving , that the person was involved in fraud. More specifically, it is not admissible as a basic rule for the revenue administration to require the taxable person, for the purposes of VAT deduction, to check on the one hand the issuer of the invoice and his security to make the delivery and on the other hand, to have documents in this connection.
These arguments are also laid down in the latest decisions of the European Court of June 21, 2012 in joint cases C-80/11 and C-142/11, Mahageben и PeterDavid, in which the court ruled that the provisions of the VAT Directive 2006/112/EC do not allow the application of a national practice which, in the absence of a tax violation or fraud, binds the right to deduct a tax credit with the obligation of taxable persons to keep documents proving that deliveries are actually made.
1.2. KRIB's proposal for listing the conditions that determine the reality of the supply of goods and services, respectively for the recognition of a tax credit(addendum to Art. 71 item 1 of VAT)
Conditions for exercising the right to deduct tax credit:
Art. 71. The person exercises his right to deduct a tax credit when he has fulfilled one of the following conditions:
1. has a tax document,…and has a document for the payment of the tax and the basis of delivery; has a handover protocol or other document certifying the delivery of the goods or the performance of the service2. Adjustment of the supplier's tax base for outstanding receivables
2.1. Factual situation and problems related to non-reimbursement of VAT charged to the supplier in connection with outstanding receivables:
When making a sale, the supplier charges VAT in the invoice issued by him, promptly reporting and paying the duly charged tax into the budget within the statutory period. In cases where the recipient does not fulfill his commitment to pay his obligation according to the issued invoice, the accrued VAT de facto remains at the expense of the supplier, as he is effectively counted with the tax office for this VAT.
Motives:Even if the recipients do not pay their obligations to their supplier, they have the right to use the tax credit, on the other hand, the supplier remains damaged with the amount of VAT on the supply. This amount the supplier should fairly deduct from the tax base.
This reduction of the tax base is also allowed by the VAT Directive 2006/112/EC in Article 176 "...in the case of transactions for which no payment has been made or partial payment has been made, … Member States may require thaton correction."
2.2. Proposal of KRIB for the possibility of a change in the tax base in the case of transactions in which "no payment was made or a partial payment was made" (addendum to art. 115).
Debit and credit notices.
Art. 115. (1) In the event of a change in the tax base of a supply, incl. in case of transactions for which no payment has been made or partial payment has been made or upon the cancellation of a delivery for which an invoice has been issued, the supplier is obliged to issue a notice to the invoice;
(3) In the event of an increase in the tax base, a debit notice is issued, and in the event of a decrease in the tax base, incl. in the case of transactions for which no payment has been made or a partial payment has been made, or in case of cancellation of deliveries – credit note.When full payment is received on such a transaction, the tax basis of which was previously adjusted by a credit note, the tax basis is again adjusted by issuing a debit note.
3. Cancellation of correction of used tax credit in case of marriage of goods
3.1. Actual situation and problems regarding the destruction and marriage of goods:
The Bulgarian VAT transposes the European Directive extensively in relation to the adjustment of tax credit in cases of marriage of goods. On the one hand, the Directive deals only with the concept of destruction of goods, and on the other hand, there is no clear definition of marriage in the Bulgarian tax legislation.
Motives: In order to avoid any loose interpretations of the concept of "marriage" and in order to achieve equal treatment with that provided for in the European normative documents, the unclear statement on the adjustment of tax credit in case of marriage of goods should be removed from the Bulgarian law.
3.2. Proposal of KRIB for cancellation of the adjustment of used tax credit in case of marriage and destruction of goods (correction of art. 79 para. 3):
Adjustments of used tax credit in other cases:
Art. 79. (3) A registered person who has fully or partially deducted a tax credit for goods produced, purchased, acquired or imported by him, in the event of destruction, in the event of deficiencies, as well as in the event of a change in their purpose, for which there is no longer a right to deduction of a tax credit, charges and owes tax in the amount of the deducted tax credit.
4. Clarifying the cases of "unlawfully charged tax"
4.1. Factual situation and problems in the application of Art. 70 para. 5 of VAT:
There are often cases in practice when the recipient of the delivery "loses" his right to a tax credit due to some unpaid VAT obligation on the part of the supplier. The most common case of refusing a tax credit is the use of Article 70, Paragraph 5 of the VAT Act, according to which "…Nis entitled to a tax credit for tax that has been charged illegally". This text is used in all revision acts, but it is not clear how the concept should be accepted and interpreted "the tax was charged illegally" - by those who use it as a tax credit or the merchants who charge it in the issued invoices. The question arises when this illegality occurs and in the absence of what conditions it is applicable. In all cases of illegally charged tax according to Article 70, para. 5 of VAT, victims can be not one, but several recipients along the chain.
Motives: To interrupt in any way the dependence of the right to recognize a transaction tax credit at the recipient on the fulfillment of the legal requirements at the supplier. The supplier should be solely responsible for his wrongdoings and as such bear the responsibility for non-compliance with the law.
The need for an adequate interpretation of the provision of Art. 70 para. 5 of VAT and clarification that illegally charged tax by the supplier - by an unregistered person or in case of non-taxable delivery, the person does not have the right to charge tax in the document issued by him, respectively the recipient of the document does not have the right to use tax credit.
4.2. KRIB's proposal to clarify what is meant by "illegally charged tax", according to Art. 70 para. 5 of VAT (addendum to art. 70 para. 5)
Limitations on the right to deduct tax credit
Art. 70 (5) There is no right to a tax credit for tax that has been charged illegally.A tax has been unlawfully charged when:
a) the supplier is a tax unregistered person or
b) with tax-free delivery.
III. PROPOSALS FOR CHANGES IN DOPC, ZKPO, VAT and VAT) ON THE TAXATION OF INCORPORATED COMPANIES
1. Taxation of unincorporated companies
ZKPO and DOPK treat unincorporated companies as taxable persons who pay corporate tax on their realized profits according to the general rules of the ZKPO. This tax treatment creates a number of practical difficulties. The main prerequisite for the occurrence of these difficulties is the fact that the ZKPO lacks provisions to regulate in a clear and categorical manner:
the formation of the tax base for taxation of unincorporated companies and partners in them, taking into account the specifics of the relationship and accounting reporting;
the tax treatment of the income and expenses of the partners as a result of the activity of an unincorporated company, as well as the distributed profits and losses from the unincorporated company to the partners.
A change in the provisions of ZKPO related to unincorporated companies would also be necessary in the context of the upcoming entry into force of IFRS 11 - Joint arrangements, which applies to the financial statements for 2013. In the current version of Art. 27, para. 1, item 1 of the ZKPO, which regulates the exclusion from the tax base for corporate tax of dividend income, only dividends distributed by legal entities are covered. Regardless of the fact that Art. 2, para. 2 ZKPO equates unincorporated companies to legal entities for tax purposes, due to the fact that they are not explicitly stated in Art. 27, para. 1, item 1 of the ZKPO, there is a risk of misinterpretation of this legal provision and of taxation of the profits distributed by the unincorporated companies to the partners-commercial companies.
Such an approach would be unfair and would create conditions for unequal treatment of partners-legal entities in unincorporated companies compared to shareholders and partners-legal entities in commercial companies (whose income from dividends is not subject to corporate tax).
The treatment of the losses realized by the unincorporated companies as a result of their activities and whether it is possible to transfer them to the partners (who actually bear them) and the related tax effects remain unclear.
Also VAT does not contain explicit provisions regarding the tax treatment of the income of partners-individuals in unincorporated companies. This creates ambiguity and uncertainty for tax subjects.
In our opinion, solving the problematic issues related to the tax treatment of unincorporated companies is extremely important, since almost all large investment projects and public procurements with the participation of foreign consultants and investors (legal entities and individuals) are implemented using this legal entity. form (through consortia in the form of civil societies). The lack of sufficiently clear provisions in the law regarding the taxation of unincorporated companies and the contradictory practice of the revenue authorities create uncertainty and potential risks for partners. In many EU countries, the problem with the tax treatment of unincorporated companies has been solved by transferring taxation to the partners, and the company itself is not considered a taxable person. We believe that there is no obstacle to such a treatment being introduced in ZKPO and ZDDFL.
Sentence:
In connection with the above, we propose the following changes:
Amendment of Art. 9, para. 2 of the DOPC, specifying that unincorporated companies do not represent a subject of the administrative process under the DOPC, and that subjects in this process are the participants in the unincorporated companies, according to their participation.
Amendment of Art. 2, para. 2 of the Civil Code as the unincorporated companies are excluded from the group of taxable persons and the taxation obligations arise for the partners in the unincorporated company.
In connection with the above, it is necessary to make changes in the Income Tax Act, which will regulate the taxation of the income of the partners-individuals in an unincorporated company. A possible option is the definition of §1, item 26, b. "and" of the Income Tax Act to be supplemented by explicitly including the partners-natural persons in unincorporated companies, so that their income from the activity is taxed as income from employment relationships.
The current legislation and practice of the NRA regarding unincorporated companies are unclear. According to VAT, any change of ownership of a good or provision of a service is considered a supply (Article 6 and Article 9 of VAT). On the other hand, Art. 10, para. 1, item 3 of the VAT provides for an exception to the general regime - lack of delivery in the case of a non-monetary contribution to a commercial company. Since the unincorporated company is not a trading company, it would follow that any non-monetary contribution of a good or service to it would be considered a supply.
However, in the practice of the NRA (e.g. clarification No. 92-00-5628/11.03.2009 of the NRA) the non-monetary contribution to an unincorporated company is also considered a non-delivery, i.e. applies by analogy to Art. 10, para. 1, item 3 of VAT. The cited provision provides for an exemption from the obligation to charge tax and it is inadmissible to interpret it expansively.
On the other hand, Art. 19 of Directive 2006/112/EU provides for the possibility for Member States to exercise a right of choice regarding the presence/absence of delivery when transferring assets (all assets of one person or only part of them) to another transferee. The cited provision does not contain a restriction on the legal-organizational form of the persons. According to the practice of the EU Court, it is inadmissible to introduce the possibility in question only for a certain group of persons, i.e. either it should apply to all persons or it should not apply. However, VAT has introduced this option, the regime of non-delivery in the case of a non-monetary contribution, only for commercial companies, which violates the principle of equality of subjects in their taxation.
Proceeding from the above, situations constantly arise in practice in which the participants in unincorporated companies or the unincorporated companies themselves are faced with the impossibility of complying with the requirements of the law
Proposal
In accordance with the implemented changes in item 1. above, we propose an addition to Art. 3 of the VAT, by adding a new paragraph 7, in which it should be specified that non-personalized persons are not liable for VAT for the purposes of VAT and the supplies in which these persons participate should be considered to have been made by the participants of these persons, in accordance with the commitments assumed by these persons in the contract of incorporation of the impersonal entity. It could also be added that if in this contract:
a/ for specific deliveries, it has been agreed that one of the participants (usually a leading partner) will rely on the client/clients, then this participant should be considered the perpetrator of these deliveries, and the other participants as his subcontractors, in accordance with the commitments made in the contract of establishment of the non-personalized person,
b/ no specific commitments of the various participants are specified in the impersonal person, then the deliveries should be considered to have been made by each of the participants, in proportion to his participation.
IV. PROPOSALS FOR CHANGES IN TAXTHE LEGISLATION REGARDING THE TREATMENT OF HOLDING STRUCTURES
Until now, the Bulgarian tax legislation has laid down only the principles for taxation of an individual company. When taxed, only transactions between related parties are subject to verification in order to avoid deviation from market levels. It is not intended that tax losses from a subsidiary can be transferred to the parent and that it reduces its taxable profit.
The practice of group taxation of companies with corporate tax and VAT grouping is applied in a number of EU member states, such as the Netherlands, Luxembourg, France, Germany, Italy, Spain, etc. and allows companies to be flexible in organizing their business activities and engaging in internal restructuring.
Tax grouping (or so-called tax consolidation) is a regime that treats companies whose capital is sole or partial (majority ownership) of the group, as well as certain formations as a single taxable person for tax purposes.
VAT grouping enables groups of companies that are financially, economically and organizationally related to be considered by the revenue authorities as a single taxable person for VAT purposes.
Tax consolidation, including for VAT purposes, includes numerous benefits for companies, some of which are:
– Reduction of administrative costs for staff involved in maintaining the tax status of group companies by centralizing it in one company
– The tax losses of one company can be used to reduce the taxable profit of another company in the group
– Transfer of assets within the group without such transfer giving rise to taxation.
In view of the lack of experience and practice in Bulgaria on the above-mentioned problems, we propose, on the basis of a broad expert discussion, to formulate proposals for changes in the Law on Corporate Income Taxation and the Law on VAT. The reason for this is also the upcoming amendment of Council Directive 2006/112/EU of November 28, 2006 on the general system of value added tax.
http://www.turbulence.tech