The policy of low rates of direct taxes has proven its usefulness and we hope it will continue. We also support the ever-fuller adoption of EU tax rules, even if this involves the removal of specific tax benefits.
At the same time, we believe that there are many opportunities for the tax climate in the country to become even more favorable for both business and the state. KRIB and its expert Committee on Taxes and Law are working in this direction.
Our principle ideas in the tax field can be briefly summarized as follows:
1. In the field of corporate income taxation
1.1. Introduction of a favorable regime for holding companies
We see an opportunity for Bulgaria to become a more attractive place for holding structures and related management personnel. In practice, this would be achieved as is remove the taxation of profits from sales of investments in subsidiaries, as well as the taxation of dividends from such companies, even when they are outside the EU. At the same time, the tax recognition of losses on sales of investments in subsidiaries could be limited, so as to prevent possible abuses, such as are possible under the current tax regime.
A similar tax policy is implemented by France, Germany, Spain, Great Britain, the Netherlands, Luxembourg, Austria, Belgium, etc. Recently, it has also been adopted by countries in Eastern Europe, such as the Czech Republic and Hungary.
If Bulgaria were to follow a similar policy, our tax system would take into account the geographical location of the country, creating good conditions for Bulgaria to manage Balkan economic structures and projects. Also, the tax system would be more adequate in the conditions of increasing fair tax competition between countries. Last but not least, we would realize additional revenues from the taxation of personal income and consumption of business leaders who have chosen to live and work in Bulgaria.
We emphasize that our proposal does not aim to introduce a regime of hidden state aid, nor to unfair tax competition through the creation of offshore regimes, but only to implement opportunities that already exist in many European countries and are in full compliance with legal and political commitments of Bulgaria as part of the EU.
We propose to make a thorough analysis of the presented idea with the participation of experts from KRIB and the Ministry of Finance, possibly supplementing the legislative proposals, based on European practices.
1.2. Abolition of withholding taxes combined with improved tax controls on transfer pricing
We also suggest that to abolish withholding taxes, which hinder international economic exchange and are often perceived - including by the EU Commission - as an unjustified protectionist measure, hindering the free movement of economic factors.
European practices clearly show the tendency to protect the fiscal interest not through increasingly archaic withholding taxes, nor through laborious procedures for applying tax treaties, but through more efficient control of transfer pricing.
It is a fact that Romania is significantly more advanced than Bulgaria in terms of the tax regulation of transfer pricing, insofar as taxpayers there have the possibility to conclude preliminary binding agreements with the state regarding tax-allowable transfer prices (so-called Advance Pricing Agreements, also known in many other European countries). Through these modern practices, the tax authorities would be protected not only from accounting for unrealistic or excessive interest expenses, royalties or fees for technical services (which are currently subject to tax at source and are therefore subject to checks in the application of tax treaties ), but also when buying and importing goods at artificially inflated prices (which are outside this system of taxation and control). At the same time, the correct business towards the state, which does not seek to avoid taxation through distorted pricing, would receive a higher degree of tax predictability and more effective protection from unfair competition in Bulgaria.
2. In the field of indirect taxes
We consider it very important to reduce the administrative burden and business risks arising from these taxes. This includes:
2.1. Wider use of electronic invoicing and archiving
In Bulgaria, the EDI (Electronic Data Interchange) system, explicitly regulated in the European legislation in the field of VAT, is not yet used. According to KRIB members with tax experience in Eastern Europe, the regulation of this system in Bulgaria would also reduce administrative costs. We emphasize that we are talking about an electronic exchange system, which is our country obliged to allow for use in the application of VAT under Council Directive 2006 / 112 EU of 28 November 2006 on the common system of VAT.
2.2. Wider use of administrative reliefs expressly permitted by European law
We believe that Bulgaria should more widely apply the "reverse charge" system, where many VAT registrations can be avoided without losing tax to the budget. A similar change in the taxation of expert services performed by foreign persons to Bulgarian clients in connection with real estate in Bulgaria would be particularly useful.
2.3. Avoiding excessive penalties against bona fide taxpayers
Tax practice provides many examples where inadvertent omissions, sometimes purely formal and not related to any substantial damage or fiscal risks, are sanctioned in the same way as deliberate actions damaging the state with huge sums. We consider this a vicious practice, especially in a situation where the correct application of VAT can be a matter of dispute even among experts. We propose to create a special text in the administrative-penal provisions, which would provide for the possibility of lower administrative sanctions and fines, when the violation could not significantly harm the state (for example, missed deadline for VAT registration, when all the charged VAT would be deductible as a tax credit from the customer, that is, there is no real damage to the tax office.
We also consider it important to explicitly prohibit the double collection of VAT for the same supply as a result of an insignificant formal omission by one of the parties to the transaction. There are cases when NRA authorities do not grant the buyer a tax credit because VAT should not have been charged for this supply, but at the same time they do not waive the incorrectly charged VAT. Thus, the tax turns from a burden on the consumer to a burden on the business.
2.4. Clarified transitional rules when excise taxes are changed
KRIB experts are of the opinion that when excise taxes are changed, more precise and more balanced rules are needed regarding found cases (for example, cigarettes already pasted with old stickers). We would suggest a discussion on this matter at an expert level.
3. In the field of local taxes and fees
We believe that when determining the real estate tax payable by legal entities, it is more reasonable for the taxable base to use not the reported value of the properties, but a tax assessment similar to that determined by the administration in the case of natural persons - owners.
Practice shows that sometimes the reported value of the properties is much lower than the market price, in which case a possible sale to another legal entity would lead to an increase in the taxable base for the purposes of the annual real estate tax - the new owner will have to reflect the reported value based on the purchase price. Thus, taxation is not neutral and prevents the purchase of properties by legal entities that would use them relatively more fully.
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