On 22 June 2018, on a taxpayer's request, the National Revenue Agency (NRA) issued a letter concerning the VAT aspects of the activity of the Bulgarian branch of an Italian company.
(a) Facts. An Italian company involved in machine building registered a Bulgarian branch. The head office sent materials to Bulgaria, and the branch manufactured cranes, which were dispatched only to the principal in Italy. The head office and the branch were registered for VAT purposes in Italy and Bulgaria, respectively.
(b) Questions. The company raised a question regarding the right to deduct input VAT by the branch if the branch provides services only to the head office and does not perform sales to third parties. In addition, the company asked about the VAT aspects of the transfer of goods to and from Bulgaria.
(c) Comments. The NRA commented that, based on article 3(3) of the Regulations for Application of the VAT Act (RAVATA), the transfer of goods between the head office in Italy and the branch in Bulgaria should be considered as taxable supplies subject to the general VAT rules. Therefore, the transfer of goods from Italy to Bulgaria should be reported as an intra-Community acquisition by the Bulgarian branch, and the transfer from Bulgaria to Italy should be considered as an intra-Community supply.
With regard to the right to input VAT deduction, the NRA considered that, because the branch is performing taxable supplies to its head office in Italy, it should be allowed to deduct input VAT on its purchases.