July 2020 / Bulgaria

On 30 June 2020, the Constitutional Court of Bulgaria issued Decision No. 8, confirming the constitutionality of article 102, paragraph 4 of the Value-Added Tax Act (effective as from 1 January 2018). According to the challenged VAT provision, a taxable person is liable for VAT on all taxable supplies made after exceeding the statutory threshold for a mandatory VAT registration, regardless of whether the taxpayer has been registered for VAT purposes. Based on this provision, while performing tax audits, the tax authorities may assess additional VAT in cases where taxpayers failed to file, or failed to file on time, for a VAT registration. The decision is accessible on the Constitutional Court's website.

On 3 July 2020, the European Commission closed the infringement procedure against Bulgaria regarding the incorrect implementation of Council Directive 2014/107/EU amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation (DAC2). The issue was that Bulgarian domestic rules provided for a broader exception for certain reportable persons than the one allowed under EU legislation, allowing certain types of entities, such as partnerships, to escape due diligence procedures, and excluding certain annuity contracts from their scope. In the meantime, Bulgaria amended its legislation accordingly and, as a result, the Commission decided to close the infringement procedure.

On 11 June, the Bulgarian National Revenue Agency announced Bulgaria's intention to defer the reporting deadlines for the exchange of information under DAC2 and DAC6 reporting standards in light of the ongoing COVID-19 pandemic. The announcement provides that financial institutions will be granted an opportunity to file DAC2, CRS and FATCA returns in respect of the 2019 reporting period by 30 September 2020. DAC6 reporting planned for launch on 1 July 2020, will also be deferred. The envisaged extension of reporting deadlines has been based on Council Directive (EU) 2020/876 amending the Directive on Administrative Cooperation (DAC), according to which EU Member States are granted an option to defer the time limits with respect to the following reporting frameworks:

• automatic exchanges of information under the EU Common Reporting Standard (CRS) for reporting financial institutions (DAC2); and
• filing and exchange of information with respect to mandatory disclosure requirements (DAC6).

The Bulgarian National Revenue Agency is expected to announce further legislative measures for the amendment of the Bulgarian Tax and Social Security Procedure Code that regulates administrative cooperation and exchange of information. The text of the announcement can be accessed through the website of the National Revenue Agency (in Bulgarian only).

The Bulgarian Supreme Administrative Court (SAC) has issued its decision No. 10037 in administrative case No. 10108/2017 г., according to which it revoked as unconstitutional the provision under article 87a, paragraph 2 of the Regulation for Application of the VAT Act. Article 87a (2) of the VAT Act excluded from Bulgaria's Tour Operators' Margin Scheme (TOMS) goods or services acquired for resale from non-taxable vendors. Under the TOMS, tour operators that buy and resell travel, accommodation and certain other services operating as principal or undisclosed agents do not recover input VAT on all direct costs and apply output VAT on the realized resale margin only. The revoked VAT provision excluded from the scope of the TOMS goods or services acquired for resale from non-taxable vendors. As a result, tour operators had to apply 20% output VAT on the resale price of such purchases under the general VAT regime. Under the SAC's decision to revoke the contested VAT provision, tour operators may include such purchases under the scope of the TOMS and apply 20% output VAT only on the realized resale margin. The SAC decision is effective as from 26 June 2020 and can be accessed through the SAC website (in Bulgarian only).

On 30 July 2020, the Bulgarian parliament approved at second (final) reading the proposal for extending the scope of the products for which the reduced 9% VAT is applied. The new products include:

–	beer and wine provided as part of restaurant/catering services;
–	the use of certain sports facilities; and
–	tour operators' services, including the organization of excursions by tour operators and travel agents with occasional transportation.

The reduced 9% VAT rate for the above products will apply temporarily during the period from 1 August 2020 – 31 December 2021. As a next step, the amendments to the VAT Act must be promulgated in the State Gazette. Further developments will be reported as they occur. The draft proposal is available here (as a PDF and in Bulgarian only).