Amendments to the VAT Act as of 1 January 2012

20 December 2011

The Law on the amendments of the VAT Act effective from 1 January 2012 was promulgated in State Gazette on 16 December 2011. The changes are largely in line with the Bill of the government, but the retrospective effect of specific changes was not accepted by the Parliament

Regulation of the tax base of sales of development land and new buildings abolished

The rules pertaining to the tax base of supplies of regulated land plots and new buildings are being brought in line with EU VAT Directive 2006/112/EC. The rules effective until the end of 2011 specify that the tax base of these supplies shall not be lower than the cost of acquisition of the assets. The change abolishes this restriction and allows determining the tax base according to the contracted price which could be lower than the cost of acquisition.

The changes will not have retroactive effect as proposed initially by the government.

Limited application of the tax base in respect to the open market value for related parties

The amendments transpose the respective provision of the EU VAT Directive 2006/112/EC which allows Member States to fix the tax base of supplies between related parties to the open market value only in specific cases in which either the supplier or the recipient do not enjoy the right to full input VAT deduction. The aim of this rule is to prevent related parties from optimizing their pro-rata VAT deduction by applying non-arm’s length prices.

The main reason to apply this provision appears to be the increased number of referrals* to the Court of Justice of the EU whose outcome is expected to be against the current rules of fixing the tax base to the open market value in all transactions between related parties. The changes will not have retroactive effect as proposed initially by the government.

Electronic submission of VAT returns made mandatory

If for a given month either the Sales or the Purchases ledgers contain more than five entries, the VAT records must be submitted electronically with a qualifying electronic signature.

Limitation to the VAT exemption of supplies of construction rights

Until the end of 2011, the supply of construction rights may be exempt from VAT if the supply takes place before the completion of the rough construction of the building. The amendment of Article 45(2) of the VAT law effective from 1 January 2012 limits the exemption by making it only possible until the start of the construction process, i.e. up to the date of the building permit.

Uncertainties may arise in cases where no building permit is issued, or where more than one building permit is issued for different parts of the project, or where the building permit has been cancelled and then reissued.

Administrative sanctions for non-compliant storage of fiscal receipts

The amendments to the penal provisions provide for additional cases in which administrative measures such as monetary sanctions of up to BGN 10,000 and closure of commercial sites for up to one month could be imposed on taxable persons who use fiscal devices, e.g. a cash register. These penalties would apply for failure of the person to perform his obligations for storage of the documents issued by and in relation to fiscal devices. The obligations for storage of such documents are described in Ordinance No H-18 of 13 December 2006 and were last amended in June 2010.

Changes in the scope of the reduced VAT rate of 9 percent

The reduced VAT rate of 9 percent will apply to accommodation in hotels and like as well as in camping sites, and not, as presently, to lodging provided for by hoteliers. The aim is to put all beneficiaries of the service on an equal tax footing. The amendments also narrow the scope of the term “accommodation” by excluding from it the supply of general tourist services rendered by a tour operator.

Right to deduct input VAT upon the importation of second-hand goods

The change provides that the right to deduct input VAT upon the importation of second-hand goods, apart from collector’s items, pieces of art and antiques, can be exercised immediately. The amendment comes in as a result of Case C-203/10, Auto Nikolovi, lost by Bulgaria at the Court of justice of the EU which disallowed the present rule of deferring the deduction until the moment of a subsequent sale of these items.

* Cases C-298/11, Dobrudzhanska petrolna kompania, C-129/11, Provadiinvest, and C-621/10, Balkan and Sea Properties, referred to the Court of Justice by the Varna Administrative Court

For Information

Kalin Hadjidimov
Partner, Tax & Legal
Tel.: + 359 (2) 9697 700
Fax: + 359 (2) 9697 878
khadjidimov@kpmg.com

Ivan Vargoulev
Director, Indirect Taxes
Tel.: + 359 (2) 9697 700
Fax: + 359 (2) 9697 878
ivargoulev@kpmg.com