Bulgaria - No VAT deduction for replacement parts or repairs purchased by lessee of leased goods

January 27: Bulgaria’s Supreme Administrative Court (Върховният Административен Съд) issued a judgment holding that no value added tax (VAT) input deductions were available on the lessee’s purchases of replacement parts and repair services related to a leased truck (i.e., under a finance lease for a period of less than three years). The case reference information is: No. 12047 (28 September 2011)

In this case, a Bulgarian company entered into a finance lease contract for the lease of a truck and trailer, for a 24-month period, having an option to purchase at the end of the lease. During the lease period, the truck needed repairs. The company / lessee purchased the replacement parts and repair services from Bulgarian vendors who, in turn, deducted the related input VAT on their invoices.

The tax authority rejected the lessee’s claim of deductions of input VAT because the purchases of the repairs were viewed by the tax authority as free-of-charge supplies made by the company / lessee for the benefit of the actual owner of the truck (the lessor). This position was upheld by a lower administrative court and by the Supreme Administrative Court.

To read a January 2012 report on the court decision, prepared by the KPMG member firm in Bulgaria: Supreme Administrative Court: No VAT deduction on repairs of leased goods

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