On 15.12.2022 the Bulgarian Parliament adopted at second reading the drafts of the amendments and additions to the Value Added Tax Act (“VATA”).
The draft VATА introduces the possibility provided in Article 90, paragraph 1 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (“the VAT Directive“) to reduce the taxable amount of a supply in the event of total or partial non-payment which may become irrecoverable, thus ensuring the Bulgarian legislation is in line with the rulings of the Court of Justice of the European Union (“CJEU“) relating to the possibility of reducing the taxable amount of a supply in the light of total or partial non-payment.
Firstly, the amendments include a definition of the conditions to be considered as a material prerequisite for making a non-payment adjustment and introduce a the procedure in this respect.
VATA introduces the findings held in Case C-242/18 of the CJEU, namely that a Member State cannot benefit from the derogation under Article 90, paragraph 2 of the VAT Directive in such a way as to exclude VAT corrections in the event of non-payment of public debts.
The reasonings of the CJEU relate to the fact that VAT adjustment in the event of total or partial non-payment is an expression of the basic principle of the VAT Directive that the taxable amount consists of the consideration actually received, from which it follows directly that the tax administration may not charge VAT in excess of that received by the taxable person.
The purpose of the adopted amendments is to give taxpayers the right to reduce the tax base in case of an established uncollectible receivable on supplies.
The explicit legal regulation in this sense will lead to a uniform treatment of the cases in which there are prerequisites for making an adjustment of the tax base, respectively of the tax credit used, as well as it will facilitate the control activities of the revenue authorities.
Furthermore, certain conditions are laid down in order to allow for the reduction of the tax base and the VAT charged.
The reduction of the taxable amount and the VAT charged in the case of an irrecoverable receivable, where the recipient of the supply is or was a person registered under the law at the time of the supply, shall be effected by the supplier by issuing a credit note to the extent of the total or partial non-payment of the supply within three months of the expiry of the tax period in which the relevant circumstance arose.
The reduction of the tax base and of the charged tax, when the recipient of the supply is a person not registered under the law or was a person not registered at the time of the supply, shall be carried out by the supplier by issuing a protocol in accordance with the procedure determined by the regulations for application of the VATА.
The reduction will also be carried out by a protocol where the recipient of the supply is terminated after insolvency proceedings or liquidation proceedings have been completed or it is a person registered under the law who uses the goods or services received to carry out supplies for which there is no right of deduction.
In the aforementioned cases, the issued protocol shall be reflected in the sales ledger and the VAT declaration within three months from the expiry of the tax period during which the respective circumstance has occurred.
The taxable amount and the VAT charged shall not be reduced in the event of total or partial non-payment of a taxable supply where the supplier knew or ought to have known that it would not receive the amount due under the supply.
It is also assumed that where the supplier (a person registered under the law) receives full or partial payment for a supply for which the tax base and the VAT charged have been reduced, or the receivable under the supply has been extinguished in full or in part by other means of consideration, the supplier shall be obliged to issue a debit note during the tax period in which the payment has been received or the receivable has been paid, up to the amount of the payment received or payment under the supply.
Rules for adjustment of the VAT credit used are also provided in cases of reduction of the tax base and the VAT charged on a supply in case of full or partial non-payment under a taxable supply.
In this regard, where the recipient is a person registered under the law, it will be obliged to adjust the amount of the tax credit availed, while the adjustment will be performed for the tax period of the receipt of the credit note issued by the supplier.
Where the recipient makes full or partial payment or repays in full or in part the liability for the supply otherwise recoverable for which an adjustment to the tax credit has been made, the recipient will be entitled to a tax credit provided he/she is in possession of a debit note issued within the tax period in which the payment or repayment was made.
Rules have been adopted for adjustment of the tax base for persons with terminated registration under the law in case a circumstance for modification of the tax base has occurred or for cancellation of the supply (the recievable is uncollectible).
In this regard, upon receipt of a credit note for modificationof the tax base for a supply for which the right to deduct VAT has been exercised under a tax document issued with charged VAT, a person whose registration under the law has been terminated, shall notify in writing the competent territorial directorate of the National Revenue Agency (“NRA“) within 7 days after receipt of the credit note. The NRA shall issue a permit for the inclusion in the purchase ledger and in the VAT return.
Within 14 days from the receipt of the authorization, the person shall submit a VAT return and accounting registers for the period during which the credit note was received, in accordance with the procedure laid down in the regulations for the implementation of the law.
Similar rules are also provided for a person whose registration under this law has been terminated before the issuance of a credit note for amendment of the tax base of a supply for which it has issued a tax document with VAT charged before the date of termination of its registration.
