А long-standing client of ours – a renown Bulgarian company selling leading cleaning systems worldwide, has been subject to VAT tax inspection by the National Revenue Agency (NRA).

As part of the audit proceedings, the tax authorities concluded that no actual supplies had been made to our client for the audited period, thereby denying his VAT credit right for the invoices issued to him by his suppliers. In this regard, the Bulgarian NRA established tax liabilities for unpaid VAT plus interest on it, which was then collected in advance from the company.

The audit team’s reasoning for reaching these incorrect conclusions assumed that due to lack of personnel and tangible assets at our client’s suppliers no actual supplies could have been made. In other words, in the specific case the tax authorities concluded that if a supplier does not have employees or the supplier company’s manager is not socially secured with the company, or the company itself does not have premises or vehicles or other assets, its ability to perform an actual taxable delivery of a good or service, for which the counterparty can use tax credit, must be denied.

By way of filing an administrative appeal against the Tax Assessment Bill (Tax Audit Act), i.e., before reaching court phase, we managed to convince the NRA supervisory body that the above conclusions of NRA audit team are incorrect, because they did not correspond with the evidence collected within the revision proceedings, and contradict the practice of the Court of the European Union and that of the Supreme Administrative Court. The Director of “Appeals and Tax-Insurance Practice” Dept. after taking into consideration all our arguments and the case law presented by us revoked the Tax Assessment Bill. This saved our client the need to go to court and incur additional costs and time while not being able to use its money.

At the beginning of last week, NRA returned our client all unlawfully collected sums. We just initiated a separate procedure for collection from the tax authorities of the accrued late payment interest on the amounts collected – for the period in which our client has been deprived of his funds.

We are pleased that we were able to assist our client in defending its right to a tax credit. We are also happy that, with these small victories, we contribute to the preservation of the rule of law principle in our country and to the upholding of the rights of the Bulgarian business entities that form the backbone of our economy.