Bulgaria: First VAT referral to the European Court of Justice

According to the Bulgarian VAT law in force from 1 January 2007, negative monthly VAT results were to be carried forward for the next three months and claimed for refund with the third month’s VAT return. Then the state had to reimburse the VAT in 45 days, unless a VAT audit was assigned. In this event the VAT would be refunded after the audit and depending on the audit’s results. The state owed interest for the period from the expiry of the 45-day term until the actual refund (i.e. for the delayed refund due to the audit).

This law was changed in December 2007 to allow the state to refund the VAT immediately after the 45-day term (despite the initiation of an audit) if the taxpayer provided adequate qualifying collateral. The VAT law was changed in January 2010 to state explicitly that the state owes interest for the period when refunds are delayed, because of an audit. Therefore the “interest issue” was valid for 2008 and 2009 only.

A Bulgarian Power Plant had VAT receivables arising prior to the legal change operated in December 2007. The VAT was refunded by the tax authorities without interest for the delay. The company appealed against the tax authorities’ position, claiming that the state should pay interest for the delayed refund.

Subsequently, the Sofia Administrative Court decided to suspend the proceedings in the dispute between the company and the Large Taxpayers’ Office concerning the state’s obligation to pay interest on delayed refunds of VAT in 2008 and to put four questions before the ECJ in order to establish if they were in line with the EU Vat Directives.

Experts, however, have criticized the Sofia Administrative Court for not making clearer inquiries regarding the obligation of the state to pay interest to taxpayers following delayed refunds due to audits because the first question relates to the legal change of the period of refund and does not focus on the obligation to pay interest.

The second question refers only to the term for refund without contemplating the interest obligations by the State and the third question does not touch upon the question of interest. The fourth question essentially seeks to establish whether or not when past obligations of the taxpayer are repaid through a reduction of a claimed VAT refund, the taxpayer should be liable for interest to the state after the date of the VAT return with which the VAT refund was claimed until the date of the document whereby the authorities recognize that they owe a VAT refund


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