The value added tax (VAT) law in Bulgaria does not include a mechanism for reducing the VAT base in instances when a part or all of the taxpayer’s consideration remains unpaid. Thus, a supplier who has pre-financed the amount of VAT owed on the transaction cannot decrease its VAT liability even when the customer’s debt is unrecoverable, let alone when there is some chance that the debt will be honored.
The Court of Justice of the European Union (CJEU) issued a judgment in a case on referral from Italy that calls into question the compatibility of the Bulgarian rules with EU VAT law. Businesses that have uncollected trade receivables, therefore, need to consider the implications on decreasing their VAT liabilities related to outstanding customer debts.
Although the case referred to the CJEU focused on the Italian VAT rules, absent bad debt relief in the Bulgarian VAT laws, it appears the conclusions of the CJEU judgment would have implications under Bulgarian VAT provisions.
If and until there are future legislative changes made to the Bulgarian VAT law to reflect the findings of the CJEU, there is a question as to if and under what conditions businesses operating in Bulgaria that have uncollected trade receivables may rely on this judgment in seeking a reduction in their VAT base.
Read a November 2017 report prepared by the KPMG member firm in Bulgaria
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