Taxation/ Litigation: Appeals to assessment of corporate taxes and denial of tax concessions to Legia AD

Delchev & Partners represents Legia AD in two parallel court cases concerning appeal to assessment of corporate taxes for 2007 and 2008 by the Bulgarian tax authorities. The cases concern denial by the Bulgarian tax authorities of corporate tax concession as a form of de minimis state aid enjoyed by the company which carries out clothes contract manufacturing in an economically challenged region in Bulgaria. In February 2015 the Bulgarian Supreme Administrative Court decided the first of the two cases in favour of Legia AD and concluded that the Bulgarian domestic tax provision restricting the right to de minimis aid for entities carrying out export activities does not comply with the provisions of Regulation 1998/2006/EC and therefore, the provision of the EU Regulation should be applied directly. The judgment reconfirmed that entities carrying out contract manufacturing were entitled to de minimis state aid as long as the aid is used for investment in non-current assets.

The Judgment of the Supreme Administrative Court is groundbreaking not only because it lays the path of subsequent case-law on tax concessions granted to enterprises engaged in contract manufacturing but also because the Judgment clearly and unequivocally states that the applicable provision of the Bulgarian Corporate Income Tax Act goes contrary to the EU legislation and that it should not be applied. The Judgment rectifies a long-standing injustice to all companies in the contract manufacturing sector in Bulgaria who have been continuously denied tax concessions on dubious grounds and it is Delchev & Partners’ privilege to play a role in this important milestone.