European Legal Review, vol. I 2011 – VAT Deduction for Goods or Services Prior to VAT Registration – Mission (Im)Possible?


Every analysis of the VAT system and each EU Court of Justice judgment pertaining to VAT start with the paramount principle of the neutrality of VAT and with the pivotal role of the VAT deduction system as the main mechanism to guarantee the neutrality.

From the standpoint of the tax practitioners and the business, however, the VAT deduction if rather associated with tax audits, disputes and often – litigation. On the other hand, the tax administration is more often than not guided by the fiscal principle due to the fact that VAT is the main source of budget revenues and thus the denial of VAT deduction is a common means for funding the exchequer.

As a consequence, a tax conceived as neutral in nature in reality provokes polar relations between the taxpayers, the tax administrations and the arbitrator in their disputes – the court.

And while the practice – legislative, administrative and judicial, concerning most of the issues pertaining to the VAT deduction, has immensely developed during the recent years, one major question seems to go unnoticed in the periphery of the public discussions – the question concerning the VAT deduction for goods and services acquired prior to the VAT registration date. Clear evidence in this respect is the lack of any legislative amendments to the relevant provisions of the VAT Act since its adoption in 2007 and the fact that the provisions in force do not differ materially from the stipulations of the repealed VAT Act.

Thus, compared with the progress in the opinions on the main VAT principles and with the development of the Court of Justice and, more and more, of the Bulgarian courts’ case-law, the retardation and the incompliance of the provisions governing the VAT deduction on goods and services acquired before the VAT registration with EU Directive 2006/112/EC and the Court of Justice’s pivotal judgments is striking.