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

On the other hand, even if the VAT deduction denial is rejected as an adequate and proportional penalty and the Member States are allowed to impose only the acceptable financial penalties, I fear that the Bulgarian tax payers would not see better times given that the financial sanctions under the Bulgarian VAT Act often take as a basis the VAT which was not charged in time. Thus, even if the taxable person suffers only a financial penalty, the latter would be in practice equal to the amount of the VAT in question. This, in turn, results in disproportional punishment of the taxable persons and in the collection of the double amount of the VAT or, respectively, denial of VAT deduction.

In view of the above considerations, I believe that it is of paramount importance that the Bulgarian courts start invoking and applying the Court of Justice judgments in the cases before them because the recent practice shows that the case-law often surmounts wrongful tax assessment practices and even corrects the imperfections of the legislative provisions which not always transpose the EU law in the most correct and adequate manner.

Besides, given the vast application of the controversial provisions, I am looking forward to the Judgment of the Court of Justice on the preliminary ruling request referred by the Supreme Administrative Court which would give, I hope, a clear response to the doubts as to the compliance of the national legislation with Directive 2006/112/EC.

And, after all, as the example with the adoption of the new provision of Art. 73a of the Bulgarian VAT Act as a result from Court of Justice Judgment in joined cases C-95/07 and C96/07 Ecotrade, illustrated well, the step from the Court of Justice Judgment to the legislative reform is small.


Veselina Petkova

Associate at Delchev & Partners Law firm