Valentin Savov Attorney of Law (LL.M. Leiden) Opening of the Taxation chapter in EU accession negotiations Bulgarian experience IFA Serbia Valentin Savov Attorney of Law (LL.M. Leiden)

Infringement procedures EU Commission is responsible for the correct application of Community Law The Commission is the “guardian” of the Treaties Under Article 258 of the Treaty on the Functioning of the European Union the Commission may trigger infringement proceedings against a Member state Only a Member state may infringe Community law The procedure is between the Commission and the Member state

Infringement procedures Triggering infringement procedure against a Member state Anyone – individual, company, NGO, etc. No need to have or demonstrate legal standing and direct interest from the outcome of the procedure Stages Information gathering Formal notice Reasoned opinion Referral to the Court of Justice of the European Union (ECJ)

Treatment of dividends Infringement number: 20074443/20074883; Decision date: 5/6/2008 Discriminatory taxation of outbound and inbound dividends Formal notice to Bulgaria for discriminatory treatment and heavier taxation of inbound dividends Formal notice to Bulgaria and Romania for discriminatory treatment of outbound dividends Changes in the law

Treatment of income from governmental and other bonds Infringement number: 20082053; Decision date: 2/19/2009 The European Commission requests that Bulgaria end discriminatory tax treatment of foreign governmental, municipal and corporate bonds Income from Bulgarian governmental, municipal and corporate bonds was exempt from tax No such tax exemption was granted for similar bonds issued abroad and in EU

Treatment of income from trading on regulated market Infringement case: 20082114 The European Commission requests that Bulgaria end discriminatory tax treatment of income from trading on regulated markets Bulgaria was served with a formal notice Under Bulgarian law, capital gains from disposal of shares on a regulated Bulgarian stock exchange were tax exempt No exemption on the capital gains realized on other EU regulated markets Amendments to the Bulgarian law

Taxation of non-residents Infringement number: 20074881; Decision date: 3/19/2009 The European Commission requests that Bulgaria end discriminatory taxation of non-resident taxpayers The European Commission has formally requested Bulgaria to change its tax provisions according to which certain types of Bulgarian source income are subject to a withholding tax on a gross base when paid to non-residents, whereas Bulgarian residents may deduct expenses related to the same income

Discriminatory tax relief of donations Infringement number: 20082178; Decision date: 6/25/2009 Discriminatory tax relief for donation made for the benefit of persons established in the Republic of Bulgaria Amendments to the IITA Tax relief for donations shall be available for donations made in favor of persons and entities established in an EU state and identical or similar to those listed in the law – schools, registered churches, health care and medical treatment institutions, etc.

VAT refund rules Infringement number: 20084839; Decision date: 10/27/2011 The European Commission requested Bulgaria to amend its VAT rules The conditions for refunding VAT to taxable persons subject to a tax audit were found discriminative to persons involved in intra-Community transactions The rules distinguished between taxable persons operating only within Bulgaria and those carrying out intra-Community transactions Rules were found incompatible with the VAT Directive and with the principle of proportionality

VAT treatment of state and private bailiffs Infringement number: 20084368; Decision date: 4/26/2012 European Commission asks Bulgaria to apply VAT to the activities of state bailiffs State bailiffs and private bailiffs According to national law, only the activities of private bailiffs were subject to VAT Distortions of competition where activities of public bailiffs are not subject to VAT whereas the same activities of private bailiffs are

Bilateral treaty with the US Infringement number: 20082050; Decision date: 6/21/2012 Bulgaria asked to review terms of bilateral agreement with the United States on technical assistance and to stop certain duty and tax reliefs thereunder The treaty with the US provided for a duty-free and tax-free import of goods financed by United States and for goods and services purchased on the Bulgarian market with the funds of a program for technical assistance None of the exemptions set out in EU legislation justifies the duty and tax relief applied by Bulgaria under this bilateral agreement. After the accession, Bulgaria should have adjusted the terms of the treaty with US or should have withdrawn

Bilateral treaty with the US Infringement number: 20134012/20082050; Decision date: 6/20/2013 Bulgaria referred to Court of Justice for failing to abolish duty and tax relief in its agreement with USA The European Commission referred Bulgaria to the Court of Justice for failing to bring its bilateral agreement with the USA on technical assistance into line with EU law

2017 Infringement case Bulgaria has failed to transpose new transparency rules for the exchange of tax rulings Reasoned opinion to Bulgaria, Cyprus and Portugal as these Member States have failed to transpose new measures on the automatic exchange of tax rulings between EU tax authorities (Council Directive (EU) 2015/2376) Member States were supposed to transpose these measures by 31 December 2016The new rules are designed to help clamp down on cross- border tax avoidance, aggressive tax planning and harmful tax competition and the first exchange of information between all EU tax authorities is supposed to take place by this September

Preliminary rulings Preliminary rulings are a key element of the judicial system of the EU and of the EU law Preliminary rulings ensure the integrity, full effect and application and the autonomy of the EU law Preliminary rulings are binding for all subjects of the law, including jurisdictions that have not made the reference for the ruling Retroactive effect – from the date of entry into force of the respective provision

Bulgaria: preliminary rulings The rulings have resulted in: Adoption of new laws and regulations Amendments to existing regulations Changes in the practice and the decisions of the Bulgarian courts Unification of contradictory practices, decisions and interpretations by the courts

Bulgaria: preliminary rulings Any court in Bulgaria may stay the court procedure and refer to ECJ for a preliminary ruling The procedure for lodging references for preliminary rulings was implemented into the Bulgarian Civil Procedure Code A lower court whose decision is not final may refuse to refer for a preliminary ruling without such refusal to serve as a ground for repeal of the decision If a lower court decides to stay the procedure and refer to ECJ for a preliminary ruling, its decision is not subject to appeal

Bulgaria: preliminary rulings Between 2007 and 1 March 2017 – around 103 references for preliminary rulings Most of the reference are made by lower courts Most of the references are made by the administrative courts Lower courts use the preliminary rulings to oppose to or circumvent interpretations and practices of the higher courts and especially of the supreme administrative and supreme court of cassation Lower court sometimes use the procedure in order to oppose rulings of the higher courts they disagree with Lower courts sometimes use the procedure n order to overcome contradictory interpretations and practices of the supreme courts

Corollary Infringement procedures and preliminary rulings have significant effect on the Bulgarian legislation and the juris prudence of the Bulgarian courts The two mechanism have contributed for the compliance by the tax authorities and the courts with the EU law and the decisions of the ECJ The mechanisms have also developed the legal thought and the legal profession and the level of its exercise

THANK YOU FOR THE ATTENTION! Valentin Savov Partner / Attorney of Law E-mail: vsavov@law-tax.bg