Main aspects in the Law on Amendments and Supplements to the Tax and Insurance Procedural Code (TIPC)

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The bill to amend and supplement the Tax and Insurance Procedural Code, submitted to the National Assembly by the Council of Ministers, proposes the introduction into Bulgarian legislation of Council Directive (EU) 2021/514 of March 22, 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (Directive (EU) 2021/514). The provisions of the Directive should be introduced into national legislation by 31 December 2022.

The draft Law on Amendments and Supplements to the Tax and Insurance Procedural Code, which introduces Directive (EU) 2021/514 into Bulgarian legislation, is included as measure 140 in the Action Plan for 2022 with the measures resulting from the membership of the Republic Bulgaria in the European Union, adopted by Decision No. 17 of the Council of Ministers of 2022.

The changes included in the bill, related to the transposition of Directive (EU) 2021/514, are in several areas:

  1. Changes related to the exchange of information upon request:
  • A definition of the concept of “presumed significance” is introduced

The term is in accordance with the internationally recognized standard. It is a basic principle that information is exchanged which is of presumed relevance to the establishment of direct tax liabilities as well as to the application of legislation in the area of ​​these taxes.

  • So-called “group requests” are regulated

They request information on a group of taxable persons whose identity cannot be individually established by the requesting country. Instead, individuals are described by a common set of characteristics, and inferred significance is based on these. In this regard, the requesting authority must provide the requested authority with a description of the characteristics of the group, an explanation of the applicable law and the facts and circumstances giving rise to the request, and an explanation of how the requested information would assist in determining whether the taxable persons in the group comply with their obligations.

  1. Changes related to the automatic exchange of information:
  • Income categories

Royalties are added to the income categories for which information exchange is required. Given the nature of this income, the transfer of profits is more difficult for tax authorities to trace, therefore the addition of this income to the scope of the exchange of information aims to limit cases of tax evasion and tax evasion.

Additions to the provisions of the Law on Corporate Income Taxation and the Law on Personal Income Taxes related to the provision of information for the purposes of automatic exchange are also foreseen (Article 201 of the Civil Code and Article 73a of the Income Tax Act).

  • Automatic exchange of information provided by platform operators for sellers performing relevant activities through those platforms.

In accordance with the Directive, the scope of the automatic exchange of information is extended to include information provided by platform operators for European Union sellers who conduct business through these platforms. The information refers to sellers who carry out relevant activities through the platform (rental of real estate, provision of personal services, sale of goods, rental of any type of means of transport) and who are residents of the Republic of Bulgaria or another member state, or rent property located in the Republic of Bulgaria or in another member state.

The bill also proposes rules for effective enforcement and control in order to ensure the fulfillment of obligations to provide information and carry out due diligence procedures by platform operators, as well as special rules for controlling the activities of foreign platforms registered in the Republic of Bulgaria or another member state.

  1. Changes in the field of administrative cooperation:
  • Presence of officials of a member state during administrative proceedings in another member state

In order to improve the regulation, a specific 60-day deadline is provided for a response from the requested authority, to which a request is made for the presence of an official of another member state during administrative proceedings. It also creates the possibility for officials from one Member State to participate in administrative proceedings in another Member State electronically to cover additional ways of communication.

  • Parallel checks

The current provision regarding parallel checks is specified, providing a 60-day deadline for the requested authority to respond to a proposal to carry out a parallel check.

  • Joint audits and inspections

Rules are established regarding joint audits and inspections between two or more Member States. The competent authorities of the participating Member States proceed in a pre-agreed and coordinated manner to audit or check one or more persons who represent a common or complementary interest to them. In the case of a request for a joint audit or inspection, the requested authority confirms or refuses with reasons within 60 days of receiving the request.

  1. Other proposals related to the use of the exchanged information
  • Use of the information exchanged

In accordance with the Directive, the bill expressly provides that the information exchanged may be used for the administration, determination of the amount of tax liabilities and control over the implementation of the provisions on VAT and other indirect taxes.

  • Data security and stop sharing

The bill creates rules for action in the event of data security breaches in the context of information exchange. When the competent authority cannot limit the infringement immediately and in an appropriate way, it should notify the European Commission and request the suspension of access to the CCN network. After dealing with the breach, access is restored, and at the request of a Member State, this may be done after a check has been carried out on the actions taken in relation to the breach of data security

  1. With the transitional and final provisions of the bill, the Law on excise duties and tax warehouses is also amended in the section on the excise rate for tobacco products. Given the proposals made to introduce an excise calendar in the Act on Excise Taxes and Tax Warehouses, the bill will have an impact on the state budget.
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