Set-off, deduction and refund of value-added tax

This article will introduce you to a procedure common, namely the recovery of value added tax paid.

The resulting recoverable tax is the result for the relevant tax period, where the total amount of tax credit exceeds the total tax charged by the registered person. This recoverable tax can be set off, deducted or refunded depending on the presence or absence of established and unpaid tax liabilities of the person and the declaration filed by the same, in which the said person has requested a tax recovery.


Set-off of the recoverable tax

Set-off is a mechanism for repayment of two reciprocal obligations to the extent of the lesser of them. The tax recovery procedure is established in Art. 92 of the Value Added Tax Act (VATA) and Art. 68 of the Regulations for Application of VATA (RAVATA) and the first stage is setting off the recoverable tax where the person invoking the tax recovery procedure has chargeable and unpaid tax liabilities and liabilities for social insurance collected by the NRA, which have arisen by the end of the calendar month of submission of the VAT return.

In these cases the revenue authority shall set off such liabilities against the input tax claimable as stated in the VAT return, The set-off is carried out under the procedure in Art. 128 TIPC. If, despite the set-off, there is a remnant of the recoverable tax or the above two prerequisites are not fulfilled, one proceeds to the next stage - deduction of the recoverable tax.


Deduction of the recoverable tax

Unlike the set-off, which is a prerogative of the revenue authorities, deducting the refundable tax is only done by the subject. Set-off and deduction are mutually exclusive stages. Art. 92 (2) VATA establishes a prohibition against the revenue authorities to offset the recoverable tax against public receivables that are due and payable during the deduction procedure under VATA.

Deduction means the right of a registered person to reduce the result for the period - payable tax referred to in the tax return by the refundable tax under another tax return within two consecutive one-month periods after the occurrence of the right to deduct.

According to Art. 68 (2) RAVATA, subject to deduction under Art. 92 (1) VATA shall be any recoverable tax or the balance thereof after set-off, if such set-off is effected before submission of the next VAT return with the exception of: the refundable tax subject to set-off or refund under the terms of Art. 92 (3) and (4) of the Act, and the recoverable tax subject to set-off or refund together with the balance of another recoverable tax under the terms of Art. 92 (1), item 5 of the Act .

The deduction, as evidenced by its definition, is carried out with the payable tax as stated in the tax returns submitted in the following two consecutive one-month tax periods. In the course of deduction, several options are available to the person implementing the deduction, which are dealt with in the items of Art. 92 (1) VATA.

The revenue authority may require submission of a statement of effected deduction in respect of another recoverable tax.


Refund of the tax

The refund of tax is regulated in Art. 92 (1), item 4 and (3) VATA. The tax is refundable to VAT registered persons in the following cases.

Firstly, if after the deduction there is a leftover balance of the recoverable tax, the revenue authority shall refund the said balance within 30 days after submission of the most recent VAT return.

Secondly, the tax is refunded within 30 days after submission of the VAT return, where the person has effected supplies liable to tax at the zero rate during the 12 months last preceding the current month at a total value exceeding 30 per cent of the total value of all taxable supplies. including zero-rate supplies. The zero-rate supplies are considered equivalent to the supply of the following services with the place of supply within the territory of another Member State on which a recipient is a person registered for VAT purposes in another Member State: intra-European Union transport of goods and related forwarding, courier and postal services other than those under Art. 49; transport handling of goods; services related to transport provided by agents, brokers and other intermediaries acting on behalf of and at the sole expense of another person, as well as services of valuation, expertise and handling of movable items.

The last case, valid until 31.12.2015, is where a person who is an agricultural producer has, in the past 12 months before the current month, carried out taxable supplies at a 20% rate of goods produced by the said person under Annex № 2, Part Two of VATA, totaling more than 50% of the total cost of all taxable supplies that have been carried out by that person - Art. 92 (3).

According to Art. 92 (11) VATA, in the above cases, where a check is assigned the tax is offset or refunded within 30 days, while where an audit is assigned, the tax is offset or refunded in full or partially within 30 days from the delivery of the audit order to the amount representing the difference between the recoverable tax and the amount of taxes and mandatory insurance contributions which are reasonably expected to be identified in the course of the audit.

The refund or refusal to refund the tax is carried out by a set-off act or a refund act, which should explicitly refer to the special grounds under Art . 92 (3) and (1) VATA and the special appellate procedure.

Art. 92 (8) and (9) VATA allow for a refund by providing collateral. The tax is refunded and/or offset to the amount of collateral within five days from the submission thereof.



Liability for non-refund of tax

There are various types of liability associated with the non-refund of tax or the delayed refund thereof, one of which is interest liability (Art. 92 (10) VATA). It occurs in cases of: unfounded refusal to refund a refundable tax or refusal to refund a refundable tax on lapsed grounds (including the revocation of an act) within the time limits provided in Art. 92 (1), item 4 and (3) and (4) VATA.

In the above two cases, the tax is refunded together with the statutory interest.

Another liability for non-refund of tax is the administrative penalty, which is provided for in Art. 190 VATA - any revenue authority, which fails to refund a tax within the time period provided for, where the conditions for refund of the said tax under the Act are fulfilled, is liable to a fine of BGN 500 or more, but not exceeding BGN 2,000. For a repeated violation the fine is BGN 1,000 or more, but not exceeding BGN 4,000.


Interruption and resumption of time limits

Given the tight deadlines for refund of tax and the different types of liabilities associated with the delayed refund thereof, the provision of Art. 93 VATA outlines the situations in which the time limits for tax refund of Art. 92 (1), item 4 and (3) and (4) VATA can be interrupted.

The time limits are resumed upon its filing. Another case in which the time limits can be suspended is the absence or failure to submit the documents required under VATA or other documents requested by the revenue authority, if the same are required under a statutory instrument and are resumed upon presentation of the documents before the revenue authority.

Next case where the person can not be found under TSSPC by the revenue authority at the address for correspondence, and resuming it after written notification by the registered person to the revenue authority for his change of address in the country and the opening by the revenue authority at the address.

The next case is where the person cannot be found, by the revenue authority at the given residential address, as per TIPC, and it is only resumed after written notification by the registered person to the revenue authority of the change of their address in the country and when the authority has found the said person on that address.

According to Art. 93 (2), the time limits for refund are interrupted for a period not exceeding 60 days where: a revenue authority ascertains data of a criminal offence against the tax system and refers the said data to the pre-trial proceeding authorities within one month after ascertainment of the said data, and where the interruption has been requested in writing by the authorities of the Ministry of Interior or by the judicial authorities upon institution of a pre-trial or judicial proceedings.

In these cases the time limits for refund resume upon receipt of a written refusal to institute proceedings or, respectively, upon notification of completion of the proceedings.