Determination of the basis of taxation for supplies under VATA

This article aims to clarify the concept of basis of taxation under VATA. It is associated with determining the value on which the VAT is to be charged when the supply is taxable or not to charge tax when the supply is exempt.

This value is always expressed in Bulgarian lev and stotinki, whether the supply is paid in money, alternative means of payment or in transferred property rights on goods (respectively service provided).

According to Art. 26 (6) VATA, where the values required for calculation of the taxable amount are expressed in a foreign currency, the basis of taxation is determined on the basis of the lev equivalent of the said currency at the exchange rate announced by the Bulgarian National Bank for the date on which the tax became chargeable.

According to Art. 26 (2) VATA, the basis of taxation is determined on the basis of everything which constitutes the consideration which has been obtained by or is due to the supplier from the recipient or another person in connection with the supply. This amount does not include the value added tax. Any payment of damages and interest of a compensatory nature shall not be considered a consideration for a supply.

Components of the basis of taxation

The determined basis of taxation is credited with all other taxes, fees, excise duties where such are payable on the supply (Art. 26 (3) VATA).

The basis of taxation also increases through incidental expenses charged by the supplier such as commission, packing, transport and insurance directly linked to the supply, which, by their nature, are services indispensable to the contractual condition of delivery. Where these services are performed by the supplier or at their expense in connection with the main subject of the supply, it is considered that the costs involved are part of the basis of taxation of the agreed delivery.

The cost of usual or customary packing materials or containers could also lead to an increase in the basis of taxation, unless returnable or if the recipient is not a taxable person. If such packing materials or containers are returned by the recipient, the basis of taxation is reduced with the value of the said materials or containers upon return.

The basis of taxation is also increased by the value of the subsequent warranty services for the goods and the value retained by the recipient as performance security - Art. 26 (4) VATA.

However, the taxable amount does not include the amount of trade discount or rebate, if allowed to the recipient on the date of occurrence of the chargeable event. The cost of the usual or customary packing materials or containers is also not included if such materials or containers are returnable and if the recipient is a taxable person. Also not included are the costs by a lessor and lessee regarding the use of the goods under the terms and conditions of a lease contract.

There further exist special cases of determination of the basis of taxation, which are explicitly covered in the Act (Art. 27 (2) VATA).