Bulgaria - Bulgarian rules on refund of VAT
ECJ: Bulgarian rules on refund of VAT – time limits and default interest
On 12 May 2011, the Court of Justice of the European Union (ECJ) gave its decision in the case of Enel Maritsa Iztok 3 AD v. Direktor "Obzhalvane i upravlenie na izpalnenieto" NAP (Case C-107/10). The Administrativen sad Sofia-grad (Bulgarian Administrative Court, Sofia) had requested a preliminary ruling from the ECJ on 25 February 2010. There was no Opinion of the Advocate-General in this case. Details of the judgment are summarized below.
(a) Facts. On 11 October 2007, Enel Maritsa Iztok 3 AD (Enel) submitted a tax return which showed VAT to be refunded by the Bulgarian tax authorities in the sum of BGN 2,273,514.85. That sum was arrived at as the total deductions exceeded the total VAT due for the tax period in question and Enel had not been in a position to make those deductions during earlier tax periods. In accordance with national VAT Law, in the version in force until 18 December 2007, the period for refunding of VAT, namely 45 days, would normally have expired on 26 November 2007, triggering an obligation on the part of the tax authorities, in accordance with that law, to pay default interest from that date. However, under the national legislation which entered into force on 19 December 2007, the effect of a tax investigation having commenced was that the period for refunding excess VAT and, consequently, the time from which default interest was payable, was extended until an investigation report has been adopted.
On 8 November 2007, the tax authorities served a decision ordering a tax investigation on Enel with a view to establishing VAT liabilities for the period from 1 January 2005 to 30 September 2007 and liabilities in relation to other taxes in respect of 2005 and 2006.
On 19 December 2007, the tax authorities refunded VAT in the sum of BGN 1,364,108.91 on the basis of Enel's tax return of 11 October 2007 and that sum was transferred to the company's account on 21 December 2007.
The tax investigation gave rise to a report of 13 March 2008, to which Enel lodged an objection, claiming that it was entitled to default interest on the sum of BGN 1,364,108.91 that had already been refunded for the period from 27 November 2007 to 21 December 2007 and on the outstanding balance to be repaid for the period from 27 November 2007 to the date of actual reimbursement.
On 29 April 2008, the tax authorities issued an amended notice of assessment was issued, which did not contain any reference to payment of default interest.
The amount of tax to be refunded to Enel on the basis of that amended notice of assessment was set off against the tax liabilities and default interest for 2005 and 2006 set out in the amended notice. On 13 May 2008, the balance of BGN 179,092.25 was transferred to Enel's account without any decision having been made concerning default interest accrued.
On 20 May 2008, Enel lodged an application for administrative review of the amended notice of assessment of 29 April 2008, disputing the tax liabilities and default interest, the set-off of those liabilities against the amount to be refunded to it and the implied refusal to pay to it the default interest claimed in its objection of 13 March 2008.
On 20 October 2008, the Director of the tax authorities took Decision No. 1518 under which default interest was awarded on the sum of BGN 179,092.25 for the period from the date on which the amended notice of assessment was issued, namely 29 April 2008, to the date of actual repayment of that sum on 13 May 2008. As to the remainder, the application was regarded as unfounded.
(b) Legal background. Art. 183 of the EU VAT Directive provides that where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period. However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.
Art. 252(1) of the EU VAT Directive provides that the VAT return shall be submitted by a deadline to be determined by Member States. That deadline may not be more than two months after the end of each tax period.
Art. 252(2) of the EU VAT Directive provides that the tax period shall be set by each Member State at one month, two months or three months. Member States may, however, set different tax periods provided that those periods do not exceed one year.
(c) Issue. The issues were:
- whether Art. 183 of the EU VAT Directive, in conjunction with the principle of the protection of legitimate expectations, is to be interpreted as precluding national legislation which provides, with retrospective effect, for the extension of the period within which excess VAT is to be refunded;
- whether Art. 183 of the EU VAT Directive, in the light of the principle of fiscal neutrality, is to be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which the period for refunding excess VAT is usually 45 days, at the end of which default interest is payable on the sum to be refunded, but which also provides that that period may be extended if a tax investigation is instigated, the effect of the extension being that interest is payable only from the date on which the investigation is completed; and
- whether Art. 183 of the EU VAT Directive precludes the refund of excess VAT by means of set-off.
(d) Decision. The Court held that Art. 183 of the EU VAT Directive is to be interpreted:
- in conjunction with the principle of the protection of legitimate expectations, as precluding national legislation which provides, with retrospective effect, for the extension of the period within which excess VAT is to be refunded, in so far as that legislation deprives the taxable person of the right enjoyed before the entry into force of the legislation to obtain default interest on the sum to be refunded;
- in the light of the principle of fiscal neutrality, as precluding national legislation under which the normal period for refunding excess VAT, at the expiry of which default interest is payable on the sum to be refunded, is extended where a tax investigation is instigated, the effect of the extension being that such interest is payable only from the date on which the investigation is completed, the excess having already been carried forward during the three tax periods following that in which it arose. On the other hand, the fact that the normal period is 45 days is not contrary to that provision; and
- as not precluding the refund of excess VAT by way of set-off.
