ATEV v. BULGARIA
Inadmissible
George Nicolaou;Ineta Ziemele;Krzysztof Wojtyczek;Nona Tsotsoria;Päivi Hirvelä;Zdravka Kalaydjieva
1. The applicant, Mr Krasimir Milchev Atev, is a Bulgarian national, who was born in 1962 and lives in Troyan. 2. The Bulgarian Government (“the Government”) were represented by their Agent, Mrs N. Nikolova, of the Ministry of Justice. 3. The facts of the case, as submitted by the parties, may be summarised as follows. 4. The applicant was born in 1962 and lives in Troyan. He is a sole trader, registered on an unspecified date under the name ET Atev – Krasimir Atev, with an office in Letnitsa. He is engaged in various commercial activities. Under Bulgarian law his business does not have a distinct legal personality. 5. In 1994 the applicant registered his business for value-added tax (“VAT”). 6. In December 1998 and December 1999 the applicant purchased electrical devices from another sole trader (“the supplier”). The supplier issued the relevant invoices and, as it appears, indicated on them the VAT charged. In 2000 the tax authorities conducted a VAT audit of the supplier. On 15 May 2000 he was issued with a tax assessment which made no mention of the goods supplied in December 1998 and December 1999. 7. In June 2003 the Lovech Territorial Tax Directorate conducted a VAT audit of the applicant for the periods, in particular, from 1 to 31 December 1998 and from 1 to 31 December 1999. On 18 July 2003 it issued him with a tax assessment whereby it refused him the right to deduct the VAT of 19,570.78 Bulgarian levs (BGN), (9,980 euros (EUR)), which the supplier had charged him in December 1998 and December 1999. It also ordered that interest be paid in the amount of BGN 12,312.02 (EUR 6,278). 8. The applicant appealed against the 2003 tax assessment. On 17 September 2003 the director of the Veliko Turnovo Territorial Tax Directorate upheld the 2003 tax assessment in its entirety. The authorities stated that in order to recognise the applicant’s entitlement to have the input VAT deducted, the VAT had to be entered in the accounting records of the supplier (see paragraph 13 below). Therefore, they would have to crosscheck those records and verify that the VAT had been properly reflected as an obligation to the State budget. When the cross-check was carried out, however, the supplier declared that the relevant accounting records had been lost. Since the authorities could not verify whether the VAT had been reflected accordingly, they refused to deduct it. As for the applicant’s argument that his supplier’s 2000 tax assessment did not contain any irregularities regarding the said supplies, the authorities dismissed it as being irrelevant for the proceedings at issue. 9. The applicant sought judicial review. During the proceedings and following a request on the part of the applicant, the Veliko Turnovo Regional Court ordered an expert report. The applicant put questions to the expert. In a judgment of 30 July 2004 the court dismissed the applicant’s appeal and upheld the 2003 tax assessment. The court found that the tax authorities’ refusal to recognise the applicant’s right to have the VAT he had paid deducted was correct because the supplier’s accounting records had been lost, making it objectively impossible to verify whether the VAT had been properly charged and reflected as an obligation to the State budget. The court also noted that although the applicant had had an opportunity to do so, he had not questioned the expert about those supplies and had failed to rebut the statements of the tax authorities in the tax assessment. 10. The applicant lodged a cassation appeal, and in a final judgment of 10 May 2005 the Supreme Administrative Court upheld the tax assessment. The court found that during the proceedings the applicant had submitted only documents originating from his own accounting records. Those documents, however, could not have served as evidence given the subject matter of the case. The court further noted that the applicant had failed to question the expert about the contested supplies. Having regard to the applicant’s failure to rebut the authorities’ findings and in the absence of the supplier’s accounting records, the court concluded that it had been impossible to establish whether the VAT had been entered in them, which was one of the pre-conditions sine qua non for allowing the applicant to have the input VAT deducted. 11. It is unclear whether the supplier was penalised for his failure to keep his accounting records diligently and in line with the relevant domestic provisions (see paragraph 16 below). 12. On an unspecified date the applicant paid part of the debt under the 2003 tax assessment, namely BGN 5,132.63 (EUR 2,624). In 2005 enforcement proceedings were instituted against the applicant for the collection of the remaining debt. It is unclear how the proceedings unfolded until 2010, when they were apparently resumed. The proceedings were still pending at the time of the latest information from the applicant. 13. Under the VAT Act 1993, input VAT, referred to as “tax credit” in domestic legislation, was the amount of VAT which a taxable person had been charged on goods or services received under a chargeable transaction or from the importing of goods or services (section 24(1)). The VAT was to be charged by the supplier (section 24(2)(2)). The recipient should have been in possession of a VAT invoice which met the statutory requirements (section 24(2)(6)). In order for the recipient to have the right to deduction of VAT, it was mandatory for the supplier to have reflected the VAT charged to the recipient in his accounting records as an obligation to the State budget (section 24(2)(2) with reference to paragraph 3(e) of the Additional Provisions of the VAT Act 1993). 14. The relevant provisions of the VAT Act 1999, which replaced the 1993 Act, are summarised in the case of Bulves AD v. Bulgaria (no. 3991/03, §§ 20-28, 22 January 2009). In particular, the supplier’s obligation to reflect the VAT that he has charged in his accounting records remained unchanged (section 64(1)(2) in relation to section 55(6) of the 1993 Act). 15. The VAT Act 2007 replaced the 1994 Act to include in national legislation the latest EU legislation in the sphere of VAT. The explicit requirement that, in order for the right to have input VAT deducted to arise, the supplier had to have reflected it in his accounting records, was abandoned. 16. Pursuant to the Accountancy Act 2001, accounting documents relating to tax obligations must be maintained by the trader for a period of up to five years after the expiry of the statutory time-limit for the relevant obligation (section 42(1)(3)). Failure to observe that obligation is sanctioned by an administrative penalty (section 47(4)). 17. The general rules of the law of tort are set out in sections 45 to 54 of the Obligations and Contracts Act 1951 (“the 1951 Act”). Section 45(1) provides that everyone is obliged to make good the damage which they have, through their fault, caused to another. Under section 45(2), fault is presumed until proved otherwise. 18. In that connection, a recipient may successfully seek pecuniary damages from a supplier when the latter has acted in violation of the relevant VAT provisions, resulting in the authorities’ refusal to deduct the input VAT (for example, if the supplier has failed to issue an invoice and to enter the tax in its accounting records, issued invoices but failed to enter the tax in its monthly declaration to the authorities, or failed to submit the relevant documents proving that he has discharged his VAT reporting obligations to the authorities) (реш. № 1158 от 5 ноември 2008 г. на ВКС по гр. д. № 3225/2007 г., IV г. о.; опр. № 55 от 3 февруари 2009 г. на ВКС по т. д. № 742/2008 г., II т. о.; опр. № 170 от 30 декември 2008 г. на ВКС по т. д. № 480/2008 г., II т. о.; реш. № 304 от 20 октомври 2005 г. на АС-Велико Търново по гр. д. № 151/2005 г.; реш. № 110 от 9 юли 2010 г. по в. т. д. № 41/2009 г. на АС-Варна; реш. от 10 юни 2010 г. на ОС-Стара Загора по гр. д. № 1164/2009 г.; реш. № 476 от 9 май 2011 г. на РС-Велико Търново по гр. д. № 4230/2010 г.). The compensation granted for the pecuniary damage suffered is usually in the amount of the paid VAT plus the relevant interest. 19. Section 1 of the State and Municipalities Responsibility for Damage Act 1988 (Закон за отговорността на държавата и общините за вреди – “the 1988 Act”) provides that the State and municipalities are liable for damage suffered by individuals (and since 1 January 2006 also legal persons) as a result of unlawful decisions, actions or omissions by their organs and officials committed in the course of, or in connection with, the carrying out of administrative action.