Tax Audit and Inspection of Individuals and Businesses in Bulgaria – Procedure, Time Limits, Suspension of Enforcement

Tax Assessment Notice and Tax Audit Report, Service of Tax Documents, and Objections Thereto

Appealing a Tax Assessment Notice through Administrative and Court Proceedings

Good Bulgarian Tax Lawyers – What Are Their Fees and How Can They Ultimately Save You

A good tax lawyer from Sofia, Plovdiv or any other city in Bulgaria will help protect your interests during tax inspections or audits, as well as when appealing against audit reports through administrative or judicial channels. This article explains the steps involved during a tax inspection and a tax audit, as well as the procedures for appealing a tax assessment notice in court and through administrative channels.

Audit

Tax inspections and tax audits are methods of tax and social security control carried out by the National Revenue Agency. A tax audit of a company or an individual is a form of monitoring compliance with regulatory acts in the field of tax proceedings. It involves comparing the actual situation with the legislation in force. A tax audit comprises a series of procedural steps carried out by the revenue authorities with the aim of establishing and proving the facts and circumstances relevant to determining the tax liabilities of taxpayers.

Control is exercised through the conduct of audits and inspections. The drafting of an audit report is preceded by numerous checks, as regulated in tax proceedings. All these actions, together with the reports drawn up, constitutes a tax audit. This is a procedurally regulated process. A tax audit is a form of retrospective control covering a past period, with the aim of establishing tax liabilities. A competent solicitor can represent your interests within the framework of this procedure.

Audit Order

Many tax audit proceedings are initiated on the basis of data that has been lawfully or unlawfully leaked or provided by third parties, including information on revenue received through cash-on-delivery payments for shipments handled by courier companies (such as Econt, Speedy, etc.), as well as data on payments received by property owners who rent out their properties through platforms such as Airbnb, Booking.com, and others.

The order to initiate an audit proceeding is issued by specifically authorized officials (Article 112 of the Tax and Social Security Procedure Code). The conduct of the audit proceeding is entrusted to revenue authorities. The required elements of the order are exhaustively listed in Article 113 of the Tax and Social Security Procedure Code. A distinctive feature of the Order to Initiate a Tax Audit (OITA) is that it is appealed together with the Tax Assessment Act (TAA), rather than separately. After the OITA is issued, it is served on the taxpayer, at which point the audited person is deemed to have been duly notified of the commencement of the tax audit proceedings.

Service of documents

It should be noted here that the Tax and Social Security Procedure Code (TSSPC) provides for various methods of serving the Tax Assessment Notice (as well as all other documents issued in connection with an audit or inspection). For example, a refusal to accept the notice is certified by the signature of the server—or, respectively, the revenue authority—and at least one witness who is not an employee of the administration, with the witness’s full name and address noted and a remark to that effect made on the receipt. In such cases, the notice is deemed to have been served on the date of the refusal.

It is not uncommon for the tax/revenue administration to serve notices electronically; therefore, the Tax and Social Security Procedure Code (DOPK) expressly states that:

“An electronic notice is deemed to have been served when the addressee sends confirmation of receipt via a return electronic message, by activating an electronic link, or by downloading it from the information system of the competent administration. The content of the electronic notice is certified by a printout of the record in the information system, certified by the revenue authority.”

Finally, if a taxpayer believes they can evade the revenue authorities and thereby avoid the assessment and payment of their tax liabilities, the legislature has provided for a special procedure for the filing of documents.

“Service by filing with the case file is carried out in cases where the person, their representative or authorized agent, a member of a governing body, or an employee designated to receive notices or documents cannot be found at the mailing address after at least two visits within 7 days. The notice of service is posted in a designated location at the regional directorate. The notice is also published online. In addition to posting the notice, the revenue authority sends a letter with a return receipt, as well as an electronic message, if the person has provided an email address. If the person does not appear by the expiration of the 14-day period from the posting of the notice, the relevant document or act is attached to the case file and is deemed to have been duly served.”

Time Limit for the Audit

Once the audit proceedings have commenced and the audit notice has been served, the time limit for conducting the audit begins to run. The duration of the audit is set (under Article 114 of the Tax and Social Security Procedure Code) at 3 months plus 2 months. In cases of particular factual and legal complexity, the Executive Director of the National Revenue Agency may extend this period to up to 3 years. Typically, the audit is conducted at the premises of the audited person; if this is not possible, it is conducted at the tax administration’s offices.

During the audit proceedings, taxpayers are required to cooperate with the tax authority: the audited individual or business must designate a contact person for the auditing authorities and provide them with full cooperation. In such cases, a competent tax attorney from Sofia or the city where the audit is taking place could be very helpful.

In all cases, tax inspectors request information, including documents related to tax-related transactions. Most often, these include tax invoices, customs declarations, documents proving the transport and delivery of goods (CMR waybills, etc.), and documents proving receipt of the invoiced goods or services by the relevant counterparty. When the entity operates in another region, there are two options: cross-checks and delegated audits.

Suspension

There are circumstances under which tax audit proceedings may be suspended:

• Illness of a person whose participation is essential—upon presentation of a valid medical certificate;
• The initiation of administrative, criminal, or other judicial proceedings that are relevant to the outcome of the audit—upon presentation of a certificate issued by the authority before which such proceedings have been initiated;
• Death of the person’s legal representative until guardianship or custody is established;
• A request filed by the taxpayer to suspend the audit—on a one-time basis, for a specified period, but not exceeding three months;

The proceedings resume when the grounds for their suspension no longer exist.

Audit Report

No later than 14 days after the expiration of the audit period, the auditing authority issues what is known as an “audit report.” In addition to the identifying information of the audited entity and the auditing authority, the audit report must contain a description of the actions taken and the facts and circumstances established, as well as the evidence presented in support thereof, the factual and legal conclusions reached and the grounds for them, a proposal for determining the liabilities, and so on. The audit report, together with its attachments, is served on the audited party within three days of its preparation. The audited party may file a written objection and submit evidence within 14 days of the service of the audit report to the authorities that conducted the audit. If this period is insufficient, it shall be extended at the request of the person, but by no more than one month.

Tax audit act

The audit concludes with the issuance of an “Ta audit act.” The final act is issued by the authority that ordered the audit and the head of the audit within 14 days of the filing of an objection to the audit report or of the expiration of the deadline for filing an objection. The audit report must be served on the audited party within 7 days of its issuance. The audit report is a declaratory act that establishes a liability rather than creating one. It is used to assess interest in cases where additional liabilities have been established.

An appeal against a tax assessment notice may be filed through administrative or judicial channels.

Administrative Appeal

Tax assessment notices are subject to mandatory administrative appeal before the relevant director of the “Appeals and Tax-Insurance Practice” (ODOP) Directorate at the National Revenue Agency’s (NRA) central office. There are five such directorates, located in Sofia, Plovdiv, Varna, Burgas, and Veliko Tarnovo. The deadline for filing an appeal is 14 days from receipt of the audit report, and the appeal must be filed through the relevant territorial directorate of the National Revenue Agency (NRA). It should be noted that if this deadline is not met, the audit report becomes legally binding.

Suspension

Appealing the act does not automatically suspend its enforcement. A request to suspend enforcement may be made by providing security in the amount of the principal and interest as of the date the request is filed; in cases where no security has been provided, the request must include a proposal for security in the same amount. The deciding authority shall suspend enforcement of the audit decision if the security provided is in the form of cash, an unconditional and irrevocable bank guarantee, or government securities, and is in the appropriate amount. In all other cases, the deciding authority shall exercise its discretion to determine whether or not to suspend enforcement.

Time Limit

The administrative decision-making authority must rule on the filed appeal within 60 days. In rendering its decision, it may confirm, amend, or revoke, in whole or in part, the audit report with respect to the contested portion. If the assessment notice is revoked in whole or in part, the deciding authority must do so in cases of insufficient evidence and/or where material violations of procedural rules were committed during the audit that cannot be remedied in the appeal proceedings.

Failure to issue a decision within 60 days of the deciding authority’s receipt of the case file shall be deemed a tacit confirmation of the appealed audit report. In this case, the taxpayer may, within 30 days before the expiration of the deadline for the Director of the “ODOP” Directorate to issue a decision, file a complaint with the relevant administrative court. The deadlines for appealing the audit act are preclusive, and failure to meet them on the part of the audited person deprives them of the opportunity to appeal to the next instance.

Court Appeal

An appeal against a tax assessment notice through the courts is possible if, during the administrative appeal process, the deciding authority upholds the tax assessment notice. In such a case, its decision may be appealed to the administrative court within whose jurisdiction the appellant’s registered office is located. The deadline for appealing a tax assessment notice in court is 14 days and begins to run upon receipt of the decision subject to appeal. Within 7 days of receiving the appeal against the audit report, the authority through which it was filed is required to compile the case file and forward it to the court competent to hear the case. When tax assessment notices are appealed through the courts, the provisions of the Administrative Procedure Code (APC) apply, and, subsidiarily, those of the Civil Procedure Code (CPC).

The court decides the case on its merits and may annul the tax assessment notice in whole or in part, amend it in the contested portion, or dismiss the appeal. The decision of the administrative court is subject to cassation appeal before the Supreme Administrative Court (SAC). The decision of the administrative court in cases involving appeals against public claims established by the audit report, totaling up to 750 BGN excluding accrued default interest when the audit report is issued to individuals, and totaling up to 4,000 BGN excluding accrued late-payment interest, when the audit report is issued to legal entities, is final and not subject to appeal before the SAC.

Costs

The appellant is awarded the costs of the proceedings and the fees for one tax attorney for each instance, in proportion to the portion of the appeal that was upheld. In other words, if you hire a good tax attorney from Sofia, Plovdiv, Burgas, Varna, Veliko Tarnovo, or a similar city, you may ultimately find that not only do you owe nothing to the National Revenue Agency, but even the attorney’s fees you paid will be reimbursed to you and will not be at your expense.