EY Tax Newsletter: Legislative changes regarding the state of emergency announced due to the spread of COVID-19

As a result of the worldwide spread of COVID-19, including in Bulgaria, on 13 March 2020 the National Assembly declared a state of emergency in the country. Emergency measures have been adopted to prevent and limit the spread of the virus. How these measures affect the reporting and payment of tax liabilities, financial reporting and the relations between citizens and the administration, read below.

Changes

 

Extension of main deadlines for reporting and payment of taxes

► The deadlines for submission of annual corporate income tax returns, as well as for payment of corporate income tax and tax on expenses are extended until 30 June 2020. The other deadlines for reporting and payment of taxes under the Corporate Income Tax Act (CITA), which expire on 31 March, are also extended until 30 June 2020. The deadline for submission of annual statistical reports is expected to be also extended, which should be done by joint order of the National revenue agency and National statistical institute.

► The disputed proposal according to which the advance payments for corporate income tax should be made in accordance with the 2018 profit was not adopted. The advance payments will be paid as before based on the forecasted annual taxable income, in particular:

• If, prior to the entry into force of these measures, an annual corporate income tax return was filed, the advance payments shall be determined based on the declared taxable income therein. If necessary, later the taxable person could file a corrective tax return;

• If by 15 April 2020, an annual corporate income tax return is filed, the advance payments shall be determined based on the declared taxable income therein;

• If an annual corporate income tax return is not filed by 15 April 2020, the advance payments shall be declared by filing an annual corporate income tax return in this deadline, completed only in the part related to the advance payments.

► 5% discount for early payment of real estate and vehicle taxes would be granted in case that the respective tax is paid until 30 June 2020.

► The deadline for submission of annual tax returns and tax payment under the Personal Income Tax Act only for individuals who are traders within the meaning of the Commerce Act including sole traders and registered farmers is extended until 30 June 2020. 5 % discount would be granted if the tax is paid until 31 May 2020.

► For other individuals, the deadlines under the Personal Income Tax Act remain unchanged – annual tax returns are submitted by 30 April 2020, and a 5% early filing discount is granted if the tax return is filed electronically and the tax is paid until 31 March 2020.

Extension of main deadlines for the financial reporting

► The deadline for publication of the individual and consolidated financial statements of Non-Public Companies for 2019 is extended to 30 September 2020. This deadline for issuers and their equivalent enterprises is extended until 31 July 2020.

► The deadline for publication of the individual and consolidated financial statements of issuers and their equivalent enterprises for the first quarter and for the first half of 2020 is extended until 30 September 2020.

► Companies that have no economic activity in 2019 declare this circumstance until 30 June 2020.

Other changes

► The procedural deadlines related to court, arbitration and enforcement proceedings as well as limitation and other periods provided in legal acts, with the expiration of which rights or obligations of citizens are terminated or created, are suspended.

► The deadlines, which expire during the state of emergency and which are related to exercise of rights or performance of citizens’ obligations shall be extended by one month as of the cancellation of the state of emergency. However, this does not apply to deadlines under tax laws, except for explicitly mentioned above.

► For the period of state of emergency, the 5-year statute of limitation period for tax liabilities ceases and the absolute 10-year statute of limitation period does not apply. The suspension of the statute of limitation period has different implications in cases where tax liabilities should be paid to the state and where amounts are requested for refund from the state.

► For the first 3 months of the declared state of emergency, the National Social Security Institute will pay 60% of the employees’ salaries, but only to employers, included in an order of the Council of Ministers.

► Customs Agency can provide free of charge detained, seized or abandoned goods to medical establishments, schools, kinder gardens, etc. for the purposes of protecting the life and health of citizens. This also applies to the provision of ethyl alcohol to medical establishments, etc. for disinfection. Goods provided are exempt from excise duty.

► The validity of the identity documents of Bulgarian nationals, as well as of the documents for the long-term and permanent residence of third-country nationals in Bulgaria and third-country nationals who are members of a family of EU nationals, expiring between 13 March and 31 October 2020, is extended by 6 months. The documents will be valid only on the territory of Bulgaria.

► The period of extension of the long-term residence permits of foreign nationals whose permits expire during the state of emergency is 14 days, counting from the cancellation of the state of emergency. Foreigners with long-term residence permits whose permits expire during the state of emergency may enter Bulgaria within 14 days after the cancellation of the emergency situation without a visa.

Commentary

The adopted changes implement a case-by-case approach (i.e. they impact explicitly mentioned obligations for reporting and payment of taxes) and do not affect the general obligation for reporting and payment of taxes. For example, no extension of the deadlines for reporting and payment of VAT and withholding tax is introduced. This means that a very small proportion of all reporting and payment obligations are relieved and that, in respect of the rest, the emergency state does not change the statutory deadlines.

The originally envisaged explicit suspension of all administrative proceedings was not adopted. This means that the deadlines under tax checks and tax audits would not be suspended and individuals and businesses should respond to requests for information and documents within the given deadlines.

The suspension of certain proceedings, including those under the Administrative Offenses and Sanctions Act, is explicitly excluded. Therefore, if during the state of emergency, a penalty is received, it should be appealed within the statutory deadlines.

While the courts suspend the rendering of summons, the tax authorities continue to send such. Тherefore, it is recommendable that individuals and businesses check regularly their physical and email addresses for correspondence.
Following the practice in other countries, as well as the government’s publicly announced intentions to consider incentives for the economy, other tax changes are likely to be adopted. This, as well as the approach for delays in tax filing, requires careful monitoring of the general obligations as well as of the individual ones arising from pending administrative procedures – checks, disputes, application and implementation deadlines, rates and more.

Last but not least, the state of emergency will have many more tax consequences, not directly stemming from the new law. These relate to changes in our own financial performance (e.g. loss-carrying opportunities) and in the relationships with counterparties (non-payment of invoices, default of contracts and indemnities, changes in retail chains, and the related tax and customs reporting).