Introduction

In the practice of Black Sea Law Counsel, we are approached by Bulgarian citizens and companies, as well as foreign individuals and legal entities, who face a wide range of questions concerning the application of Bulgarian tax legislation, the actions of the revenue authorities, and the protection of their property rights. The circumstances prompting clients to seek legal assistance vary considerably. Sometimes, the issue concerns the need to clarify in advance the tax consequences of a particular transaction or business activity. In other cases, the client has already received an order assigning a tax audit, a tax audit report, or a tax assessment act establishing substantial additional liabilities. Situations in which an existing dispute is accompanied by the freezing of bank accounts, the imposition of precautionary measures, or the commencement of compulsory collection proceedings are also far from uncommon.

What these cases have in common is that behind an apparently accounting-related or administrative question there often lies a complex legal problem, the resolution of which requires knowledge not only of the particular tax statute but also of the principles of tax law, the rules governing administrative proceedings, the law of evidence, and the case law of Bulgarian and European courts.

One characteristic category of disputes in which legal representation is sought arises in connection with tax audits of commercial companies. In such proceedings, the revenue authorities may challenge whether particular supplies actually took place, refuse to recognise the right to deduct input value added tax, disallow expenses for tax purposes, or conclude that a company has generated revenue that was not recorded in its accounting records. Such findings may result in additional assessments of corporate income tax, value added tax, and interest, and, where the relevant statutory conditions are satisfied, may also give rise to administrative liability for regulatory offences.

The complexity of these proceedings stems from the fact that the dispute is rarely confined to the correctness of a particular accounting entry. It is necessary to establish the actual economic substance of the legal relationships, examine the agreements between the parties, trace the movement of goods and funds, assess the performance of services, and determine whether the primary accounting documents correspond to the activities actually carried out. Particularly important are the questions of whether the revenue authority has established all relevant circumstances, correctly allocated the burden of proof, and applied substantive tax law in accordance with its binding judicial interpretation.

Another group of matters concerns individuals whose income, assets, or banking transactions become the subject of tax scrutiny. The receipt of funds in a bank account does not, in itself, mean that taxable income has been earned. Such funds may originate from a loan, a gift, an inheritance, the repayment of previously advanced money, the sale of personal property, or transfers between accounts belonging to the same person. The tax consequences depend on the actual legal basis of the transaction, the applicable substantive law, and the facts established in the particular case. Where the administration classifies certain incoming payments as undeclared income, an effective defence requires a thorough examination of the origin of the funds, their movement, and the available evidence concerning the legal relationships from which they arose.

Matters relating to international taxation also occupy an important place in our work. Foreign nationals who acquire real estate in Bulgaria, establish habitual residence, receive income from several countries, or conduct business through Bulgarian companies frequently need clarification of their tax status and the applicable rules of taxation. Questions arise concerning tax residence, permanent establishments, the taxation of foreign-source income, the application of double taxation treaties, and the interaction between Bulgarian law, European Union law, and the legislation of another country.

In international commercial relationships, further complexity arises from transactions between related parties, transfer pricing, the movement of goods through multiple jurisdictions, commercial arrangements involving intermediaries, and the identification of the person who actually makes a taxable supply. In such cases, an incorrect interpretation of the contractual relationships or the underlying economic reality may result in tax consequences that differ substantially from those anticipated by the participants in the commercial transaction.

A separate category of cases involves attempts to impose personal financial liability on company directors, members of management bodies, and other persons for the public liabilities of commercial companies. The mere fact that a company has outstanding tax liabilities is not, in itself, sufficient to establish the liability of its director. The law provides for specific conditions, the existence of which must be established through the legally prescribed procedure. The defence in such proceedings requires an independent assessment of the conduct of the person concerned, the applicable statutory grounds, the causal relationship, and the legal limits of liability. Similar questions may arise in cases of joint and several liability under the Value Added Tax Act, where the administration directs its claims against a person other than the original debtor.

The practical significance of legal protection in tax matters becomes particularly apparent where a dispute concerning the lawfulness of an assessed liability develops simultaneously with measures intended to secure or collect that liability. The freezing of a company's bank accounts may interfere with the payment of employees' salaries, the performance of contractual obligations, and the continuation of its business activities, even where the underlying tax liability remains subject to administrative or judicial appeal. Consequently, legal protection cannot always be confined to filing an appeal against the tax assessment act. It is also necessary to consider the separate procedures through which precautionary measures may be challenged, suspension of enforcement may be sought, or property against which enforcement has been unlawfully directed may be protected.

Disputes in which the taxpayer does not owe additional amounts to the public budget but, on the contrary, claims the repayment of funds also constitute an important area of tax law. Such claims may concern overpaid taxes, unlawfully collected public receivables, or amounts whose reimbursement is provided for under specific tax legislation. A refusal by the administration to refund a particular amount, an incorrect offset against another public liability, or a failure to issue a decision within the statutory period may each give rise to an independent legal dispute. Resolving such disputes requires a precise distinction between the substantive right to repayment and the procedural mechanism through which that right is established and protected.

Not every case, however, reaches the stage of a tax audit or court proceedings. In many situations, timely legal advice can prevent a dispute from arising in the first place. This is particularly relevant to registration under the Value Added Tax Act, the structuring of international commercial activities, the determination of the tax consequences of property transactions, relationships between associated companies, and the preliminary assessment of the applicable tax treatment. Clarifying tax obligations before a particular transaction is undertaken is often just as important as the subsequent defence against an unlawful administrative act.

The accumulation of such questions demonstrates that a tax dispute cannot be properly understood merely by reading the statutory provision on which the assessed liability is based. Tax law constitutes a system of interconnected substantive and procedural legal institutions. The correct application of one provision frequently depends on the operation of another, the particular characteristics of the relevant proceedings, the nature of the evidence collected, or a binding interpretation delivered by a competent court.

It is precisely the need to examine these questions in their entirety that has prompted the preparation of this handbook.

Its purpose is to provide a systematic account of the legal framework governing the assessment, appeal, securing, collection, and refund of public liabilities, while explaining the legal nature of the relevant institutions, the conditions governing their application, and the legal consequences arising from them. Particular attention is devoted to the rights of taxpayers and other liable persons, the duties of revenue authorities, the allocation of the burden of proof, and judicial review of administrative actions and decisions.

The discussion combines an examination of the statutory framework with legal principles and interpretations developed in the case law of the Supreme Administrative Court of Bulgaria, the Court of Justice of the European Union, and other competent courts. Judicial decisions are considered not as a mechanical collection of quotations but as a means of clarifying the meaning and application of the law, including where different interpretations exist or subsequent legislative amendments require distinctions between particular legal situations.

Our aim is to provide readers not only with an understanding of their rights and the remedies available to them, but also with an appreciation of the legal reasoning that governs the creation of tax obligations, the exercise of administrative powers, and the resolution of tax disputes.

Effective legal protection in tax matters does not necessarily begin with the filing of an appeal. It begins with the proper establishment of the facts, the accurate identification of the applicable law, and an understanding of the legal consequences that the law attaches to the circumstances of each particular case.

Black Sea Law Counsel

Legal advice, representation, and defence in tax and administrative proceedings in the Republic of Bulgaria.

Part I. General theory of tax law

1. The legal nature of tax and the creation of a tax obligation

Tax law governs relationships in which the State or a municipality acquires a public claim against a particular person on a statutory basis. This legal relationship differs from private law obligations because the liability does not arise from a freely negotiated exchange of performances. Its basis, content and legal consequences derive from legislation, while the revenue administration's authority consists in applying the law to particular facts.

The constitutional foundation of taxation is Article 60 of the Constitution of the Republic of Bulgaria. The requirement that taxes and fees be established by statute ensures that the essential elements of a tax obligation cannot be created through administrative discretion. The principle of statutory taxation requires a legal basis for the liable person, the taxable object, the tax base, the rate, the tax period and any applicable exemptions or reliefs. For State taxes, Article 84(3) entrusts Parliament with both their introduction and the determination of their amount. For local taxes, the municipal council determines the amount under the conditions, procedure and limits established by statute pursuant to Article 141(3). This is a constitutionally defined power of local government and does not permit a new tax to be introduced by municipal ordinance. Constitution, Articles 60, 84(3) and 141(3).

Legal theory characterises a tax as a compulsory payment in money, governed by public law, established by statute and generally non-refundable and unrequited. Its unrequited character means that the taxpayer acquires no individually specified service in return for the particular payment. Its non-refundable character means that a lawfully paid tax is not a loan to the budget and is not repayable merely because the payer has not received a particular public benefit. These characteristics do not prevent repayment of amounts unduly paid or collected, or the refund of a tax balance where a special statute provides for it.

A tax must be distinguished from a fee. In the case of a fee, the statutory basis for payment is connected with a particular administrative activity, service or other legally prescribed occasion. This does not mean that every fee corresponds to a contractual price or that its amount must always be an arithmetical equivalent of the individual costs. Its legal regime follows from the applicable special legislation, rather than from the name used in a document.

A tax obligation arises when the factual conditions prescribed by law are satisfied. Nevertheless, the creation of the obligation, the determination of its amount, the date on which payment becomes due and its susceptibility to compulsory enforcement must be distinguished. These are legally separate moments which sometimes coincide but are not identical.

A tax may have arisen by operation of law before a tax assessment following an audit is issued. Conversely, the existence of a tax instrument does not necessarily mean that every enforcement action is lawful. This distinction also explains why a dispute over the amount of a public claim may proceed alongside a dispute concerning a protective measure or an enforcement action.

Statutory taxation as a limit on taxing powers

The public interest in collecting budget revenue explains the existence of taxes but does not replace the legal basis of an individual claim. The administration cannot infer a tax liability solely from a view that a person has substantial funds, that a transaction is unusual or that the chosen business arrangement has resulted in lower taxation. The established facts must fall within an applicable statutory provision. It is this connection between the legal rule and its factual conditions that turns a fiscal demand into a legally substantiated claim.

The requirement of a statutory basis also extends to tax relief. An entitlement to exemption, deduction or reduction arises when the prescribed conditions are met, rather than at the authority's discretion. The revenue administration must apply the relief where the relevant requirements are fulfilled and the conditions for exercising it have been observed. At the same time, an appeal to social fairness or commercial convenience cannot itself create an exemption which the law does not provide. Legal certainty protects both sides of the tax relationship by binding them equally to the rule.

The constitutional importance of these requirements is illustrated by Decision No. 4 of 9 April 2019 in constitutional case No. 15/2018. The Constitutional Court examined higher taxation of certain residential properties in resorts identified by a Council of Ministers act. The problem was that the executive was able indirectly to determine the tax burden without sufficient statutory criteria. The judgment connects statutory taxation with the separation of powers and the predictability of taxation. Its conclusion remains relevant as a constitutional criterion, while the rates and property categories discussed in the case belong to the version of the Local Taxes and Fees Act then in force. Decision No. 4 of 9 April 2019 in constitutional case No. 15/2018.

The tax obligation and the declaratory effect of an assessment

Legal theory also describes the creation of a financial obligation directly by statute as financial automatism. The term does not mean that legal analysis is unnecessary. It means that an individual exercise of public authority is not required to create the obligation where legislation has already attached the relevant consequences to facts which have occurred. Receiving taxable income or making a taxable supply can produce tax consequences regardless of whether the administration has become aware of them.

This explains the predominantly declaratory effect of a tax assessment issued following an audit. Through it, the administration determines the basis and amount of an obligation which it maintains has already arisen. The assessment has independent procedural consequences, including effects on enforcement and limitation, but those consequences do not make it the universal source of the tax itself. An obligation declared by the taxpayer may be due without an audit assessment. Equally, an assessment may have been issued even though the substantive statutory conditions were not fulfilled.

This distinction explains why setting an assessment aside does not always amount to a final determination that no tax was ever due. The grounds for setting it aside, the scope of the decision, the possibility of a fresh assessment and any expired time limits all matter. Similarly, payment of a disputed liability does not automatically make an unlawful assessment lawful. Payment and assessment are different legal facts, so a challenge to the assessment may remain relevant after the money has reached the budget.

Distinction from fees, social security contributions and penalties

For fees, the connection with a particular public activity forms part of the basis of the obligation. The existence of a legally authorised tariff does not relieve the authority of the need to establish that the particular person belongs to the liable category and that the prescribed occasion for charging the fee has occurred. Neither the label “fee” nor the fact that the money enters a public budget is sufficient to determine its legal regime. The relationship between the service, the costs and the amount payable depends on the relevant statute and the calculation methods it permits.

In Decision No. 10 of 26 June 2003 in constitutional case No. 12/2003, the Constitutional Court distinguished the statutory introduction of a fee from the determination of its amount by subordinate legislation under statutory authority. The issue concerned the Council of Ministers' power to approve tariffs under the State Fees Act and the Cadastre and Property Register Act. The decision does not permit the administration independently to create a basis for charging a fee. The reasoning on the classification of claims was linked to the repealed Tax Procedure Code and cannot be transferred without examination to Article 162 of the current Tax and Social Security Procedure Code, referred to below by its Bulgarian abbreviation DOPK. Decision No. 10 of 26 June 2003 in constitutional case No. 12/2003.

Compulsory social security contributions are also public monetary claims, but they are connected with a special insurance system and defined social risks. The shared procedure for assessment and collection under DOPK does not remove their substantive legal independence. The basis of coverage, the contributory income, insured status and the obligation to pay contributions derive from the applicable social security legislation. A common procedural framework does not permit the rules governing one type of tax to be applied mechanically to social security contributions.

Fines and pecuniary sanctions serve a different legal function. They are consequences of an infringement and are imposed through the prescribed sanctioning procedure. A tax does not presuppose unlawful conduct. The same business transaction may produce a tax obligation and, separately, liability for failure to declare it, but the basis and proof of those consequences differ. Assessing tax through an audit assessment is not in itself punishment, and setting aside a penalty decision does not necessarily determine the tax dispute.

The classification of taxes as direct and indirect, income and property taxes, or State and local taxes has explanatory value. It shows the object selected for taxation and how the burden is distributed economically. For indirect taxes, however, the person who ultimately bears the economic cost does not thereby become the budget's debtor. In VAT, a consumer may bear the tax burden through the price, while the obligation to charge and remit the tax belongs to the person designated by law. The legal taxpayer is identified by the rule, rather than by the ultimate economic outcome.

2. Public claims, taxable persons and tax relationships

A tax is a type of public claim, but “public claim” is a broader concept. Article 162 DOPK covers obligations of different origins, including taxes, compulsory social security contributions, certain fees, fines, pecuniary sanctions and other expressly specified claims. A shared collection regime does not imply shared factual conditions for their creation. For each claim, the substantive legal basis must first be identified, followed by the competent authority and then the applicable procedures for assessment, challenge and enforcement.

The distinction between public and private claims of the State or a municipality depends on legislation. The State and municipalities may also participate in private law relationships, for example as parties to contracts. The creditor's public status alone does not turn a price, rent or compensation into a tax. Conversely, legislation may classify an obligation which is not a tax as a public claim. The classification affects the enforcement title, the competent enforcement officer, limitation and the available remedies.

The creditor and the authority exercising public powers

In a tax relationship, the holder of the claim must be distinguished from the administrative authority which assesses or collects it. The State or municipality is the public creditor under the relevant tax regime. The revenue authority exercises powers conferred by statute. The administrative body's separate legal personality does not turn every tax into its own proprietary claim, and an individual official does not become a party to the substantive tax relationship.

The National Revenue Agency performs principal functions in the administration of taxes and compulsory social security contributions. Municipal administrations exercise the powers conferred on them by the Local Taxes and Fees Act concerning local taxes and fees. Customs authorities act in the areas assigned to them, including excise duties and certain import liabilities. This division of responsibilities is prescribed by law. It cannot be replaced by the general observation that all these authorities participate in collecting public revenue.

Competence has substantive, territorial and functional dimensions. Relevant matters include the type of liability, the person's connection with a territorial directorate, the official's particular position and the power to perform the specific action concerned. Where legislation permits assignment, substitution or special designation of a competent authority, the basis for it must exist and be capable of being established. Administrative hierarchy alone does not give a superior authority an unrestricted right to perform the functions of every subordinate authority.

When assessing competence, organisational rules must not be confused with every individual procedural requirement. Not every failure in the handling of a file amounts to a lack of competence, just as not every participation by an authority outside the usual territorial unit is unlawful. The assessment is based on the applicable legal rules, the assignment and authorisation orders and the time at which the action was taken. The consequences of an identified defect follow from its nature, rather than solely from the description assigned to it by a party.

The taxpayer, the withholding person and the liable third party

Article 14 DOPK distinguishes three principal categories of liable persons. The first bear the tax or social security obligation. The second have a statutory obligation to withhold and remit the tax or contribution. The third are liable for another person's obligation under specially prescribed conditions. The distinction between these capacities determines the facts to be proved, what may be established by an administrative act and the extent of the person's liability.

For income tax, for example, the recipient may bear the tax obligation while the payer has a duty to withhold and remit it. The two persons participate in connected but different legal relationships. Failure to withhold is not assessed in the same way as failure to declare one's own income. The payment date, the type of income, the payer's status and the special liability rules all matter. Accordingly, the terms “taxpayer”, “payer of income” and “person making the bank transfer” are not interchangeable.

Third-party liability requires its own statutory factual conditions. A company's manager does not become personally liable for all its taxes merely by representing the legal entity. A recipient of a supply does not automatically become liable for VAT which the supplier has failed to pay. Such liability requires the conditions of the relevant provision and assessment through the prescribed procedure. The general rules in Article 16 DOPK and the special grounds under Article 19 DOPK or Article 177 of the Value Added Tax Act, ZDDS, must be considered together, without allowing one regime to replace the proof required under another.

The distinction also affects evidence. Information concerning the principal debtor's liability may be necessary, but does not itself prove the conduct, knowledge, causal connection or other condition which legislation requires in relation to the third party. That party has an independent right of defence in the proceedings determining its liability. Reliance on another person's file does not remove the need to identify the circumstances on which the claim against the third party is based.

Tax personality and independence under private law

Tax personality is determined by substantive tax legislation. It does not always coincide with legal personality under private law. For tax purposes, the legislature may equate a particular arrangement with a legal entity or link taxation to a particular business activity without creating a new private law person. The position of an unincorporated partnership, permanent establishment or sole trader must therefore be examined in relation to the particular tax.

A sole trader is not a legal entity separate from the individual. A company, however, has its own legal personality and its assets are generally separate from those of its members and manager. Tax consequences cannot be transferred between these persons solely on the basis of economic connection. Related-party status may be relevant to market pricing, avoidance or special liability, but each such consequence requires a separate legal basis.

Representation must also be distinguished from the status of a liable person. A manager, authorised agent or legal representative acting in proceedings may bind the represented person within the scope prescribed by law. This does not mean that the representative acquires the tax debt as a personal obligation. Conversely, personal liability under a special provision does not arise merely from signing a document on the company's behalf. Acting in another person's name and liability for that person's obligation must be distinguished in every situation.

Succession following death, a corporate transformation or another change matters both to the substantive obligation and to participation in proceedings. It cannot be inferred solely from the factual continuation of business activity. The legal basis, type of succession and extent of the transferred rights and obligations must be determined. In inheritance, acceptance of the estate and applicable limits on liability matter. In corporate transformations, the special rules governing the transfer and protection of obligations must be considered.

The substantive relationship and procedural rights

Alongside the principal obligation to pay, tax law regulates duties to register, declare, keep and retain records, provide information and cooperate. They support correct application of substantive law but retain an independent legal basis. A return may be filed late without additional tax being payable. A return may also be filed on time while stating an incorrect tax amount. Procedural compliance and substantive liability do not replace one another.

The exercise of public authority does not turn the liable person into a passive object of administration. Articles 6 and 17 DOPK provide opportunities for participation and defence. They correspond to the authorities' duties of legality, objectivity and official investigation of the facts under Articles 2 - 5. The right of defence does not obstruct the establishment of the truth but forms part of the lawful method of establishing it. The same applies to the authority's duty to consider facts favourable to the person, rather than only those supporting additional taxation.

In this sense, the tax relationship is not exhausted by opposition between the budget's interests and private property interests. It is a system of substantive rights, obligations and procedural guarantees. The State is entitled to receive the tax due but is not entitled to obtain more through an inappropriate procedure or unproven facts. The person is entitled not to be taxed beyond the law but must perform lawfully arising obligations and participate in the proceedings in good faith.

3. Taxable facts, applicable law and fundamental principles

The statutory factual conditions of a tax are the combination of circumstances to which a legal rule attaches a particular tax consequence. They include more than the existence of income, property or a business transaction and encompass all relevant characteristics required by law. For the same bank transfer, it may be decisive whether it represents income, repayment of a loan, a gift or reimbursement of another person's expense. For the same asset, ownership, its place of use or its inclusion in an independent economic activity may matter. Tax classification begins with these distinctions.

Elements of taxation and the legal significance of facts

The taxable person identifies who bears the obligation. The taxable object defines what the law subjects to taxation. The tax base expresses that object as a quantity or value to which the rate is applied. Where taxation is periodic, the tax period identifies the time over which the result is calculated. Exemptions, exclusions and reliefs may limit the scope of taxation, alter the base or reduce the amount. None of these elements can be replaced by a general finding that the person has obtained an economic benefit.

The tax base is not necessarily equal to the accounting result or the movements in a bank account. Accounts record business facts under their own rules, while tax legislation may require adjustments, disallow expenses, use different recognition dates or prescribe special valuations. A bank receipt proves a movement of money, but its legal basis is established through other evidence as well. The connection between an accounting document, an actual transaction and a tax consequence must therefore be established step by step.

Facts creating a legal entitlement or obligation must be distinguished from the evidence proving them. Issuing an invoice may have independent legal significance where legislation so provides, but the invoice does not automatically replace proof of the transaction where the dispute concerns whether it actually occurred. The absence of a particular document also does not always establish the absence of a substantive entitlement where legislation and applicable EU law permit its conditions to be demonstrated by other means. The correct question is what function the particular requirement performs within the relevant statutory conditions.

This also explains the importance of distinguishing substantive and formal requirements. Substantive requirements determine whether a right or obligation exists. Formal requirements govern its documentation, assertion or supervision. The distinction does not mean that formal requirements lack legal significance. Legislation sometimes links the exercise of an entitlement to a particular deadline or action. Nevertheless, the consequence of non-compliance must be derived from the applicable regime without treating every formal irregularity as equivalent to the absence of a genuine business transaction.

The relationship with civil and commercial law

Tax legislation frequently uses concepts from civil and commercial law, including ownership, representation, loans, sales and succession. Where no special tax meaning is established, these concepts must be understood within the wider legal system. At the same time, a particular tax may have its own definitions. In VAT, for example, the meaning of a supply of goods also derives from the European concept of transferring the right to dispose of property as owner. The national private law form is not the only possible criterion for a taxable event.

A contract may allocate the economic burden between the parties, but cannot by itself change the person designated by law as liable to the budget. An agreement that the purchaser will bear a particular tax or that a third party will make the payment has consequences between its participants according to its terms. It is not a freely agreed substitution of the tax debtor. For the same reason, paying another person's tax and undertaking to pay it differ from statutory liability for another person's tax debt.

The invalidity of a private law transaction does not automatically resolve every tax question either. Actual economic operations may have occurred, tax documents may have been issued, payments may have been received or subsequent adjustments may have been made. Their consequences are assessed under the special tax regime. A civil dispute and a tax dispute may therefore be connected without having the same subject matter and without the decision in one relieving the authority in the other of its own duty of legal analysis.

Substantive and procedural rules over time

Substantive tax law determines which facts create a liability, who bears it and its amount. Procedural law regulates how the facts are established and rights protected. A provision's inclusion in legislation described as a procedural code is not sufficient to determine its nature. DOPK also contains rules of substantive significance, including liability for another person's obligations and limitation. Classification follows from the provision's legal effect.

As a general rule, a substantive tax consequence is assessed under the law applicable to the relevant taxable fact or period. The fact that an audit takes place years later does not automatically permit a newer rate or a broader ground of liability to be applied to past conduct. Article 14 of the Normative Acts Act permits retroactive effect only exceptionally and through an express provision. Constitutional and European limits nevertheless remain applicable, including legal certainty and the protection of legitimate expectations. Normative Acts Act, Article 14.

Procedural rules generally apply to actions taken while they are in force unless transitional provisions prescribe otherwise. This immediate application does not mean that actions already validly performed are invalidated, or that a new procedure can unobtrusively increase a substantive liability for a past period. When evidential rules, presumptions or time limits change, the actual effect of the provision must be examined. The label attached to an amendment does not determine its permissible temporal application.

Transitional and final provisions form part of the applicable regime and are not merely a technical addition. They may preserve the previous procedure for pending cases, specify a special starting point for a period or introduce separate rules for existing relationships. Reliance on a judgment concerning an earlier statutory version therefore requires comparison with the text applicable to the particular dispute. An unchanged article number does not guarantee unchanged content, and factual similarity between different years is not sufficient to produce the same legal outcome.

Interpretation, equality and legal certainty

Tax legislation is interpreted as part of the legal order as a whole. Its wording, position within the statutory scheme, purpose and relationship with higher-ranking rules must be examined. Strict application of legislation does not exclude interpretation but does exclude the arbitrary creation of taxable situations beyond the statute. A fiscal objective does not justify introducing a new tax by analogy. Equally, the requirement of statutory taxation prevents administrative practice from adding substantive conditions for relief which do not follow from the law.

Equality requires situations with the same relevant characteristics to be treated alike and differences in treatment to have an objective basis within the applicable regime. This does not mean that every taxpayer must bear the same nominal amount or that legislation cannot provide reliefs. Tax categories may differ according to income, assets, activity or other permissible criteria. When applying an existing regime, however, an authority cannot select a different standard of proof according to its preliminary view of the person concerned.

Predictable taxation requires a person to be able to understand both the substantive obligation and the procedural consequences of their actions. Administrative guidance matters in practice but is not equivalent to legislation and does not bind the courts as a normative act. Whether following particular guidance protects against certain adverse consequences depends on the special rules, including Article 17(3) DOPK. This does not establish a general exemption from tax which has lawfully arisen.

The European and international dimensions

For taxes within the scope of EU law, national legislation is applied consistently with the relevant European acts and their interpretation by the Court of Justice of the European Union. This is especially apparent in VAT and excise duties. In direct taxation, the absence of full harmonisation does not release Member States from compliance with fundamental freedoms and applicable special rules. At the same time, EU law does not apply to every domestic tax dispute merely because the State belongs to the Union. A connection with a particular field governed by EU law is required.

The principles of fiscal neutrality, proportionality and effective judicial protection perform different functions. Neutrality is central to VAT and to preventing unjustified burdens on taxable business activity. Proportionality requires control measures not to exceed what is necessary for their legitimate purpose. Effective protection requires a real opportunity to challenge the facts and legal conclusions affecting the person. None of these principles operates as an abstract formula that eliminates the need to prove the particular statutory conditions.

The distinction between a permissible choice of a more favourable tax arrangement and abuse was developed in the judgment of 21 February 2006 in Case C-255/02, Halifax. The dispute concerned construction-related transactions organised through companies within a group to obtain a tax advantage. The Court held that choosing lower taxation was not prohibited in itself. Abuse required a tax advantage contrary to the purpose of the applicable rules and objective factors showing that obtaining that advantage was the essential aim of the transactions. The economic result was thus connected with the purpose of the rule without creating a general obligation always to choose the highest tax burden. Judgment in Case C-255/02, Halifax, paragraphs 73 - 75.

International taxation adds the question of which State may tax particular income or property and how double taxation is eliminated. Tax residence is not determined solely by nationality. Residence, the source of income and a permanent establishment are legal categories with their own content. Where a double taxation treaty applies, it must be considered alongside domestic legislation in accordance with Article 5(4) of the Constitution. A treaty generally allocates and limits taxing powers rather than creating a tax for which no domestic legal basis exists.

4. Maturity, extinguishment and limitation of public claims

Once a tax obligation has arisen, legal analysis turns to its performance. The obligation is due when the designated payment date has arrived. Its amount is established when the sum payable has been determined through the prescribed procedure. Compulsory enforcement also requires a valid enforcement title and the absence of an obstacle to the particular enforcement action. These elements may accumulate in succession. There is no general rule under which tax becomes payable only after the court proceedings concerning an audit assessment have ended.

Due dates, default and payment

The payment deadline is prescribed by the applicable statute. Where the taxpayer calculates the tax, filing the return and paying the sum are connected actions with different legal bases. The return communicates facts and a result, while payment discharges the obligation to the corresponding extent. Where liability is established by an assessment, both the original statutory due date and the procedure for enforcing that assessment must be considered. Default interest is therefore not necessarily determined solely by the date on which the assessment was issued or served.

Interest under Article 175 DOPK is connected with failure to pay within the statutory period and must be distinguished from a fine or pecuniary sanction. Its calculation depends on the overdue principal, the beginning and end of default and the applicable interest rules. Partial payments and lawful set-offs may change the base on which it is calculated. A general finding of late payment is insufficient where the calculation does not allow these elements to be traced.

Payment of a public liability must be allocated to the particular claim under the applicable rules. Article 169 DOPK regulates the order of discharge, which differs according to the type of obligation and the stage of collection. The description entered by the payer in a payment document does not therefore always determine the final allocation by itself. The legal effect of payment depends on identification of the debtor, receipt in the relevant account and the statutory allocation rules.

A tax debt is monetary and may generally be paid by a third party. The source of the money does not automatically change the person who bears the obligation. The relationship between the payer and the debtor is assessed separately, including whether a right of reimbursement or subrogation into particular rights exists. Actual payment in instalments must also be distinguished from formally authorised instalment arrangements. Partial discharge alone does not defer the due date of the balance or prevent lawful compulsory collection.

Extinguishment, deferral and writing off

Article 168 DOPK brings together different grounds for extinguishing public claims. Payment satisfies the creditor through the receipt of money. Set-off extinguishes reciprocal claims when the statutory conditions are met. Limitation protects the debtor against compulsory recovery without a temporal limit. Remission has an independent constitutional basis. Special consequences are also prescribed for death, insolvency, termination and other statutory situations. These grounds are not interchangeable and do not arise merely because an accounting entry has been made.

The death of an individual or termination of a legal entity does not necessarily mean that all its public liabilities immediately disappear. Relevant considerations include available assets, succession, the liability of heirs and third parties and the special rules governing the proceedings concerned. In insolvency, the tax creditor participates in a regime regulating the submission, admission and satisfaction of claims. The existence of insolvency proceedings must not be equated with a discharge of debt which has already taken effect.

Deferral and authorised instalment payments affect the time and manner of performance rather than removing the obligation itself. They require permission under the statutory conditions. Filing an application does not automatically give the debtor a new due date. The legal effects follow from the permission and applicable provision, including the rules on interest, security and the consequences of non-compliance. This change in the performance regime also matters to limitation because legislation attaches separate consequences to it.

Writing off records a statutory basis for removing a claim from the relevant accounts. It should not be confused with an act which itself remits the debt. In relation to limitation, Article 173 DOPK provides for writing off extinguished claims, including automatic administrative write-off when the period under Article 171(2) expires. At the same time, Article 174 recognises the significance of voluntary payment after write-off. The accounting removal and substantive legal consequences must therefore be considered together as prescribed by statute.

The assessment time limit and the collection limitation period

The period in Article 109 DOPK limits the commencement of proceedings to establish tax liabilities. The general rule connects the five-year period with the end of the year in which a return was filed or should have been filed. Where legislation does not require a return, the provision's specified situation involving information received from third parties and organisations becomes relevant. The article also contains special exceptions, including dependence on criminal proceedings and implementation of certain decisions resolving international tax disputes.

This period is not the same as limitation under Article 171. The first restricts the commencement of assessment proceedings. The second concerns the public claim and the possibility of compulsory collection. Their starting points may differ because one is linked to filing or receipt of specified information and the other to the payment deadline. A reference to “the five-year period” without identifying the provision therefore cannot support a correct legal conclusion.

For an audit, Article 112(1) DOPK links commencement of the proceedings to issue of the audit assignment order. Article 114(1) links the beginning of the period for conducting the audit to service of that order, with special rules for international service. These are different periods serving different functions. The effect of commencing assessment on limitation under Article 172 must be examined separately. Confusing them may produce incorrect calculations concerning both the permissibility of the audit and the duration of collection.

Expiry of the period for commencing an audit also matters to the finality of liabilities established on a preliminary basis under Article 108(2) DOPK. This does not mean that every entry in a tax account becomes a correctly assessed tax regardless of its origin. There must be a liability established through the prescribed procedure, and the precise scope and consequences of the applicable rule must be determined. Similarly, completion of assessment does not exclude a separate dispute over subsequent payment, limitation or an enforcement action.

Ordinary limitation, suspension and interruption

Under Article 171(1) DOPK, the general limitation period is five years and begins on 1 January of the year following the year in which the public liability should have been paid, unless legislation provides a shorter period. The due date is decisive, rather than necessarily the year to which the tax relates. If tax for a particular year must be paid in the following year, limitation starts by reference to the payment year. This distinction alone frequently shifts the initial calendar calculation by a year.

The passage of five calendar years is insufficient if grounds for suspension or interruption have arisen in the meantime. Suspension preserves the part of the period already elapsed, while the time during which it is suspended is excluded. Interruption removes the relevance of the earlier elapsed period for the current calculation and starts a new period. These consequences require more than proof that the administration has engaged in some activity. The particular action must fall within a statutory ground and produce its prescribed legal effect.

Article 172(1) provides for suspension where proceedings to establish the claim have begun, until issue of the assessment but for no more than one year, where enforcement has been stayed, where deferral or instalments have been authorised, where the assessment is challenged, where protective measures are imposed and where the matter depends on specified criminal proceedings. These grounds must not be merged into a single undifferentiated period. If several grounds operate simultaneously, the same calendar interval is not added repeatedly to the limitation period.

Under Article 172(2), limitation is interrupted by issue of the act establishing the public claim or by compulsory enforcement actions. If the assessment is set aside, the statute treats limitation as not having been interrupted by it. Whether there was a ground for suspension and for how long must be examined separately. Setting aside the assessment therefore permits neither automatic preservation of interruption nor automatic elimination of every other legal effect of the proceedings which took place.

Interpretative Decision No. 7 of 15 April 2021 in interpretative case No. 8/2019 of the Supreme Administrative Court resolves the disagreement over whether opening an enforcement case and giving notice inviting voluntary payment interrupt limitation. The Court held that they are preparatory actions and do not themselves secure compulsory satisfaction. The ruling rejects the view that every action in an enforcement file is an action of compulsory enforcement. Its practical importance lies in the need to establish a specific enforcement method and its implementation, rather than merely identifying the case number or the notice date. Interpretative Decision No. 7 of 15 April 2021 in interpretative case No. 8/2019.

The ten-year period and limitation of interest

The ten-year period under Article 171(2) begins at the same general calendar point as the five-year period and generally operates regardless of suspension or interruption. Describing it as absolute limitation does not mean that legislation allows no exceptions. The provision expressly addresses deferral or instalments, submission of the claim in insolvency proceedings, specified criminal proceedings, a stay of enforcement requested by the debtor and an application for dispute resolution under Chapter Sixteen, Section IIa DOPK. Each exception applies according to its own conditions.

For lengthy collection periods, the historical legislation also matters. The exceptions have changed, and emergency legislation may have affected the running of time. It is not sufficient to apply only the latest wording to every old obligation. The date of creation, subsequent legislative amendments and their transitional rules must be traced. It is precisely here that the general distinction between substantive and procedural law directly affects the ultimate outcome.

Since 5 August 2023, Article 171(3) has expressly provided that interest on public claims becomes time-barred in accordance with the periods governing the principal claim under paragraphs 1 and 2, regardless of how the principal is discharged. In a dispute over interest, that rule must be considered together with its applicable temporal effect. Payment of the principal does not justify assuming without further analysis that a new independent period begins for all accrued interest on the payment date.

The consequences of limitation and proof of expiry

The legal effect of limitation should not be described simply as the debt disappearing. Article 174 DOPK excludes repayment of public liabilities voluntarily paid after expiry of limitation, including claims which have been written off. The statute therefore preserves the significance of voluntary performance. Compulsory collection after limitation has taken effect and been properly applied raises a different issue. Whether a payment is voluntary, a set-off has occurred or an enforcement action has been taken depends on the actual circumstances.

Set-off against a public liability extinguished by limitation is permissible only under the statutory conditions. Article 170(3) requires the debtor's reciprocal claim to have become due before the public liability became time-barred, while Article 128 contains a relevant special rule for tax set-offs. This is another reason to distinguish maturity from creation. Two reciprocal claims may have arisen without having been capable of being extinguished by set-off at the relevant time.

Ordinary limitation requires reliance on it by the interested person, whereas the statute provides for automatic administrative write-off after the ten-year period. This distinction does not make the debtor's participation unnecessary where there is a dispute over the starting date, an exception or an incorrectly recorded period. Conversely, the administration cannot preserve a claim merely because its information system does not technically reflect a legal event which has already occurred. The accounts follow the legal position and cannot create it independently.

Proof of limitation requires a chronology of legally significant events. It begins with the type of liability and statutory due date, continues through assessments, service, challenges and grounds for suspension and ends with the particular enforcement actions. Where the authority relies on interruption or suspension, the relevant acts and facts must be established. A general assertion that an enforcement case exists does not replace proof of an action which legislation recognises as significant.

The distinction between the existence, assessment and collection of tax remains fundamental at this final stage. A liability may have been correctly assessed while compulsory collection is barred. An assessment may be challengeable on substantive grounds even though the collection period has not expired. A dispute may also concern a payment already made but incorrectly recorded. Each question requires its own legal classification and corresponding remedy.

Part II. Tax and social security proceedings

5. Returns, self-assessment and determination of liabilities

Once a tax obligation has arisen by operation of law, its content must be attributed to a particular person and tax period. This individual determination does not always require a tax audit. The tax system relies primarily on information provided by liable persons, on the records they maintain and on the ability to calculate a substantial proportion of liabilities without a prior administrative decision. Filing returns, calculation by the administration and determination through an audit are therefore connected but distinct methods. They differ in their initiation, subject matter, evidential basis and legal effect.

The return as a procedural statement

A tax return is a statement by the liable person reporting legally relevant circumstances and, where the law so requires, calculating the amount payable. It is not a contract with the revenue administration. In filing it, the taxpayer does not propose an amount of tax for the state to accept or reject on grounds of expediency. The reported information serves to apply the statutory conditions of liability. An incorrect statement may create a procedural need for correction or challenge, but an amount that is not payable under substantive law does not become payable merely because the person filing the return agreed to it.

Legal theory distinguishes returns reporting facts from returns in which the person calculates the tax. In the first category, the administration applies the relevant rate to a base determined from the information supplied and other lawfully collected material. In the second, the calculation forms part of the declarant's obligation. The distinction matters for preliminary assessment, corrections and the basis for enforcement. A return containing taxes or compulsory social security contributions calculated by the person may constitute an enforcement title under Article 209(2) of the Tax and Social Security Procedure Code, referred to below by its Bulgarian abbreviation DOPK. It is unnecessary to determine every declared liability again through a tax assessment act.

Acceptance of a return is not administrative confirmation that all the circumstances reported are true. It does not exclude a subsequent check or audit within the statutory periods. For the same reason, the electronic entry of an amount in a tax account must not be confused with an individual administrative act. The account performs a record-keeping function, while the legal basis of the claim derives from the law and the relevant method of determination.

Resolving discrepancies and correction by the administration

The rules in Articles 103 and 104 DOPK combine an opportunity to resolve discrepancies with a degree of stability for the statement already filed. Where a discrepancy of the kind covered by Article 103 is identified, the declarant is invited to correct it by filing a new return. This is a form of participation in the proceedings because it allows the person to explain the difference, provide the relevant information and correct an actual error. The invitation is not itself an assessment act and does not establish that the administration's calculation is correct. A discrepancy may also result from incomplete or inaccurate information received from a third party.

Amending a return on the declarant's own initiative is subject to the general rules in Article 104 DOPK and any specific opportunities provided by the relevant substantive tax legislation. It is therefore inaccurate to suggest that every error can be corrected at any time by filing a new return. After the applicable deadline, the document submitted may not have the corrective effect expected by its author. This does not eliminate the right to rely on the true facts in admissible proceedings, but it changes the procedural route through which they can be taken into account.

Where a discrepancy affects the base or amount of a self-assessed liability and is not resolved through the applicable procedure, Article 106 DOPK permits an administrative correction through an act determining liability. That act should not be used as a shortened substitute for an audit in every dispute concerning actual economic activity. The power has its own prerequisite and subject matter. The more the issue requires independent investigation of undeclared transactions, concealed income or complex factual relationships, the more important it becomes to establish whether the chosen assessment procedure is legally available.

The significance of the prior invitation is illustrated by Supreme Administrative Court judgment No. 10553 of 29 October 2025 in administrative case No. 7387/2025. The dispute concerned earmarked contributions payable by an electricity producer and a difference between the returns submitted and the legal basis adopted by the administration. The court held that failure to send an invitation under Article 103 DOPK had deprived the company of its prescribed opportunity to participate and justified annulment on the particular facts. The conclusion concerns the applicable discrepancy procedure. It does not establish a general requirement for every tax audit to be preceded by an invitation to correct voluntarily.

Municipal taxes and fees

Municipal taxes are determined by municipal officials exercising the revenue-authority powers conferred under Article 4 of the Local Taxes and Fees Act, or ZMDT. The municipality holds the relevant public claim, but an individual official does not acquire competence simply by working in the municipal administration. A statutory basis and proper designation of the authority are required. For local fees, the corresponding application of the procedural rules follows from the special legislation, including Article 9b ZMDT. The substantive distinction between a tax and a fee remains intact.

For real property tax, the decisive consideration is the legal capacity in which the person is connected to the property, together with the other facts to which the law attaches significance. A declaration does not create ownership and cannot replace the legal basis of acquisition. Where ownership has been transferred or a right of use in rem has been created, the tax consequences follow from the actual legal relationship and the applicable special legislation. An incorrect entry in the municipal account is an evidential and record-keeping problem. It should not become an independent substantive basis for taxation.

Where the authority calculates tax on the basis of a return, Article 107 DOPK distinguishes notification of the calculated amount, a statement explaining the calculation and the act determining the liability. The statement makes the calculation understandable. The assessment act embodies the authoritative determination against which administrative and judicial protection is available. Issuing it at the person's request gives the dispute a defined subject matter. Issuing it on the authority's own initiative depends on the conditions in Article 107(3), including completion of the Article 103 procedure where the applicable situation requires it.

A coherent analysis of a municipal dispute starts with the type of claim and the assessment instrument. It then examines the substantive conditions, competence and applicable review procedure. The head of the local revenue unit exercises the powers of a territorial director, while the mayor exercises the decision-making powers specified in ZMDT. It does not follow that every challenge to a municipal tax document is submitted directly to the mayor. An Article 107 act and a tax assessment act issued following an audit have different procedural starting points, which must be considered together with Article 144 DOPK and the special allocation of powers.

Preliminary determination does not give a return or an act under Articles 106 and 107 the same stability as completed audit proceedings. Within the statutory limits, the liability may be determined through an audit under Article 108 DOPK. Where no tax assessment act has been issued and the Article 109 period for commencing an audit has expired, Article 108(2) makes the preliminarily established liabilities finally established. This does not mean that the administration may disregard an existing judicial determination or circumvent the prohibition on deciding again a question finally resolved. The distinction between preliminary determination and the stability of a tax assessment act has meaning only in conjunction with legal certainty and the scope of the judicial decision.

6. Checks and audits as forms of tax and social security control

Revenue control establishes whether the actual conduct of liable persons complies with tax and social security legislation. Its purpose is not to confirm a suspected infringement in advance. The principles of legality, objectivity and official investigation in Articles 2, 3 and 5 DOPK require clarification both of facts creating or increasing a liability and of facts excluding, reducing or extinguishing it. The authority exercises public competence that includes duties as well as powers.

Different subject matter and different outcomes

Under Article 110 DOPK, a check is a set of actions concerning compliance with tax and social security legislation. It may establish particular facts and circumstances. An audit is a set of actions directed towards determining liabilities for taxes and compulsory social security contributions. The essential distinction lies in the legal outcome. A check as such does not determine the tax liabilities of the person checked. The information collected may justify initiating an audit or deciding another matter through a procedure provided by law.

A check report does not acquire the effect of a tax assessment act merely because it contains a calculation or an assumption about unpaid tax. It records the actions performed and facts established within its scope. Where legislation requires a check to end with a special act, the legal effect is governed by the rules applicable to that act. A check concerning set-off and reimbursement thus belongs to a different procedure from a check of stock at commercial premises. The shared description of the control activity does not make all its consequences identical.

In principle, a check does not require the express written commissioning order prescribed for an audit. This facilitates current control but does not remove the requirements for a competent authority, an identifiable subject matter and proper documentation. The person must be able to understand the proceedings in which they are participating and why particular information is required. Unclear identification of the procedure is particularly problematic where actions are in fact directed towards determining liability without providing the safeguards of the audit procedure.

Commissioning, scope and competence

Audit proceedings commence with an audit commissioning order under Article 112 DOPK. The order identifies the person audited, the audit authorities and audit team leader, the types of liability, the periods covered and the time allowed for the work. These particulars define the limits within which control becomes a specific proceeding. A VAT audit for particular periods does not provide unlimited power to determine every other tax liability of the same person in the final act.

Any extension or alteration of scope must follow the statutory procedure. This must be distinguished from collecting evidence originating outside the audited period. A document from an earlier year may be relevant to assets held or the source of funds during the period under review. Examining it does not necessarily mean that the administration is determining a liability for the earlier year. Conversely, the fact that the document was lawfully collected does not permit the final act's subject matter to be enlarged without proper commissioning.

Competence has substantive, territorial, functional and temporal dimensions. It derives from legislation and from acts of legally permitted delegation or substitution. Article 8 and the special rules for designating authorities cannot be replaced by an assumption that every National Revenue Agency employee has identical powers everywhere. Equally, examining competence does not end with the permanent address or registered office of the person audited, because the law permits special organisational and commissioning arrangements.

A boundary of substantive competence was clarified by Supreme Administrative Court Interpretative Decision No. 6 of 27 October 2022 in interpretative case No. 6/2021. When determining an employer's tax and social security liabilities, revenue authorities cannot incidentally declare the existence of employment relationships concealed by civil contracts where Article 405a of the Labour Code applies. That competence belongs to the Labour Inspectorate's control authorities. The decision resolves opposing lines of case law and shows that seeking the actual economic substance does not justify assuming a statutory power entrusted to another authority.

Service and duration of the proceedings

Service of the commissioning order matters for the person's participation and for the commencement of the period for conducting the audit under Article 114 DOPK. Commencement of the proceedings and commencement of that period are not identical events. The distinction also matters when examining the assessment time limit under Article 109. The legal effect attaches to the particular event specified in the applicable provision, rather than to a general impression that an audit has already started.

The ordinary period for conducting an audit is up to three months, subject to extension under Article 114. Exceptional factual complexity may justify a longer procedure under the special statutory conditions. An extension requires a decision by a competent authority and a relevant justification. Staying the proceedings is a separate institution requiring the grounds in Article 34 DOPK. It should not be used as an informal extension because of administrative workload or as a means of leaving the person in uncertainty indefinitely.

Not every time limit within audit proceedings is preclusive. Determining the consequence of non-compliance requires examination of its function, any express statutory sanction and the effect on the right of defence. The time limit for commencing assessment proceedings differs from the period for preparing the audit report. A delayed procedural action does not automatically imply either nullity of the final act or its unconditional legality. The important issue is whether the infringement affects admissibility, competence or the opportunity to establish and discuss relevant facts.

Procedural participation and proportionality

The audited person must cooperate within the statutory scope but remains entitled to procedural rights. They may be represented, submit documents and explanations, request the collection of evidence, inspect the relevant file and object to factual and legal findings. Article 17 DOPK expresses this position as a right to information and defence, rather than an administrative favour dependent on the goodwill of the official conducting the check.

The duty to cooperate has limits defined by its subject matter. Information requested must relate to the rights, obligations or liability being examined and must be obtained through a permissible method. The breadth of tax control does not remove professional secrecy, restrictions on disclosure of protected information or applicable safeguards against compelled self-incrimination. Those safeguards do not automatically release a person from the obligation to provide existing accounting records. The answer depends on the type of information, the nature of the compulsion and its connection with a possible criminal charge.

Audit proceedings therefore combine authoritative determination with protected participation. Their outcome should be a reasoned application of the law to proven facts. The evidential process provides the connection between the initial suspicion or discrepancy in the records and the final conclusion that a public claim exists.

7. Proof, the burden of proof and establishing the true facts

In tax law, identifying the applicable rule and establishing its factual conditions are different tasks. Legislation may clearly prescribe the consequence of a particular supply, income item or expense, yet the dispute remains unresolved if it has not been established whether the relevant event occurred. Proof is the procedural activity through which information about facts is collected, tested and evaluated. Its purpose is a reasoned factual conclusion to which substantive law can be applied.

The subject matter of proof follows the substantive rule

Relevant facts are those creating, changing, preventing or extinguishing the disputed legal relationship, together with facts through which they may be established. When income is taxed, its source, recipient, amount and time of acquisition matter where the law attaches significance to them. For a tax-deductible expense, the inquiry concerns its actual occurrence, connection with the activity and applicable documentation requirements. In VAT cases, it encompasses the particular substantive conditions of the supply, the chargeable event, use for taxable activity and the requirements of the right asserted.

A universal list of documents cannot therefore replace legal analysis. A transport document may be particularly important for movement of goods, but it does not by itself explain the performance of consultancy services. For a service, the assigned task, the actual result produced, correspondence, acceptance and use may be relevant. Conversely, absence of a particular document has different implications where legislation requires it as a condition of entitlement, requires it only as proof, or where it is a customary but optional source of information.

The civil-law classification assists but does not exhaust tax analysis. An invoice is not the supply itself but a document recording it. Payment establishes a flow of funds but does not always establish its legal basis. Warehouse stock indicates the location of goods but does not, without further information, determine who has the power to dispose of them as owner for VAT purposes. That power may be transferred without the goods leaving the warehouse. The assessment must follow the relevant legal conditions and the evidence as a whole.

Official investigation and the risk of a fact remaining unproven

The burden of proof is not the same as the obligation to produce documents. The latter is a particular procedural duty arising by law or following a proper request. The burden of proof determines which party bears the adverse consequence when a legally relevant fact remains unproven after the permissible collection and assessment of evidence. Material produced by the administration may establish a fact favourable to the person. A document submitted by the person may confirm a basis for taxation. The origin of the procedural initiative does not predetermine which party the evidence will assist.

Under the ordinary procedure, the administration must substantiate the factual grounds of the liability assessed. A person claiming an exemption, relief, recognition of an expense or input VAT deduction must establish the facts supporting that favourable consequence. This allocation does not release the authority from its duty to investigate under Article 37 DOPK and does not permit tax to be assessed simply because the person has failed to refute an unproven suspicion. The adverse consequence of insufficient proof concerns the particular fact and the particular legal result.

For input VAT deduction, proving the substantive requirements must be distinguished from proving fraud or abuse. A formally regular invoice does not remove the need to determine whether an actual supply occurred. At the same time, irregularities at the supplier do not themselves establish that the recipient participated in fraud or knew about it. Where refusal is based on such knowledge, the administration must establish the objective circumstances supporting it. The state's general responsibility for supervising every participant in the chain cannot be shifted to the recipient in the guise of a burden of proof.

Failure to comply with a properly made request for evidence has the consequences prescribed in Article 37 DOPK. It may restrict the factual basis on which the authority decides and, in certain circumstances, be relevant to the special procedure under Article 122. Procedural non-cooperation does not, however, create an unlimited presumption that every administrative assumption is correct. The regularity of the request, the time allowed, the objective ability to comply, the subject matter of the documents and the other information collected all matter.

Documents, accounting records and electronic data

Written evidence is central because commercial accounting is document-based. Official and private documents have different evidential effects. Certification by an authority acting within its competence must not be equated with its legal assessment. A report may establish that a check took place on a particular date and that stock was found, while the legal conclusion concerning taxable income remains subject to separate examination. A private document ordinarily establishes the statement of its signatory, while the truth of the event described is assessed together with the remaining evidence.

Accounting books are evaluated by reference to their regularity and their relationship with other evidence. Article 51 DOPK does not make an accounting entry irrefutable proof that the transaction actually occurred. Proper accounting creates a consistent and verifiable trail but cannot legitimise a non-existent transaction. Conversely, irregular records require a specific assessment of their effect on the disputed issue. A single technical error does not necessarily invalidate all information about the activity.

A document may be challenged as to its author, signature, integrity, date or the truth of its content. These issues are not interchangeable. An authentic agreement may contain false statements about a payment. An inauthentic document cannot be accepted simply because the transaction described appears economically plausible. Where specialist investigation is required, technical or handwriting expertise addresses the issue within the assigned task, while the authority or court determines the legal consequence.

An electronic medium does not itself diminish the evidential value of information. What matters is establishing the origin, content and integrity of the electronic document and the reliability of the method used to extract and present it. A printed email, a screenshot from a system and an original electronic file do not necessarily offer identical opportunities for verification. Metadata, an electronic signature, time certification, system logs and the relationship with other correspondence may have different significance depending on the disputed fact.

Where a tax act was created as an electronic document, signature verification concerns the electronic original. The absence of a handwritten signature on the printout does not automatically establish the absence of an expression of administrative will. Equally, a printed statement that the document was electronically signed does not replace verification where a specific challenge is made. The technical question of signing must be separated from the legal question whether the signatory had competence to issue the act.

Explanations, witness evidence and expert opinions

Written explanations in the administrative proceedings are obtained under DOPK, including the special restrictions and safeguards in Articles 56 and 57. They should not be presented as completely identical to testimony before a court. At the judicial stage, Article 158(1) DOPK permits witness testimony only in the situations covered by Article 57(2). General references to other procedural rules do not remove this special restriction. The distinction between stages matters where a fact cannot be clarified through accounting records alone. Article 57(2) covers the reliability and authorship of particular data, facts where a document was lost or destroyed without fault, facts for which written proof is not required, and circumstances where a required document was not created or the document created does not reflect reality. Under Article 56(3), income subject to social security contributions cannot be proved through written explanations alone.

Information from a person with a personal or economic interest is not automatically inadmissible, but its source, immediacy and consistency must be assessed. A general assertion that a service was performed has different evidential value from a description of a specific task, time, method and result supported by independent data. A third party's refusal to cooperate likewise cannot mechanically be equated with the absence of a transaction between that party and the audited person.

Expert evidence is required where establishing a fact needs specialist knowledge. An accounting expert may trace entries, payments, quantities, cost or the arithmetic consistency of a calculation. The expert does not decide whether legislation allows input VAT deduction, whether an act is void or how the burden of proof should be allocated. These are legal questions. An opinion is only as reliable as its source data and method. Accordingly, accounting consistency must not be presented as proof of every substantive legal element of the transaction.

Indirect evidence also matters in ordinary proceedings where, taken together, it supports a conclusion concerning the disputed fact. There is no general rule permitting it only in an Article 122 audit. The special procedure differs in its statutory prerequisites for determining the base and in its prescribed presumptions. Neither a large number of weak assumptions nor an isolated accounting anomaly can replace an explanation of why the evidence as a whole supports the conclusion reached.

Information from other proceedings

Cross-checks and information collected from third parties broaden the audit's evidential basis. Using such material requires its proper incorporation into the proceedings and an effective opportunity for the person to inspect and challenge its relevant content. A finding in a supplier's tax assessment act is not equivalent to independently proving every fact in proceedings against the recipient. It matters particularly whether the recipient participated in the earlier proceedings and precisely what is being carried over from them.

Tax and social security information receives special protection under Article 72 and the following provisions of DOPK. This restricts unrestricted disclosure but should not turn the evidential basis of an adverse act into a secret inaccessible to its addressee. The right of defence must be reconciled with third-party rights and the particular statutory grounds for access. Where the administration draws an adverse inference from another person's document, it must provide a procedurally valid means of testing that inference.

The final evidential conclusion should identify the facts established, those still disputed, the evidence accepted and the reasons for rejecting other material. Listing numerous attachments does not replace discussing them. A reasoned progression from evidence to facts and from facts to legal consequences enables the addressee to understand the act and the court to exercise effective review.

8. The audit report, tax assessment act and stability of the determination

Audit proceedings move from gathering information to an authoritative determination through two distinct documents. The audit report summarises factual findings, evidence and proposed legal conclusions. The tax assessment act determines the rights, obligations or liabilities established. The distinction is not merely formal. It allows the person to defend their position against provisional conclusions before those conclusions are embodied in an enforceable act.

The report and the right to object

Article 117 DOPK governs the content, preparation and service of the audit report. Its attachments are essential to understanding it. Where a liability finding rests on a particular table, cross-check or cash-flow analysis, access to the final figure alone does not provide effective defence. The person must be able to establish which data produced the result and how inconsistencies between them were resolved.

An objection to the report is not an administrative appeal against the tax assessment act. It is a means of participation in assessment proceedings that have not yet ended. Its function is to draw attention to errors, omissions and a different legal significance of facts already known, and to provide further evidence. Failure to object does not release the issuers of the act from their obligation to apply the law correctly and does not itself amount to admission of every finding.

The report is preparatory and ordinarily is not the independent subject of the subsequent challenge. The dispute concerns the final act, although defects in preparing or serving the report may affect its legality. If the person is deprived of a genuine opportunity to object, the infringement is assessed by its effect on determination and defence, rather than reduced to a technical defect in the file.

Legal nature and content of the act

A tax assessment act is an individual administrative act with declaratory effect. In taxation, it ordinarily does not create the original obligation but individually determines the consequence arising when the statutory conditions occurred. Annulment for a procedural defect therefore does not necessarily mean that the taxable event never happened. Conversely, its declaratory nature does not make the act redundant. It gives the disputed public claim a defined administrative form, an avenue for review and a basis for enforcement.

Article 118 DOPK covers determination of liabilities and the other outcomes it specifies, including set-off, reimbursement and liability for another person's obligations. The legal character must therefore be examined by reference to the particular operative provisions. Proceedings against a manager for liability under Article 19 DOPK cannot be reduced to repetition of the company's audit. They have their own addressee, statutory conditions and subject matter of proof.

The act must contain reasons and clear operative provisions under Article 120 DOPK. For each type of liability and period, it must be possible to identify the amount determined, its legal basis and the facts on which it rests. The audit report is attached and forms an integral part of the act, but this does not release its issuers from considering objections and new evidence. A reasoned reference to the report differs from mechanically repeating a conclusion whose basis was disproved after the report was prepared.

Joint issue and examination of validity

In the ordinary situation under Article 119(2) DOPK, the act is issued jointly by the authority commissioning the audit and its team leader. Both expressions of will form part of the statutory decision-making arrangement. Where they cannot agree, Article 119(3) provides a special procedure. It is therefore insufficient for the act simply to bear two officials' signatures. Those officials must possess the particular capacities to which legislation attaches the power to issue it, or the relevant special procedure must have been lawfully applied.

Supreme Administrative Court Interpretative Decision No. 5 of 13 December 2016 in interpretative case No. 10/2016 clarifies that the managerial grade of a properly authorised commissioning officer does not itself invalidate joint issue. The ruling and its limits are examined in detail in the chapter on nullity and voidability.

This example shows why historical legislative versions matter in practice. Before the amendment, a different model applied to designation of the authority competent to issue the act. Transitional provisions preserved the former procedure for certain pending cases. An older judicial conclusion concerning the issuing authority therefore cannot be applied to a new act without identifying the applicable version of the law. The date of the judgment does not itself determine that applicability.

Nullity and voidability are different consequences of defects. A void act fails to produce its intended legal consequences because of an especially serious defect. A voidable act exists as an authoritative determination and operates until removed through the proper procedure. An incorrect tax base, failure to discuss evidence or an erroneous interpretation of substantive law ordinarily raises a question of legality without automatically making the act void. The nature and intensity of the particular defect must be identified.

Enforceability and finality

The tax assessment act is an enforcement title under Article 209(2) DOPK. An appeal does not automatically suspend its enforcement. Suspension is available under Articles 153 and 157. This departs from the intuitive expectation that every contested administrative act can be enforced only after final confirmation. Enforceability, finality and substantive legality must be examined separately. An act may be enforceable while the dispute on its merits continues.

That distinction also separates a challenge to the assessment, a request for suspension and a challenge to a particular enforcement measure. A defect in an enforcement measure is not necessarily a defect in the tax assessment act. Extinguishment of the obligation after the act was issued may make particular enforcement impermissible without showing that the original assessment was incorrect. These issues belong to their respective procedures, which should be coordinated but not conflated.

Extraordinary amendment of established liabilities

The stability of a final tax assessment act protects legal certainty. The administration cannot commission fresh audits of the same liability indefinitely merely because a later team takes a different view. Articles 133 and 134 DOPK provide an extraordinary procedure for amending liabilities determined by a final tax assessment act that was not challenged in court. The procedure has exhaustive grounds and special procedural conditions. It does not extend the ordinary appeal period that a person has missed.

The distinction between a newly discovered circumstance and a new assessment of old evidence is particularly important. The circumstance must be material and satisfy the requirement that it could not objectively have been known at the relevant time. A document may be discovered or created later, but when relied on under this ground it must prove a relevant fact in the legal relationship being assessed. Negligent evidence gathering in the first audit should not become an administrative privilege to repeat the proceedings without the statutory prerequisites.

Where a dispute has been resolved by a final judicial decision, protection of finality has a different procedural basis. Extraordinary reopening is governed by the corresponding grounds and procedure for setting aside final judgments. Administrative proceedings under Article 133 do not empower the revenue authority to revise a judicial determination. This boundary preserves the distinction between administrative assessment and adjudication.

9. Audits in special cases and the limits of statutory presumptions

Ordinary assessment presupposes sufficiently reliable information about actual economic transactions. Where information is missing, concealed or substantially compromised, mechanically following the records presented could make taxation impossible. Article 122 DOPK provides a special method for determining the tax base in exhaustively specified circumstances. The institution addresses an evidential deficit without allowing the administration freely to create new conditions of tax liability.

The prerequisite for the special procedure must be proved

The grounds in Article 122(1) include failure to file a return where liability is determined by return, indications of concealed revenue or income, specified defects in accounting, absence or non-production of accounting records, destruction of necessary documents, inability to obtain information because the person cannot be located, a discrepancy between declared funds and the person's assets or financial position, and failure to provide access to premises subject to control or relevant electronic data. Each ground has its own content. A general suspicion of irregularity does not replace proof of the particular statutory prerequisite.

Not every accounting error makes ordinary assessment impossible. The type and extent of the defect and its connection with determining the base matter. If actual transactions can be established through reliable source documents and other evidence, the authority must explain why the special method is nevertheless used. Where the law permits a choice of procedural approach, the assessment remains tied to the facts. It does not become a freedom to select a less favourable method for the person without reasons.

The evidential advantage under Article 124(2) cannot be used to prove the ground for the special procedure itself. It presupposes that the ground is already supported by the evidence collected. Otherwise the reasoning would be circular, accepting administrative findings as true because Article 122 was chosen and justifying that choice by the same untested findings. The law requires a logical sequence between prerequisite, method and legal result.

Determining the base and distinguishing analogy in law

Article 122(2) requires consideration of circumstances relevant to the particular person. These include the type of activity, official data, assets, movements in accounts, sales volume, expenditure, prices and other economic indicators capable of illuminating the actual taxable amount. The list does not justify applying an identical mechanical model to every enterprise. The method must be understandable, avoid double counting and account for the proven characteristics of the activity.

The expression assessment by analogy is an established shorthand, but it does not mean extending a substantive tax rule by analogy to a case the legislature has not taxed. The tax, rate and taxable object remain prescribed by law. The special procedure concerns determining the base through permissible indicators and presumptions. This distinction protects the principle of statutory taxation from replacement by economic probability.

In a cash-flow analysis, the opening balance is as important as receipts and expenditure during the audited period. A transfer between a person's own bank accounts is not new income. A loan received is not necessarily taxable income, but its actual advance and the availability of the funds must be proved. A withdrawal cannot automatically be treated as finally consumed where there is evidence of its subsequent return or use already counted as another expense. The comparison must follow the timing and economic identity of the funds.

Two different presumptions

Article 123 DOPK creates rebuttable presumptions of taxable profit or income where the value of assets or expenditure clearly and substantially exceeds the corresponding declared sources. The legislation connects a proven asset discrepancy with a presumed taxable result. The presumption does not mean that every arithmetical difference is income. The quantities being compared and the qualified nature of the discrepancy must first be established.

Article 124(2) creates a separate evidential effect when an act issued under the special procedure is challenged. Factual findings are presumed correct until proved otherwise under the statutory conditions. This does not make legal conclusions irrefutable and does not relieve the reviewing authority or court of examining the method, reasons and application of substantive law. A statutory presumption of a fact is not a statutory presumption that the entire act is lawful.

Rebuttal may address an individual component of the calculation, an incorrectly included expense, a proven non-taxable source or the prerequisite for the special procedure itself. Not every finding must be false for the final amount to be incorrect. Equally, a general assertion that funds were accumulated long ago does not establish their existence and availability. Each explanation is evaluated through the particular evidence and the applicable rules for obtaining it.

A spending shortfall and income from other sources

Supreme Administrative Court Interpretative Decision No. 11 of 3 December 2021 in interpretative case No. 3/2020 resolves whether expenditure funded from an unidentified source can be taxed under the ordinary procedure as income under Article 35(6) of the Personal Income Tax Act, or ZDDFL. The answer is negative. A proven shortfall in funds is not itself proven income from a particular other source. Where the relevant prerequisites exist, the special procedure in Article 122 and the following provisions must be used. The decision therefore does not exempt undeclared income. It requires the proper legal and evidential mechanism for establishing it.

The distinction matters for defence. Under the ordinary procedure, income corresponding to the substantive statutory provision must be proved. Under the special procedure, legislation allows certain inferences from an asset discrepancy while also providing the special safeguards in Article 124. Combining the two models would allow the administration to enjoy the presumption's advantages without satisfying the conditions for its operation.

Notification, social security contributions and criminal proceedings

The move to Article 122 must be notified to the audited person. Under Article 124(1), they receive no less than fourteen days to submit evidence and observations. The notification must make it possible to understand why the procedure is changing and which facts justify the change. A formal reference to the provision that does not reveal the substantive ground impedes the specially granted opportunity to defend the person's position.

Article 124a permits corresponding application of Articles 122 to 124 when determining compulsory social security contributions. Corresponding application does not remove the substantive conditions for social security coverage. The legal basis making particular income subject to contributions, the applicable period and the relevant limits must be examined. An assessed tax base and contribution-assessable income do not always coincide. Moving from tax to a social security contribution itself requires separate legal reasoning.

Tax-procedure presumptions do not automatically carry over into criminal proceedings. A tax act may be relevant as a document but does not replace proof of the elements of an offence and guilt through the methods permitted by the Criminal Procedure Code. The presumption of innocence and the prohibition on basing an accusation on assumptions require independent proof. This explains why a tax liability may be established through the permissible special method without that fact alone entailing criminal liability.

10. VAT registration, refusal and deregistration

Registration under the Value Added Tax Act, or ZDDS, is a special administrative regime through which a person enters the system for charging, reporting and deducting VAT under the applicable statutory conditions. It must be distinguished from taxable-person status. That status derives from independent economic activity under Article 3 ZDDS and applicable EU law. A person may carry on such activity before a particular registration obligation arises or before the administrative procedure has ended.

Grounds for registration and legal effect

The legislation establishes different grounds for compulsory and voluntary registration. The general turnover criterion does not exhaust the possibilities. Receipt or supply of particular services, intra-Community acquisitions, legal succession and special schemes may have their own significance. The legal analysis therefore begins with the particular ground, the place of establishment and the type of transactions. A low turnover alone is insufficient to conclude that no registration obligation exists.

Different registrations do not always confer the same range of rights. Limited registration for a particular category of transactions should not be presented as a general entitlement to deduct VAT on all purchases. The precise legal effect follows from the registration ground and the corresponding provisions of ZDDS. For the same reason, a registration certificate does not establish that every invoice issued by the person is correct or every supply they make is taxable.

In proceedings under Article 101 and the following provisions of ZDDS, the administration examines circumstances relevant to the ground asserted or identified. The registration act or refusal embodies a particular authoritative determination. Where a person has missed compulsory registration, the consequences for earlier transactions follow from the special substantive rules, including Article 102. The absence of a timely administrative act does not mean that obligations arising by law for an earlier period disappear.

The effective date is particularly important when comparing the registration act, service, supplies made and deductions exercised. The general rule in Article 83 DOPK must be combined with the special rules in ZDDS. The same date therefore cannot mechanically be used for every type of registration and deregistration. The distinction between an obligation to apply for registration and the legal consequences of the completed entry forms part of the substantive analysis.

Refusal as a means of preventing abuse

Refusal of registration is not a free assessment of whether the administration approves the applicant's business model. It requires a statutory ground and facts satisfying it. Article 176 ZDDS provides special grounds concerning the person's conduct and position, including inability to locate them at the correspondence address, failure to comply with specified obligations and other expressly identified circumstances. The provision must be applied consistently with its purpose and the principle of proportionality.

Failure to locate the person at the address is legally relevant only if established through the applicable procedure. Absence during a single visit should not, without further analysis, be equated with a lasting inability to correspond. Where systematic non-compliance is alleged, the particular infringements, their similarity, repetition, period and seriousness matter. A list of unpaid amounts or missing returns must be linked to the actual risk and the statutory prerequisite, rather than remain a general negative portrait of the taxpayer.

In its judgment of 14 March 2013 in Case C-527/11, Ablessio, the Court of Justice examined refusal to register a new company because it lacked sufficient material, technical and financial resources and because of its owner's earlier conduct. Absence of those resources does not alone justify refusal. Serious objective evidence of likely misuse of the identification number is required, assessed as a whole. The judgment permits preventive supervision but rejects automatically treating a business's early stage as evidence of an intention to defraud.

The ruling is particularly valuable for enterprises using leased resources, subcontractors or phased investment. Absence of an owned warehouse, owned vehicles or a large workforce does not itself establish fictitious activity. The same circumstances may acquire different significance when combined with false documents, contradictory explanations and other concrete information. Proportionality requires an overall assessment rather than a predetermined model of what every genuine economic activity should look like.

Deregistration and preservation of existing liabilities

Deregistration under Article 106 and the following provisions of ZDDS changes registration status for the future. It may be compulsory, voluntary or initiated by the administration on special grounds. These situations are not interchangeable. Where a statutory compulsory ground exists, the authority acts under a binding duty. In an assessment under Article 176, the existence of a ground does not remove the need to explain the exercise of the power conferred.

Deregistration does not erase tax liabilities for past periods or prevent a subsequent audit of them. It may also produce separate consequences for assets held and input VAT previously deducted under Article 111 and related provisions. The outcome depends on the type of asset, the earlier deduction and any applicable exception. A general statement that all previously deducted VAT must be repaid upon every deregistration is inaccurate.

Entitlement to deduction must be determined by reference to the substantive conditions and applicable EU law. Formal registration status cannot serve as a universal replacement for analysis of the actual transaction. This does not mean that registration requirements are irrelevant or that taxpayers may disregard them. The legal consequence of non-compliance must be proportionate and follow from the particular rules. It must be distinguished from refusal of a substantive right because of proven fraud or absence of its conditions.

A unified procedure for challenging registration acts

Article 83(4) DOPK subjects challenges to acts and refusals concerning registration or deregistration in special registers to the procedure for tax assessment acts. Refusal therefore does not require an unrelated theory of legal protection. Competence, reasons, factual grounds, proportionality and compliance with the administrative stage are common issues. The difference lies in the determination requested and the legal effects of the particular act.

For refusal, the dispute centres on the existence of a registration ground and the legality of the obstacle asserted by the administration. For deregistration, it concerns the ground for termination, the effective date and whether the measure corresponds to the purpose of the law. For registration initiated by the authority, the person may contest the existence or scope of the registration obligation itself. A unified procedural route does not remove these substantive differences. It provides a consistent means of examining them.

Where an act affects ongoing activity, its temporary operation must be considered separately from the final dispute. Merely filing an appeal does not mean that registration status remains unchanged until judgment. The type of act, special legislation and applicable request for interim protection determine the consequences in the meantime. Registration proceedings thus lead naturally to the general questions of administrative appeal and judicial review examined in the next part.

11. The substantive subject of an audit of profits, personal income and social security contributions

The tax base as a legal rather than merely an accounting measure

The common procedure under the Tax and Social Security Procedure Code does not eliminate the differences between the liabilities assessed through it. Corporate income tax, personal income tax and compulsory social security contributions may be included in one audit, but each has its own statutory requirements. The same sum may constitute revenue for a company, income for an individual or remuneration included in the social security contribution base. The connection between these consequences must be proved. It does not arise merely because the revenue authority has adopted a general description of the business activity.

The distinction between the subject of taxation and the tax base explains why a bank receipt, accounting turnover and taxable profit are not interchangeable concepts. The subject identifies the economic benefit or legal position to which the law attaches taxation. The base is its quantitative expression under the rules governing the particular tax. Establishing a movement of funds proves a movement of funds. For that movement to justify a particular tax, a further legal classification is necessary, taking account of its origin, recipient, period and any applicable exceptions.

A tax audit is therefore not an unrestricted reconstruction of presumed economic fairness. The administration must reach the result that the law attaches to the proven circumstances. Where a trader receives a loan, its available cash increases, but that increase has a corresponding liability. Where it receives a sale price, the relationship between revenue, the carrying amount of the asset sold and tax adjustments is different. Where an owner contributes funds to a company, the legal basis of the contribution determines the consequences both for the company and for the owner.

Corporate profit and recognition of expenses

Under the general regime of the Corporate Income Tax Act, taxation is based on the tax financial result obtained by adjusting the accounting financial result. Accounting profit is not accepted unconditionally as taxable profit, but neither may it be disregarded without a statutory basis. The rules on permanent and temporary differences, tax depreciation, losses and other adjustments determine how an accounting transaction affects taxation. The applicable provision must explain the adjustment itself, its amount and the period to which it belongs.

A permanent tax difference reflects a divergence that is not offset by later recognition under the general rules for temporary differences. A temporary difference operates differently. An expense or revenue may be excluded from the current period's tax result and recognised when a specified future event occurs. This distinction is significant for provisions, impairment and other accounting estimates. The revenue authority cannot treat deferred tax recognition as a final denial where the law provides for a subsequent reversing adjustment.

Documentary substantiation under Article 10 of the Corporate Income Tax Act connects the form of accounting documentation with the actual economic transaction. An invoice does not create an expense that has not arisen. At the same time, the absence of an individual required detail does not always defeat all the evidence where the law permits the missing information to be established through other documents. Legal analysis must distinguish a nonexistent transaction, an actual transaction documented incompletely and an actual transaction whose expense is disallowed for an independent substantive reason. These are different grounds and require different responses.

Whether a service was actually performed is established according to its content. For technical consultancy, relevant matters include the assignment, the materials prepared, communications, use of the result and its connection with the business. For transport, they include the carriage, route, cargo and its receipt. An identical set of documents cannot mechanically be required for every service. Assessment of the evidence follows the nature of performance rather than a predetermined form for every possible economic transaction.

Payment is relevant evidence, but it does not resolve the issue on its own. A transferred amount may represent an advance, a loan, reimbursement or payment under a simulated arrangement. Conversely, nonpayment does not necessarily mean that a service was not performed, since accounting may in principle recognise receivables and liabilities before money moves. The time of performance, the time of accounting recognition and the time of payment must therefore be distinguished and compared.

Denial of input VAT deduction is not a universal ground for disallowing an expense under the Corporate Income Tax Act. The two taxes protect different mechanisms and contain different conditions. Where a transaction genuinely did not occur, that common fact may be decisive under both regimes. Where the VAT dispute concerns another element, such as the classification of a supply under a particular regime, the absence of a corporate expense does not follow automatically. Each conclusion in the assessment act must be justified under the applicable substantive legislation.

Tax depreciation illustrates particularly clearly the independence of the substantive regime. Acquisition of a noncurrent asset does not necessarily allow its entire price to be deducted immediately as a current expense. Recognition of the asset, its tax depreciable value, its inclusion in the appropriate category and the rules for depreciation are relevant. The accounting depreciation schedule and the tax depreciation schedule serve different functions. An adjustment to one cannot be justified merely by mechanically reproducing the other.

A tax loss is also a legally defined result rather than simply a shortage of cash. Carrying it forward to subsequent periods requires compliance with the specific conditions governing the creation and exercise of that right. An audit of a later period may require examination of the data from which the claimed loss originates, without creating an unlimited power to reassess liabilities for which the statutory assessment period has expired. The matters requiring proof and the permissible subject of assessment must remain clearly distinguished.

The rules on interest expenses and financing complete this system. Contractually payable interest may be a genuine accounting expense whose recognition for tax purposes is nevertheless restricted by special rules. In such a dispute, proof that the loan was actually advanced is necessary but may not be sufficient. The amount of the expense, the relationship between the parties and the applicable restriction or subsequent recognition mechanism require separate examination. The reality of the transaction is thereby distinguished from its treatment for tax purposes.

Related parties, market conditions and tax avoidance

A relationship between enterprises does not make their transactions invalid and does not in itself establish tax avoidance. The relationship becomes legally relevant where the agreed conditions affect the tax base differently from dealings between independent parties. Article 15 of the Corporate Income Tax Act then requires the tax result to be determined by reference to conditions between unrelated parties. Identifying the relationship is only the beginning of the analysis. The actual transaction, economic functions, assets used, risks assumed and appropriate comparison must also be established.

A market price is not necessarily the highest offer found or the arithmetic mean of arbitrarily selected transactions. Comparability depends on the subject matter, quantity, quality, market, contractual conditions, duration and other material characteristics. An intragroup service requires identification of the activity actually performed and the person who benefited from it. For financing, the currency, security, credit risk and maturity matter. An expert valuation must make the transition from the selected data to the tax adjustment verifiable.

This analysis also has a temporal dimension. The amendment to the definitions of market price and the methods for determining it in paragraph 1 of the Code's supplementary provisions, promulgated in State Gazette No 85 of 2026, requires consideration of the version applicable to the particular period. Methodological conclusions from an older judgment cannot be transferred without examination to an amended statutory framework. The retrospective effect provided by paragraph 33 of the same amending Act also forms part of that analysis. Act amending the Tax and Social Security Procedure Code, State Gazette No 85 of 15 September 2026, paragraphs 24 and 33.

Tax avoidance under Article 16 of the Corporate Income Tax Act concerns a different question from the mere existence of a relationship between parties. The statutory characteristics of the arrangement used and the tax result arising from application of the provision must be established. Recharacterisation for tax purposes does not necessarily mean that the contract is invalid under civil law. A transaction may continue to bind the parties while the legislation requires a different base for taxation. Conversely, a civil dispute does not release the authority from establishing the tax facts that actually occurred.

Personal income and movements of assets

For individuals, the subject of taxation is determined through the Personal Income Tax Act's rules on categories of income, their acquisition and exemptions. The tax bases for employment remuneration, independent business activity, rent and transfers of property are not constructed in the same way. The label entered in a bank payment reference does not bind the administration, but the absence of a detailed description does not automatically turn the sum into taxable income from another source. Legal classification follows the proven basis on which it was received.

Loans, gifts, inheritance and transfers between a person's own accounts raise different issues. Loan funds are in principle received subject to an obligation to repay them and cannot therefore be equated without an additional basis to a finally acquired benefit. Gifts and inheritance have their own tax treatment and relationship with local taxation. Moving funds already owned between two accounts does not constitute a new acquisition merely because a second bank entry appears. The audit must trace the actual flow to prevent double counting.

A claim that funds came from a loan or existing savings is nevertheless insufficient by itself. The time of receipt, the actual delivery of funds, the parties' subsequent conduct and consistency with other established facts matter. A contract produced only after a discrepancy has been identified is assessed together with all the other evidence. It is neither invalidated in advance because of the time of its production nor conclusive proof that funds were available at an earlier date. The existence of a receivable, the receipt of cash and its retention until the beginning of the audited period require particularly careful separation.

Where expenditure exceeds proven available funds, the special procedure under Article 122 of the Code does not remove the need for a correct opening balance and consistent cash flow. The same loan cannot be excluded as a source and then added again as expenditure without a factual basis. The sale of an asset does not necessarily generate income equal to the whole price received where substantive law provides for a cost deduction or exemption. A statutory presumption may alter the allocation of evidential risk, but it does not replace the applicable tax regime.

Tax residence determines the territorial scope of liability. Citizenship, permanent address, physical presence and the centre of vital interests are different legal and factual characteristics. They cannot be reduced to a single identity document. Where two states simultaneously claim tax residence, the relevant treaty also applies. A residence certificate has evidential significance but must be considered alongside the period, category of income and particular treaty provision. The substantive connection with Bulgaria precedes calculation of the tax payable.

Social security status and contribution income

Compulsory social insurance is connected with a legally specified status and the exercise of the relevant work activity. Under Article 10 of the Social Security Code, commencement of the activity is central to the commencement of insurance. Recording a person in a document cannot replace an absent activity where the law requires that activity. Conversely, failure to comply with a reporting obligation does not remove a contribution liability that has actually arisen. Formal registration and the actual relationship must therefore be considered together. Social Security Code, Articles 4, 6 and 10.

The contribution base does not invariably coincide with taxable income under the Personal Income Tax Act. It has its own rules on included remuneration, minimum and maximum limits, periods and final calculation for self-insured persons. Income from selling personal property does not become income from work merely because it is identified during an audit. Conversely, a sum described by the parties as reimbursement may constitute remuneration if that follows from their actual relationship. The applicable classification must be substantiated for each ground of insurance.

A dispute about self-insurance requires a distinction between the obligation to pay contributions, the election of additional insured risks and entitlement to a particular benefit. These questions are not necessarily decided by one authority in one set of proceedings. An audit under the Code assesses contributions, while decisions of the National Social Security Institute concerning benefits have their own appeal procedure. Limitation rules for claims to recover benefits paid improperly cannot automatically be applied to unpaid contributions. Their common public-law character does not eliminate the different bases of the two claims.

For cross-border work, the question of which social security system applies precedes calculation of contributions. European coordination seeks to coordinate national systems rather than merge them. Certification of the applicable legislation, the actual place and manner of working and the rules for activity in more than one state have independent significance. A person's tax residence does not automatically determine the applicable social security legislation. Examining these connections separately prevents contributions from being assessed solely on the basis of a tax conclusion.

Part III. Tax disputes and judicial protection

12. Administrative appeals as a continuation of assessment and a guarantee of legality

Establishing a tax liability and reviewing the act that establishes it are related but distinct legal activities. In a tax audit, revenue authorities apply substantive tax law to particular facts. An appeal concerns an exercise of public authority that already affects a particular person's legal position. The protection sought concerns the legality of that determination and, through it, the correct assessment of the public claim. An appeal is not a request for administrative leniency. It creates a duty to carry out a review under a procedure prescribed by law.

Administrative appeals under Articles 152-155 of the Tax and Social Security Procedure Code, referred to as DOPK, enable the revenue administration itself to correct errors of law, incomplete findings of fact and procedural infringements. This review also matters for subsequent litigation because it defines the challenged part of the act and allows the evidential basis to be supplemented. Its function nevertheless extends beyond preparing a court case. The deciding authority must give its own reasoned determination rather than merely refer to the account provided by the audit team.

The right of appeal, its subject matter and admissibility

The right of appeal belongs to the person adversely affected by the act. For a tax assessment act, this will normally be its addressee. The legal interest arises from liabilities established, rights refused or another adverse legal consequence. Disagreement with an individual reason is insufficient where the operative part does not affect the person. The operative part identifies the determination that may be challenged, although the reasons are necessary to assess its legality.

A tax assessment act may be challenged in full or in separate parts. Its divisibility depends on the assessed liabilities and their factual grounds, tax periods and amounts. Challenging one liability does not necessarily mean challenging every other liability contained in the same document. The substance of the relief sought matters more than general language alleging unlawfulness. The distinction between the subject matter and grounds of appeal is important. The subject matter identifies the part challenged, while the grounds explain why that part is considered defective.

The law imposes a time limit for an ordinary challenge seeking annulment. Its commencement is linked to proper service, so proof of service concerns access to a remedy rather than a technical detail. Later discovery of an act that was not properly notified cannot simply be equated with missing a deadline that began upon lawful service. Conversely, once service has been proper and the deadline has expired, repeating the same arguments does not restore the right to an ordinary appeal.

The formal requirements for an appeal identify the appellant, the challenged act, the scope of the request and the representative's authority. A curable irregularity differs from inadmissibility. A missing signature or an absent power of attorney is not equivalent to a lack of legal interest or an expired appeal period. Articles 145-147 DOPK provide the corresponding procedural consequences and protection against a refusal to examine the appeal. These safeguards prevent formal requirements from becoming an independent barrier to the examination of a genuinely disputed matter.

The extent of review and the taking of evidence

The deciding authority reviews the legality of the challenged part of the assessment. Within those limits, it is not confined to the legal arguments expressly stated in the appeal. The duty to act of its own motion and the principle of objectivity mean that it cannot uphold an incorrect outcome merely because the appellant has failed to identify the precise provision. The position differs for an unchallenged part of the act, which does not automatically become subject to review simply because separate transactions are connected.

Article 155(3) DOPK allows new evidence to be gathered. An administrative appeal is therefore not decided solely on a closed file. A document not produced during the audit may be relevant to whether income, expenditure, a supply or a payment actually existed. Admitting it does not erase every consequence of an earlier failure to cooperate. It means that the substantive dispute must be decided on the relevant facts established through admissible means, taking account of the special rules of evidence.

An agreement concerning evidence under Article 154 DOPK has a limited purpose. It can identify evidence that will be treated as undisputed within the statutory framework. It is not an agreement on the amount of tax and does not authorise the administration to waive a statutory liability in exchange for a procedural concession. The tax claim remains governed by law. The distinction is between agreement concerning the evidential basis and disposal of a substantive public right.

The decision and the prohibition on worsening the appellant's position

The deciding authority may uphold, amend or annul the assessment in its challenged part. Amendment presupposes that the established facts permit the liability to be correctly determined. Annulment is required where the liability assessed lacks the relevant legal or factual basis. The reasons must distinguish a defect in the administrative procedure from the result of applying substantive law, because these do not always require the same subsequent action.

Remittal for a new audit under Article 155(4) DOPK is permitted where the statutory conditions are satisfied, involving evidential gaps that cannot be remedied on appeal or substantial procedural infringements. It is not a convenient substitute for deciding the dispute. The prohibition on a second remittal in paragraph 5 limits the continuation of administrative uncertainty through repeated audits within the same dispute. Binding directions govern the subsequent determination within their lawful scope, without removing the need to gather and assess the actual facts.

The prohibition on amending an act to the appellant's detriment under Article 155(8) DOPK guarantees that exercising the right of appeal will not itself produce a worse outcome in the same review proceedings. It concerns the legal position determined by the challenged act rather than the authority's ability to adopt different legal reasoning. A new reason is not necessarily a deterioration, but an apparent change in reasoning cannot conceal an increased liability or an expansion of its subject matter. The safeguard applies in relation to the particular liabilities and periods submitted for review.

A failure to decide within the statutory period has a special consequence. Under Article 156(4) DOPK, it is treated as confirmation of the assessment in the challenged part. This gives access to a court without requiring the appellant to wait indefinitely for an express administrative decision. It is neither a tacit refusal of an initial application nor automatic annulment of the assessment. The law provides a separate period for the judicial appeal and identifies the point beyond which the administrative authority may not decide after judicial proceedings have been initiated. The time limits and their starting points are collected in the practical appendix.

An appeal does not automatically stay enforcement of the assessment. This illustrates the independence of its assessment and enforcement effects. A dispute about liability may remain pending while collection is possible, and protection against collection requires a separate application for a stay under Article 153 DOPK. Annulment of the assessment, a stay of enforcement and cancellation of a precautionary measure are different legal outcomes, each with its own subject matter and conditions.

13. Tax litigation and the scope of judicial protection

Judicial review of a tax assessment transforms the dispute between the administration and the liable person into proceedings before an independent adjudicator. The court is not an extension of the revenue administration and does not conduct a new tax audit. It resolves the legal dispute brought before it on the basis of the law and the facts established in the proceedings. For tax assessments, this includes determining the substance of the tax relationship, so judicial protection goes beyond checking that the administrative document has been properly prepared.

The prior administrative appeal and the subject matter before the court

Article 156(2) DOPK makes an ordinary judicial challenge to a tax assessment conditional on a prior administrative appeal. A part not covered by the administrative appeal generally cannot be brought before the court for the first time through a request for annulment. This requirement reflects the special DOPK procedure and differs from the general system of administrative justice. The administrative stage may also be exhausted through the statutory tacit confirmation, rather than only through an express decision.

The subject matter before the court is the assessment insofar as it remains adverse after the administrative appeal. The decision of the director of the Appeals and Tax and Social Security Practice Directorate determines the form in which the assessment reaches the court, but does not replace it as the principal subject of the dispute. Where the administrative authority has annulled some liabilities, there will ordinarily be no legal interest in seeking further judicial annulment of that part. Where it has amended the act, the court examines the remaining liability as it stands after amendment.

The challenge has limits as to subject matter, but the court is not bound by the legal classification proposed by the parties. Under Article 160(2) DOPK, it reviews competence, form, compliance with procedural rules and substantive legal requirements. An appellant's reference to the wrong provision does not release the court from applying the correct law. At the same time, review of the court's own motion does not permit an assessed liability to be replaced by a different liability arising from different constituent facts without respecting the subject matter of the act and the right of defence.

The burden of proof as a rule for deciding the dispute

The burden of proof is not simply an obligation to produce documents. It identifies who bears the adverse consequence when, after all admissible evidence has been assessed, a legally relevant fact remains unestablished. The court cannot refuse to decide because the evidence is uncertain. It applies the rules allocating the burden and concludes that the legal consequence depending on the unproved fact cannot arise in favour of the party relying on it.

The constituent facts required by substantive law are the starting point for that allocation. The administration establishes the facts from which it derives the tax liability and the legality of its exercise of power. The person proves the conditions for favourable consequences claimed, such as an exemption, deductible expense, right of deduction or refund. These propositions are not mechanical formulas. A statutory presumption, the particular nature of the right in dispute or an applicable EU rule may require a different allocation on individual issues.

The distinction between an unproved condition for a tax right and an unproved ground for refusal based on fraud is particularly important. A recipient claiming VAT deduction must establish the relevant substantive conditions of that right. If the administration argues that, despite those conditions being satisfied, deduction must be refused because of participation in fraud or knowledge of it, the administration must establish the objective circumstances supporting that conclusion. Assigning the entire burden to one party through a general reference to the reality of the supply erases the distinction between these legal situations.

The duty to act of the court's own motion does not remove the burden of proof. It requires the court to clarify the matters requiring proof, give the necessary directions and assess the evidence irrespective of which party produced it. A bank statement submitted by the administration may support the appellant's objection. A document submitted by the appellant may establish an adverse fact. Evidence belongs to the proceedings as a source of information, whereas the burden of proof determines the legal consequences of any uncertainty that remains.

Documents, witnesses and expert evidence

Evidence in judicial proceedings is also subject to special restrictions. Under Article 158(1) DOPK, witness testimony is admissible only in the cases under Article 57(2), and therefore cannot freely replace every missing written document. Under paragraph 2, the court also supervises compliance with the effects of an agreement concerning evidence under Article 154(3). Different forms of evidence are not interchangeable. An invoice records information about a transaction, but entering it in the accounts is not the performance itself. A witness may recount facts personally perceived, but cannot provide a binding legal conclusion. Expert analysis may explain accounting, technical or valuation matters without relieving the court of its own assessment.

A court accounting expert is particularly useful for tracing payments, inventory movements, costs, mutual accounts and the accounting treatment of transactions. The evidential value of the opinion depends on whether its basis can be verified. An opinion that merely reproduces one party's bookkeeping does not acquire greater reliability than the underlying data by virtue of its expert form. The court must be able to identify the documents examined, the method applied, the assumptions used and the way the calculations were obtained.

The expert does not decide whether an act is void, whether a supply constitutes abuse of rights or whether a right of deduction has arisen. Those are legal questions. The expert may establish consistency between source documents and accounting records, the technical feasibility of particular work or the quantity of materials used. Where the opinion moves from specialist knowledge into legal classification, the court must separate the two and determine the legal outcome itself.

A failure of proof cannot be overcome by accumulating documents of the same origin. The contract, invoice and bilateral acceptance record may repeat the same contractual account without providing independent information about performance. Conversely, the absence of a customary document is not a universal reason for denying a transaction where the law does not require it as a substantive condition and other evidence establishes actual performance. The assessment must consider the whole picture, the business concerned, the content of the disputed performance and the available objective traces.

Determination on the merits and further review

Under Article 160(1) DOPK, the court may annul an assessment wholly or partly, amend its challenged part or dismiss the appeal. For tax assessment acts, incomplete evidence is not an ordinary ground for returning the case to the administration for a new assessment. The special rule in paragraph 4 requires a judicial determination of the dispute. This makes completeness of the judicial evidence particularly important because the court determines whether, and to what extent, the assessed public claim may be maintained.

A declaration of nullity must be distinguished from this rule. Article 160(5) DOPK refers that situation to Article 173(2) of the Administrative Procedure Code, referred to as APK. The consequences depend on the reason for nullity, the competent authority and whether a lawful determination is possible at all. Nullity does not necessarily constitute a final judicial finding that a substantive tax liability never arose. It denies the capacity of the particular act to produce the administrative effect claimed for it.

The prohibition on worsening the appellant's position also applies in court under Article 160(6) DOPK. The court may adopt different legal reasoning, but cannot use its judgment on the appeal to increase the adverse outcome contrary to that guarantee. Costs follow the separate regime in Article 161 DOPK and depend on the outcome and the applicable rules of allocation. Exposure to costs is not an increase in the tax liability itself and must not be confused with the prohibition on amendment to the appellant's detriment.

Cassation review takes place under APK, subject to the limits in Article 160(7) DOPK. It concerns the first-instance judgment, so the complaints now also address how the court established the facts, assessed the evidence and applied the law. Cassation is not a repetition of the administrative appeal. The law also provides categories of final first-instance judgments according to the amount in dispute. Admissibility depends on the applicable statutory version and the actual scope of the dispute.

A reference for a preliminary ruling under Article 267 TFEU serves a different purpose. The Court of Justice of the European Union interprets EU law or determines the validity of an EU act, while the national court establishes the facts and resolves the tax dispute. A party may explain why a reference is necessary but does not make it directly in place of the national court hearing the case. An existing interpretation of an EU provision must be applied to a comparable factual and legal situation, rather than used as an isolated quotation detached from the subject matter of the proceedings.

Costs, legal aid and extraordinary reopening

Costs under Article 161 DOPK include the necessary expenditure on conducting the proceedings, including court fees, expert fees and legal representation. Their award follows the outcome in proportion to the successful or unsuccessful part of the appeal. The fee agreed with a lawyer and the amount recoverable from the other party are different amounts. The relevant statutory regime applies at each instance, and the expenditure claimed and its amount must be established.

The wording of Article 161(1) and (2) following the amendment in State Gazette No. 17 of 2026 regulates the administration's legal adviser fee and a reasoned objection that a lawyer's fee is excessive. The assessment relates to the actual legal and factual complexity and the applicable criteria under the Bar Act. Paragraph 3 contains a special rule for evidence that could have been produced in the administrative proceedings. Where the statutory conditions apply, a party producing it only before the court may bear all costs regardless of the outcome, subject to the specified exceptions. Admissibility of evidence and liability for costs are therefore separate questions.

Where resources are limited, access to judicial protection may be supported by exemption from fees and costs or by legal aid when the applicable statutory conditions are satisfied. Legal aid does not arise automatically from the amount of tax in dispute or the existence of an assessment. The competent body considers the prescribed conditions, including relevant information about the person's financial position. Its provision and any exemption from advance payments operate differently from the final allocation of costs between the parties.

A final judgment gives stability to the dispute resolved. Extraordinary reopening under Article 160(8) DOPK in conjunction with Articles 237-249 APK is not another cassation instance. It requires a specific ground under Article 239, such as material newly discovered circumstances or written evidence satisfying the statutory conditions, established falsity of decisive material, conflicting final judgments or deprivation of participation in the prescribed circumstances. Disagreement with the legal assessment already made is insufficient by itself.

Those grounds have their own deadlines and starting points under Article 240 APK. Finding a document later does not automatically make it new evidence if the party could have obtained it through due care. This judicial remedy differs from administrative amendment of liabilities under Articles 133-134 DOPK. The latter does not empower a revenue authority to redetermine a dispute already resolved by a judgment having the force of res judicata. The distinction protects both legal certainty and the exceptional possibility of correcting precisely defined defects.

14. Nullity, voidability and the legal consequences of a defective tax act

A defect in a tax act may affect its legal existence or its legality. Nullity denotes a deficiency so serious that the exercise of public authority cannot produce the legal effect prescribed for that type of act. A voidable act is capable of operating but is unlawful and may be set aside through the prescribed procedure. This distinction matters for time limits, the subject matter of the remedy, the possibility of a subsequent determination and the treatment of enforcement measures taken on the basis of the act.

The severity of the financial consequence does not determine the kind of defect. An assessment for a substantial amount may be merely voidable because substantive law was misapplied. An act concerning a small liability may be void for lack of competence. Not every substantial procedural infringement entails nullity, and not every substantive error is irrelevant to validity. Legal theory distinguishes degrees of defect according to whether the very formation of a legally permissible administrative decision is affected or whether the defect concerns the manner in which that decision-making power was exercised.

Competence and actual authorship

Competence is the power conferred by law to determine a particular matter. It differs from internal work allocation and from factual involvement in checking documents. For tax assessments, authority follows from the combined application of DOPK, the legislation governing the institution and valid acts designating the officers in the particular proceedings. Competence to commission the audit, the position of audit team leader and the power to issue the final act must be distinguished.

In the ordinary situation under Article 119(2) DOPK, the act is issued jointly by the officer who commissioned the audit and its team leader. Joint competence means that one officer's decision cannot replace the necessary involvement of the other. Special statutory situations, including disagreement between the officers under paragraph 3, have their own procedure. Validity must therefore be reviewed against the model of competence actually applicable, rather than an abstract requirement that every administrative document be signed by an officer of the same rank.

The distinction between the general description of the officers and the special issuing procedure was clarified in Interpretative Decision No. 5 of 13 December 2016 in interpretative case No. 10/2016 of the Supreme Administrative Court. The dispute arose from the wording of Article 119(2) after 1 January 2013 and the retained wording of Article 118(2). The majority held that an act is not void merely because one participating officer falls outside the category listed in Article 118(2). The statutory capacity under the special procedure is decisive. The dissent favoured applying both provisions cumulatively. The decision is confined to the question resolved. It does not validate a missing commissioning act or participation by someone who lacks the required capacity altogether.

The temporal operation of the rules forms part of the competence review. A conclusion based on repealed wording cannot automatically be transferred to proceedings commenced under later legislation. Territorial competence, special commissioning arrangements and transitional rules for pending audits require particular attention. A subsequent expansion of powers does not by itself validate an earlier act. Conversely, a historical restriction cannot be relied on against a later action where legislation already allows a different procedure.

For electronic acts, authorship is established through the electronic statement, signature, certificate and their connection to the particular document. A printout reproduces the content but does not exhaust examination of the electronic original. The absence of a visible handwritten signature on a printout does not establish the absence of a valid electronic signature. Equally, an image of a signature or a typed name does not automatically replace the required electronic signature. A dispute requires examination of the actual electronic record and technical data rather than its outward appearance alone.

Form, reasons and procedural infringements

The written form and particulars required by Article 120 DOPK identify the issuing officers, addressee, scope, reasons and operative legal consequences. An absent or unclear particular is assessed according to its function and whether the content can be established from the act and its legally permitted integral components. A typographical error in a number or name is not equivalent to the absence of an identified liability. Conversely, a document from which it is impossible to determine what exercise of public authority was intended and by whom raises a question about the existence of an act at all.

The audit report forms an integral part of the assessment by operation of law, but has a different procedural function. It contains factual findings, analysis and a proposal to which the person may object. An individual defect in the report should not, without further analysis, be equated with absence of a decision by the officers issuing the final act. The questions are whether the infringement affects valid formation of the decision, deprives the person of a defence, and has led or could have led to an incorrect assessment of the liability.

The reasons connect the evidence with the legal outcome. They must make it possible to trace which facts were accepted, why contrary information was rejected and how the law was applied. Listing documents and then stating a final amount is insufficient. At the same time, reason-giving does not require pointless reproduction of every page in the file. What matters is whether the material objections and evidence were actually addressed, so that the addressee and reviewing authority can examine the logical and legal basis of the determination.

A substantial procedural infringement is assessed through its connection with the outcome and the defence. Failure to examine an objection that payment was made may alter the amount collectible. Denial of access to decisive evidence may prevent a factual finding from being rebutted. An omission irrelevant to fact-finding and participation carries a different weight. This assessment must not become a presumption that every irregularity is harmless whenever the administration claims the ultimate outcome would have been the same.

Substantive unlawfulness and the consequences of a remedy

Substantive unlawfulness may consist of taxing someone who is not liable for the particular taxable object, misclassifying income or a supply, unlawfully including amounts in the taxable base, failing to apply an exemption or using the wrong rate. The usual consequence is annulment or amendment of the corresponding part of the act. Finding nullity because of a substantive defect requires much more serious incompatibility with the legal order and cannot follow merely because the dispute over statutory interpretation is substantial.

Proportionality matters where the law permits a choice of means or where a national measure restricts rights within the scope of EU law. It does not generally authorise reduction of statutory tax on equitable grounds. The amount of the substantive liability follows from the constituent facts defined by tax law. By contrast, the method of gathering information, the intensity of precautionary measures and the consequences of a formal infringement may require a separate assessment of whether the means used go beyond what is necessary.

A request for a declaration of nullity is not subject to the ordinary annulment deadline, but that does not turn every late objection into an admissible reopening of the substantive dispute. The court examines the true nature of the alleged defect, the legal interest and the applicable procedure. If the alleged deficiencies establish only voidability, renaming them does not overcome expiry of the deadline. A dispute already resolved with the force of res judicata also has consequences that cannot be circumvented by presenting a formally different request.

Annulment or nullity of the assessment must be related to payments and enforcement measures already undertaken. Removal of the legal basis may create a right to repayment and interest under the statutory conditions, but settlement of the amounts takes place through the appropriate proceedings. Equally, annulment does not automatically render unlawful every previous enforcement step that was permissible under an enforceable title operating at the time. The substantive claim, validity of the title and legality of an individual enforcement measure remain distinct questions.

15. VAT deduction between actual supply, formal requirements and fraud

The right to deduct input VAT is part of the VAT mechanism through which tax on received supplies is related to the person's taxable economic activity. It is neither an administrative privilege granted at discretion nor an automatic consequence of holding an invoice. Its arising and exercise follow from the substantive and formal conditions in the Value Added Tax Act, referred to as ZDDS, interpreted consistently with Directive 2006/112/EC. Every ground for refusal must therefore be clearly identified.

Articles 68, 69 and 71 ZDDS govern different elements of the right and its exercise, while Article 70 provides restrictions. In the ordinary situation, relevant matters include the parties' status, the goods or services actually received, their use for the relevant economic activity, chargeability of the tax and the required document. Special regimes may modify individual requirements. A proposition valid for an ordinary domestic supply cannot therefore be transferred unconditionally to imports, intra-Community acquisitions or reverse charge transactions.

Actual performance as a matter of substantive law

For goods, the analysis concerns whether the legally relevant power to dispose of them has been transferred. For services, it concerns whether the agreed activity was actually performed or the relevant result achieved. Physical movement, transfer of civil-law ownership, accounting recognition and the concept of a supply for VAT purposes may be connected but are not identical. Storage in a third party's warehouse, involvement of a logistics provider or use of a subcontractor do not by themselves negate a supply between particular parties.

A contract establishes the agreement but does not independently prove performance. Payment may support the account of a completed transaction, but may also be an advance, repayment of a loan or another transfer of money. Inventory documents matter insofar as they identify the goods, quantities, dates and persons involved in their movement. For a service producing an intangible result, the evidence may include correspondence, working materials, files, access to systems, acceptance and subsequent use. Legal analysis is not reducible to a universal list of compulsory documents.

A deficiency in the supplier's accounts differs from affirmative proof that the recipient received nothing. Absence of the supplier's own employees or equipment is also consistent with performance through hired resources or subcontractors. Those circumstances may provide evidential indications, but their weight depends on their connection with the particular transaction. The tax analysis must explain that connection. Otherwise, general doubts about the supplier's business organisation replace proof of the legally relevant facts.

Development of the European evidential standard

In the judgment of 21 June 2012 in Joined Cases C-80/11 and C-142/11, Mahagében and Dávid, disputes over timber and building work raised the extent of the recipient's duty to investigate suppliers. The Court rejected a general requirement that traders perform checks belonging to the tax administration. Where the conditions of deduction are satisfied, another person's infringements are insufficient without objective evidence of actual or constructive knowledge of fraud. Nevertheless, specific indications of irregularity may require appropriate measures from a reasonable trader. The judgment distinguishes ordinary commercial care from an unlimited investigation of the entire chain.

The Bulgarian dispute in the judgment of 6 December 2012 in Case C-285/11, Bonik, concerned wheat purchases and a conclusion that supplies had not occurred because origin could not be established at earlier suppliers. The Court left the national court to determine whether the supplies actually occurred and were used for taxable transactions. Once that is established, refusal because of fraud in the chain requires objective evidence that the recipient knew or should have known of it. The sequence of these questions is essential. The judgment does not make every invoice sufficient, but prevents irregularity at an earlier participant from automatically erasing an actual supply to the recipient.

The order of 3 September 2020 in Case C-610/19, Vikingo Fővállalkozó, applied that approach to machinery acquired through a chain of supplies. The dispute involved doubts about production capacity, earlier suppliers and the commercial justification for the chain. The Court confirmed that such irregularities do not permit refusal based on a general assumption of fraud. Specific objective evidence of the relevant conduct and knowledge is required. The order continues the approach in Mahagében and Bonik and does not release the recipient from establishing the substantive conditions. It limits replacement of those conditions by additional requirements that EU law does not impose.

The later judgment of 11 November 2021 in Case C-281/20, Ferimet, clarifies the limits of that protection. The scrap supply was real, but under the reverse charge mechanism the recipient had knowingly named a fictitious supplier. The Court distinguished formal identification of the supplier from the substantive requirement that the actual supplier be a taxable person. Deduction may be refused where the information needed to verify that status is absent, or where participation in fraud or relevant knowledge is established. Physical existence of the goods therefore does not exhaust the conditions of the right. The ruling refines rather than abandons protection against automatic responsibility for another person's irregularities.

Fraud, abuse and knowledge

Fraud and abuse of rights are not interchangeable concepts. Fraud involves an unlawful scheme or conduct connected with evasion of tax due, and refusal against the recipient requires examination of its own participation or relevant knowledge. Abuse asks whether formally satisfied conditions were used to obtain a tax advantage contrary to the purpose of the legislation, with the requisite constituent facts. Merely choosing a more favourable lawful business form establishes neither.

Knowledge is a fact usually established through objective circumstances. Contractual relationships, personal and economic connections, unusual payment arrangements, absence of a credible commercial explanation and the parties' behaviour may be relevant. None should become a universal presumption outside the cases defined by law. The information must be related to the particular mechanism of the alleged fraud and what the recipient could actually have known at the relevant time.

There is a difference between ignorance of the supplier's internal accounts and disregarding obvious contradictions in one's own transaction. A recipient ordinarily has no access to another person's tax returns or bank accounts. It does, however, participate in negotiating, paying and accepting performance and has information about its own actions. This distinction allows commercial care to be assessed specifically, without demanding impossible knowledge of other people's affairs or protecting deliberate involvement in unlawful arrangements.

The administrative act must make clear whether the administration denies receipt of the supply, the status of the actual supplier, use for taxable transactions or good-faith exercise of the right where the other conditions are satisfied. Shifting between these grounds without distinction creates uncertainty about what must be proved. Judicial protection is meaningful when the person understands which fact is disputed and what legal consequence is derived from it. A general allegation of an unreal supply does not replace that analysis.

Finally, refusal of input VAT deduction must be distinguished from liability for another person's unpaid tax under Article 177 ZDDS. The former determines whether the claimant's own right of deduction can be recognised. The latter establishes special liability for another participant's debt under separate constituent conditions. Shared facts may matter to both, but one legal basis does not absorb the other. The difference is also necessary to identify the subject matter of the appeal, the burden of proof and the amount of the public claim pursued.

16. Rights of defence and the boundaries between tax, administrative penalty and criminal proceedings

The procedural rights of the taxable person form part of lawful assessment rather than an external obstacle to collecting revenue. Access to the file, opportunities to object, production of evidence and receipt of a reasoned act support correct application of substantive law. The administration may possess coercive means of gathering information, but their use is tied to the purpose of the proceedings and the person's right to understand and challenge adverse conclusions.

The right to be heard and access to evidence

The right to be heard is not limited to physical presence or a formally available deadline. It requires a genuine opportunity to express a position on the facts and evidence that will support the decision. Objections to the audit report serve precisely that purpose. If a decisive new circumstance appears only in the final determination, the questions are whether the addressee had a real opportunity to participate in its examination and whether subsequent review provides the necessary protection.

Information from cross-checks and proceedings involving other persons may be relevant. That does not make it an unchallengeable truth. The recipient of a supply is not necessarily a party to the supplier's audit and may have had no opportunity to exercise procedural rights there. When the findings from that audit are used against it, the other person's act, the underlying evidence and the conclusion the administration wishes to carry into the new proceedings must be distinguished.

In the judgment of 16 October 2019 in Case C-189/18, Glencore Agriculture Hungary, refusal of deduction rested on findings from proceedings against suppliers to which the recipient lacked full access. The Court permitted use of such material but required an effective opportunity to dispute factual and legal conclusions, access to relevant evidence and genuine judicial review of its legality. Restrictions protecting the public interest are possible, but cannot empty the defence of substance. A summary selected solely by the administration is insufficient. The judgment shows that consistency across tax proceedings does not justify automatically binding a person who did not participate in them.

Tax and social security information is protected, but confidentiality should not be used as a general reason for concealing decisive evidence from the affected party. Protected interests must be accommodated through an appropriate scope of access, redaction of unrelated information or other permissible procedural measures. The issue is specific to the circumstances. Disclosure of another person's entire tax history may be unjustified, while refusing the document relied on to deny a particular supply may obstruct an effective defence.

A reasoned response to a material objection is an extension of the right to be heard. If the person has produced evidence of an extinguished liability, actual performance or a miscalculation, the administrative authority and court must explain why they accept or reject it. There is no need to answer every phrase separately, but an argument capable of changing the result cannot remain unaddressed. Reasons distinguish genuine assessment from a formal statement that all material has been considered.

The same facts and different legal consequences

One business transaction may be examined in a tax audit, administrative penalty proceedings and a criminal investigation. Their subject matters differ. The audit establishes a public liability or special tax responsibility. Administrative penalty proceedings concern an infringement and the sanction prescribed for it. Criminal proceedings establish an offence and personal criminal responsibility. Similarity of the factual background does not remove differences in conditions, proof, competent authorities and legal consequences.

Assessment of tax is not itself a punishment. Additional tax may be due without proof of fault where substantive law connects the obligation with objective facts. Late-payment interest has its own basis and is not automatically equivalent to an administrative penalty either. Criminal responsibility, by contrast, requires proof of all elements of the offence and the relevant form of fault. An audit finding cannot, without further proof, establish that a particular individual committed a tax crime.

The presumptions and indirect methods under Articles 122-124 DOPK serve a particular tax procedure. They do not remove the prohibition on basing a criminal charge on assumptions or replace proof under the Criminal Procedure Code. An established discrepancy between income and expenditure may matter when determining a taxable base, but personal fault, authorship and the other elements of an offence must be proved under the criminal procedure's own rules. Treating the adverse result of a tax burden of proof as established criminal guilt would conflate different legal regimes.

The reverse relationship also requires care. Absence of a criminal conviction does not automatically establish that no tax is due. Termination of criminal proceedings may rest on reasons that do not negate the substantive tax conditions. A final conviction has the statutory effect assigned to the circumstances it establishes, but that effect must be identified precisely. Not every investigative finding or witness statement in another proceeding has the force of a final judicial act.

Cooperation, defence and the use of information

The duty to cooperate under DOPK includes producing relevant information and documents and complying with lawful requests by competent authorities. It is not an unlimited power to demand any information irrespective of the subject matter and purpose. The relevance, availability and legal basis of a request must be assessed. Inability to produce a non-existent document is not equivalent to concealing available evidence, and information held by third parties or public authorities may require use of the prescribed official channels for obtaining it.

Where tax proceedings intersect with a criminal charge or a penalty criminal in nature, a separate question arises concerning safeguards against compelled self-incrimination. This cannot be resolved by a general assertion that every duty to produce accounting documents disappears, or by the opposite assertion that a tax purpose excludes all protection. The nature of the information sought, how it was obtained, the coercion used and its subsequent use matter. Legal analysis must connect the particular request with the relevant national and European safeguards.

The prohibition on double punishment for the same conduct does not automatically apply to the coexistence of tax and a penalty. It requires examination of the criminal nature of the proceedings, identity of the facts, finality of the earlier determination and the applicable conditions for coordinating proceedings. A public claim may be assessed independently of the criminal outcome, but the state cannot circumvent safeguards by giving a different name to measures that are punitive in substance.

Defence in a tax dispute becomes systematic when each objection is linked to the legal institution to which it belongs. A dispute over the existence of a supply concerns substantive law and evidence. A dispute about access to the documents used is procedural. An objection concerning competence affects validity or legality according to the particular defect. An application for a stay concerns enforcement. Distinguishing them does not isolate them, but shows how infringement of one safeguard affects proof, the final act and subsequent collection.

Tax repayment and compensation for damage

Repayment of an amount paid or collected without being due reverses a particular transfer of assets under the tax relationship. Compensation for damage has a different subject matter. Under Article 1 of the State and Municipalities Liability for Damage Act, in conjunction with Articles 203 et seq. APK, it requires unlawful administrative activity, damage and the necessary causal connection. Annulment of an assessment does not automatically establish every alleged lost receipt or expense. Existence, amount and causation of the damage require separate proof.

The law distinguishes prior annulment of an administrative act from establishing the unlawfulness of an action or omission within the compensation proceedings themselves. A claim for statutory interest on refundable tax and a claim for additional damage may have different legal bases, but do not justify double recovery for the same loss. Litigation expenditure governed by a special costs procedure also cannot unconditionally be transferred into a separate damages claim. Protection against unlawful taxation therefore includes restoring the proper financial position while preserving the distinctions between separate legal grounds.

17. Tax liability, administrative penalties and coercive administrative measures

The different functions of assessment and punishment

A tax liability and responsibility for breaching tax legislation arise under different conditions. Tax is payable when the taxable statutory facts occur. A penalty requires an infringement for which the law provides a sanction and proof of every element of the relevant form of responsibility. Additional tax assessed does not by itself prove an administrative offence or crime. Annulment of a penalty order because of a procedural defect likewise does not necessarily mean that the substantive tax liability never arose.

The distinction is particularly clear in the case of late filing. Tax may have been correctly calculated and paid in full while the duty to file a return on time has been breached. A return may also have been filed on time but contain an incorrect tax result. The particular statutory duty breached, the time by which it should have been fulfilled and the person subject to it must be established. A general assertion that the budget has suffered cannot replace a description of the conduct.

Default interest must also be distinguished from punishment. It is a consequence of failing to discharge a monetary obligation on time under the applicable law. Imposing a fine or financial penalty requires a separate legal basis and procedure. It cannot be assumed that every recovery of tax together with interest constitutes double punishment. Application of the safeguards against repeated prosecution requires examination of the true nature of the measures, the identity of the person concerned and the identity of the facts.

The infringement report and the penalty order

An administrative infringement report establishes the accusatory framework of administrative penalty proceedings. It records findings and formulates an infringement, but under the ordinary procedure it is not the final instrument imposing punishment. Objections to it are considered within those proceedings, while the penalty order is subject to judicial appeal under the Administrative Offences and Penalties Act. Confusing the report with an instrument assessing a tax liability leads to an incorrect choice of recipient, time limit and procedural requests.

The sanctioning authority must consider the evidence and objections rather than simply repeat the reporting officer's findings. Under Article 53 of the Administrative Offences and Penalties Act, punishment of an individual requires the infringement, offender and culpability to be established beyond doubt. The regime for financial penalties imposed on legal persons and sole traders has its own characteristics, so every element of personal fault-based responsibility cannot mechanically be transferred to it. In every case, the infringement itself and the statutory connection with the sanctioned person must be proved. Administrative Offences and Penalties Act, Articles 52, 53 and 83.

The description of the conduct is an essential safeguard for the defence. Where failure to record a sale is alleged, it must be clear which sale occurred, when, at which premises and how the requirement was breached. For failure to file a return, the determining matters are the type of return, the period and the moment when the duty remained unfulfilled. Legal classification cannot compensate for missing facts. The court reviews the particular accusation and should not replace it with different conduct against which the person had no opportunity to defend themselves.

The time limits for preparing the report and issuing the penalty order under Article 34 of the Act differ from the limitation period for collecting tax. The type of infringement, the time it was committed and when the offender was identified, together with special statutory rules, are relevant. An omission cannot be described as continuing merely to avoid an expired time limit. Assessment of a minor case and application of a more lenient law are also separate issues. They are decided according to the nature of the infringement and the temporal operation of the penalty provisions.

Judicial review of the penalty order follows the Administrative Offences and Penalties Act rather than an appeal to the Director of the Appeals and Tax and Social Security Practice Directorate. In the ordinary procedure, the first judicial instance is the district court, followed by cassation review before the administrative court under the applicable rules. This different jurisdiction matters substantively to the defence because the administrative penalty court examines the sanctioning accusation. It does not thereby become the court hearing the appeal against the tax assessment act for the same period.

The evidential consequences of a tax assessment act cannot be transferred unconditionally to penalty proceedings. Even where the assessed tax liability has not been contested, the separate question remains whether the particular person committed the described infringement and whether the conditions for the relevant penalty are fulfilled. At the same time, the court cannot disregard relevant documents merely because they originate from an audit. They are considered according to their evidential value and the procedural safeguards applicable to administrative penalty proceedings.

Sealing business premises, provisional enforcement and proportionality

According to its statutory function, a coercive administrative measure must serve the prevention or cessation of an infringement specified by law. Its name does not, however, conclusively determine whether it is criminal in nature for the purposes of European safeguards. Its actual objective, the general category of persons addressed, its severity and consequences matter. Sealing business premises affects the ability to conduct business and may have consequences extending beyond the amount of a financial penalty.

In its judgment of 4 May 2023 in Case C-97/21, MV-98, the CJEU considered sealing following the sale of a packet of cigarettes without a fiscal receipt, combined with a financial penalty for the same conduct. It held that Article 273 of the VAT Directive and Article 50 of the Charter preclude such a system of separate proceedings where coordination is absent to reduce the additional burden to what is strictly necessary and ensure that the overall severity of the penalties corresponds to the offence. The question concerning provisional enforcement was held inadmissible, so the judgment should not be attributed a separate ruling on its merits. The conclusion on cumulative measures concerns the particular sanctioning mechanism and does not mean that every control measure is prohibited. CJEU, C-97/21, MV-98.

These principles require two examinations to be distinguished. The first asks whether grounds exist for the measure itself and whether its type and duration are lawful. The second asks whether it may be enforced provisionally before the substantive dispute is concluded. Reasons supporting one determination do not replace the reasons required for the other. Invoking the general interest in compliance with tax legislation does not relieve the authority of establishing the particular basis for immediate enforcement.

Proportionality is not sympathy for the addressee's business difficulties but legal review of the relationship between the objective and the restriction used. The nature of the infringement, repetition, duration of its impact and the combination of consequences already imposed may be relevant. The same period of sealing therefore cannot be justified by identical wording in materially different factual situations. Judicial protection must allow those differences to be examined effectively.

Where several proceedings concern the same facts, comparing them requires precision. There must be identity of the material facts and of the person pursued, rather than merely a common connection with the same business premises. A penalty against a company and criminal proceedings against its manager raise a different issue from two measures criminal in nature against the same person. The finality of the first decision and the permissibility of a coordinated combination under the applicable European criteria must also be examined separately.

The relationship with criminal proceedings

A tax audit establishes a public liability, while criminal proceedings determine whether a crime has been committed and by whom. Evidential presumptions under the Code's special procedure do not automatically become evidence of culpable evasion of tax liabilities. The prosecution must prove every element of the offence under the Criminal Procedure Code. Calculation of the tax base accepted for administrative proceedings does not relieve the prosecution of that burden.

Audit materials may be relevant to criminal proceedings, but their use is subject to the rules governing collection, examination and evaluation of evidence in those proceedings. An accounting expert may clarify quantitative relationships without deciding the legal questions of culpability and satisfaction of the elements of the offence. A judgment in the tax dispute is likewise assessed according to its subject matter and the applicable rules on binding effect. A common factual background does not make the two proceedings one and the same.

The right of defence requires separate assessment of each request for documents or explanations where an audit also entails a risk of criminal prosecution. The statutory duty to retain and produce accounting documents must not be confused with compulsion to confess. The content of the request, the person's procedural status and the particular proceedings determine the applicable safeguards. This issue is resolved neither by a blanket refusal to cooperate nor by assuming that tax control excludes every right arising under criminal procedure.

18. International tax relationships and the distinction between national and European remedies

Tax jurisdiction, residence and source of income

An international element arises where the persons, activities, income or assets relevant to taxation are connected with more than one state. It does not remove the need first to establish the basis for taxation under national law. A double taxation convention generally allocates or limits the taxing powers of the contracting states. It is not an independent authorisation for the administration to create a tax that national law does not provide.

Juridical double taxation generally involves taxation of the same person on the same income in more than one state for the relevant period. Economic double taxation may affect different persons in relation to the same economic profit, for example following an adjustment between related enterprises. This distinction determines the mechanism applicable to eliminating the inconsistency. Not every adverse cross-border tax consequence falls within the scope of the particular treaty or selected procedure.

A person's residence and the source of income are separate connecting factors. The residence state may claim taxation of worldwide income, while the source state taxes particular income because of its connection with that state's territory. The treaty regulates the relationship between those powers for particular categories of income. The rule for business profits cannot be replaced with the dividend rule merely because a payment occurs between companies. Accurate classification of the legal relationship is necessary.

A permanent establishment is a tax concept that must be distinguished from registration of a branch, commercial representative office or company. The formal existence or absence of registration does not exhaust the question whether the particular organisation of an activity has created a taxable connection with the state. The requirements of the applicable national law and treaty are decisive. A finding that such a connection exists must be followed by a separate determination of the profit attributable to it.

Proving entitlement to treaty relief

Entitlement to relief under a double taxation convention requires proof of its particular conditions through the procedure in Articles 135 onwards of the Code. Certification of residence is important but not always sufficient. Depending on the income, its beneficial owner, the existence of a permanent establishment and the income's connection with it, contractual terms and specific anti-abuse rules may matter. A document establishing one of these circumstances must not be treated as proof of all the others.

The concept of beneficial ownership of income is not equivalent to being the bank recipient or the person named on an invoice. It requires analysis of the right to use and dispose of the income under the applicable rules. An intermediary structure obliged to pass the sum onwards raises a different issue from an enterprise that genuinely performs the functions and bears the risks of the relationship. Membership of an international group does not, however, prove abuse. The particular legal and economic organisation is relevant.

Treaty provisions must be read together with amendments, protocols and the applicable effect of multilateral treaty instruments. Finding an old version of a bilateral convention and assuming that it remains unchanged is insufficient. At the same time, interpretative materials and administrative explanations cannot themselves add a condition for taxation that does not exist. The analysis must distinguish the binding legal text from the means used to interpret it.

Mutual agreement procedures and domestic appeals

The mutual agreement procedure seeks to enable the competent authorities of the states concerned to eliminate taxation inconsistent with the applicable convention. It differs from an appeal against a Bulgarian tax assessment act. The national court reviews the act's legality within its jurisdiction, while the international procedure coordinates the states' exercise of taxing powers. Requesting a mutual agreement procedure does not in itself preserve the domestic appeal deadline or suspend collection.

The time limit for commencing the procedure, the competent authority, the scope of an admissible request and the effects of an existing court judgment are determined by the applicable regime. The National Revenue Agency distinguishes procedures under double taxation conventions and the Arbitration Convention from other means of resolving international tax disputes. Legal analysis must identify which mechanism covers the particular income and period. It cannot be assumed that every treaty guarantees achievement of a result on the same conditions. Mutual agreement procedure under double taxation conventions and the Arbitration Convention.

The European mechanism under Directive (EU) 2017/1852 and the Code's implementing rules for resolving disputes between Member States likewise have their own subject matter and sequence. They concern disputes over the interpretation and application of agreements and conventions providing for elimination of double taxation of income and capital. The procedure includes prescribed stages and means of overcoming a failure to reach agreement. It is not a general supranational appeal against every tax act and does not displace the admissibility requirements for national remedies. Directive (EU) 2017/1852.

For example, increasing one enterprise's profits through a transfer pricing adjustment may raise the question of a corresponding adjustment in the other state. That consequence does not amount to automatic repayment of tax merely because the first administration has issued an assessment act. It must be determined whether the adjustment is justified under the applicable rules and how the relevant international mechanism operates. The dispute about the amount of the tax base thus connects with the dispute about allocation of taxing powers without merging the two questions.

Exchange of information and international recovery

International exchange of information is a means of establishing facts. It is not an independent form of taxation. Data received about an account, payment, digital platform or cryptoasset may justify an inspection, but their tax significance depends on ownership, origin, period and the particular substantive regime. The aggregate reported amount of transfers does not always equal taxable income. Transfers between a person's own accounts, repayments and other movements may require differentiation.

Expansion of automatic exchange, including the cryptoasset rules introduced in 2026, increases the information available to the administration. It does not eliminate the principles of relevance, lawful processing, confidentiality and the right of defence. Where foreign information is used against a person, its evidential value and the possibility of an effective challenge are assessed in the applicable proceedings. The assertion that data come from another state does not make them irrebuttable evidence of a Bulgarian tax liability.

Mutual assistance in recovery performs a different function. Article 14 of Directive 2010/24/EU allocates remedies according to the subject of the dispute. Challenges to the claim and the instrument establishing it in the applicant state are heard by that state's competent bodies. Challenges to enforcement measures taken in the requested state are heard there. A Bulgarian attachment imposed to recover a foreign claim does not turn the Bulgarian court into a general appellate body for reconsidering the foreign tax. Directive 2010/24/EU, Article 14.

This allocation does not exclude judicial protection but identifies its proper subject. The validity of notification, scope of the uniform instrument, contested part of the claim and grounds for suspending or continuing collection are relevant. Where litigation develops simultaneously in both states, each request must correspond to the powers of the relevant authority. Mixing the grounds may lead to inadmissibility even where the substantive objection is serious.

Customs duties and excise as special public claims

A customs debt is based on Union customs law and must not be treated as a variant of an assessment act concerning national corporate income tax. The Union Customs Code regulates the incurrence of the debt, debtors, notification, extinguishment and repayment or remission under its own conditions. Tariff classification, origin and customs value are different elements in determining customs duty. Proving one does not automatically resolve the others.

Articles 44 and 45 of Regulation (EU) No 952/2013 regulate the right of appeal and its relationship with enforcement. An appeal does not itself suspend implementation of the decision, and suspension is assessed under the relevant conditions. National rules determine the competent authorities and procedural form within the European framework. Time limits and administrative appeal bodies under the tax audit regime cannot therefore be transferred to a customs decision merely because it also establishes a public claim. Regulation (EU) No 952/2013, Articles 44 and 45.

Excise is an indirect tax with a special subject and regime. Release for consumption and the relevant rules on production, movement and holding of excise goods matter to its incurrence. A tax warehouse or duty suspension arrangement does not mean that a tax liability can never arise. Article 104 of the Excise Duties and Tax Warehouses Act connects assessment, securing and collection with the Tax and Social Security Procedure Code, with specifically assigned powers for customs authorities. The licence, excise assessment and penalty for an infringement may follow different appeal regimes, each of which must be determined separately.

Part IV. Security, collection and refunds

19. Securing public claims

Security as an independent form of protection

Establishing a tax liability and actually collecting it are different legal outcomes. Even a correctly assessed claim may remain unsatisfied if, between its creation and enforcement, the debtor disposes of assets, withdraws available funds or creates competing rights for other creditors. Security addresses precisely this risk. It preserves particular assets or receivables as a possible source of future satisfaction, without itself determining the taxable amount and without necessarily resulting in a sale or payment.

This function explains why security proceedings have their own subject matter, competent authority and avenues of protection. They determine whether a particular public claim needs protection through a specific restriction on property. They do not finally decide whether the person under audit actually owes the entire anticipated tax. Conversely, setting aside a security measure does not mean that the tax liability has ceased to exist. The measure may be disproportionate or affect exempt property even though the claim itself exists.

The general regime of Article 195 of the Tax and Social Security Procedure Code links security to established and due public claims and to a risk that collection will become impossible or difficult. The legislation also permits provisional security while the amount of the liability is still being examined. The difference is substantive. For an established claim, the authority has an already identified basis and amount. For a provisional measure, it works with a reasoned forecast, making adequate reasons, limited duration and judicial review particularly important.

Attachment of assets and restraint over immovable property do not transfer ownership to the State. They create legal restrictions and effects against third parties that preserve the possibility of satisfaction. Security is therefore not an administrative penalty. Its extent is not determined by the blameworthiness of conduct, and it cannot be used to pressure a person exercising the right to challenge a tax act. Where the administration uses its security powers for a different purpose, the lawfulness of the intervention itself is in question.

Provisional measures during a tax audit

Article 121 of the Code allows a revenue authority, during an audit or when issuing the tax assessment act, to submit a reasoned request to the public enforcement officer. The request must connect the anticipated liability with a specific risk of transactions or actions that could prevent or substantially hinder collection. Merely ordering an audit is insufficient grounds for automatically freezing bank accounts. An individual assessment of the likely claim, the person's assets and the prospects of collection is required.

The division of functions between the auditing authority and the public enforcement officer does not remove the latter's responsibility for the measure imposed. The request defines the protection sought, while the enforcement officer's order creates the restriction. Its reasoning may rely on information in the file, but it must explain why the particular property was selected and why the restriction corresponds to the anticipated debt. A formal reference to a general risk of non-payment does not replace this connection.

The legislation permits protection of future collection while requiring the preservation of business activity. Article 121(3) directs provisional security towards assets whose restriction does not seriously obstruct that activity. Where such a choice is impossible, the measure must not bring it to a halt. This reveals the connection between the budget's interest and the debtor's continuing ability to pay. Destroying the economic source from which the tax could be paid is not a natural extension of the purpose of security.

Provisional security under Article 121 has a limited duration. If no tax assessment act is issued within the prescribed four-month period from the first measure, continuation requires a timely application to the administrative court under the statutory conditions. The judicial proceedings do not merely certify that the audit remains ongoing. They require examination of the need for security and compliance with the requirements for preserving business activity. The administration's difficulty in completing the collection of evidence does not, by itself, justify an unlimited restriction on property.

The special provisional measures during fiscal controls under Article 121a have a different set of conditions. They concern movements of goods with a high fiscal risk and specifically prescribed infringements or circumstances. Their duration, scope and relationship with subsequent security are governed by the special provision. Their regime therefore cannot be derived solely from the general explanation of audit-related measures under Article 121.

Proportionality, value and replacement

Proportionality has both a quantitative and a qualitative aspect. Quantitative correspondence requires comparison of the value of the restricted property with the secured claim, taking account of the applicable statutory valuation rules and measures already imposed. Qualitative correspondence requires examination of the burden of the particular restriction. Attachment of an operating payment account may have a greater effect on business activity than a restraint over an unused property with comparable security value.

The appearance of an asset in the accounts does not mean that it can be realised quickly. Existing encumbrances, third-party rights, liquidity and the actual prospect of satisfaction all affect its real security value. At the same time, the authority cannot treat every offered asset as unsuitable without specific grounds. The assessment must rest on demonstrable characteristics, rather than an abstract preference for the most restrictive measure.

Replacement of security under Article 199 preserves the public interest while changing the asset or instrument subject to the restriction. In the general case, the equivalence of the proposed replacement is examined. The legislation provides a more favourable regime for money, unconditional and irrevocable bank guarantees, and government securities. Replacement is not an admission of the tax debt and does not end the right to challenge it. It regulates the temporary property position until the dispute is resolved or the debt is paid.

Discharge under Article 208 is also a distinct mechanism. Relevant considerations include whether the liability has been extinguished, its basis has ceased to exist, or other prescribed circumstances have arisen. A measure that was initially lawful may become unjustified after payment, reduction of the debt or a change in security. The lawfulness of a continuing restriction therefore cannot be assessed solely by reference to the day on which it was imposed.

Review and the subject of proof

An appeal against a security order follows Article 197 of the Code, first before the director of the competent territorial directorate and then before the administrative court. Review covers competence, the legal basis, the need for security, the connection with the property and proportionality. The provision establishes special time limits and consequences of administrative silence. These cannot be replaced with the time limits for appealing a tax assessment act.

The evidential significance of financial documents depends on this subject matter. Information about income and upcoming payments may show how an attachment affects operations. Ownership and encumbrance documents allow alternative security to be compared. Payment orders may establish partial discharge. None of these documents alone resolves the dispute about the taxable amount, but each may change the assessment of the permissible property restriction.

The legislation also permits protection of third parties under Article 197(5). Admissibility is connected with possession of the property when the attachment or restraint was imposed, while the merits depend on its ownership by the debtor. This limited procedure does not exhaust every possible remedy for protecting property rights. It must be distinguished from a third party's action where compulsory enforcement has been directed against property, discussed in the next chapter.

20. Compulsory collection and protection against enforcement

Enforceability and enforcement titles

Compulsory enforcement is the legally regulated process of satisfying a due public claim through action against the debtor's property. Its immediate purpose differs from that of a tax audit. An audit establishes liabilities, whereas enforcement implements an entitlement to collect already recognised by law. The distinction between the substantive existence of tax and an enforcement title is essential. Not every assertion of unpaid tax permits an immediate sale of property.

Article 209 of the Code identifies the enforcement titles. They include acts and declarations with different legal characteristics. In the case of a tax assessment act, an appeal does not normally exclude enforceability. Where a declaration contains a liability calculated by the person submitting it, the legislation connects collection with that declaration's contents. The assumption that every compulsory enforcement requires a final judgment on the tax dispute is therefore incorrect.

The enforcement title must identify both the claim and the debtor. The public enforcement officer cannot independently extend a tax assessment act to a new tax period, a new person or a new basis of personal liability. If a company is the debtor, its manager does not become an enforcement debtor merely because of the power to represent it. The manager's liability requires the separate statutory conditions and the prescribed procedure for establishing it.

The absence of an automatic stay does not remove the possibility of obtaining a stay under the statutory procedure. Staying enforcement of the contested act, staying particular enforcement proceedings and discharging security are different matters. Each has its own grounds and competent authority. The stay must therefore be related to the actions it actually restricts. Suspending collection does not necessarily mean lifting security measures already imposed.

Liability of property and limits of enforcement

A debtor's general liability with its property does not mean that every right can be taken in the same way. The Code distinguishes enforcement against money, receivables, movable and immovable property, and other assets. The method must correspond to the nature of the right. Attachment of a bank account affects the account holder's claim against the payment service provider, while sale of an asset requires that it belong to the debtor and that the relevant inventory, valuation and realisation rules be followed.

Exemptions from enforcement under Article 213 restrict compulsory satisfaction in order to protect basic living and social needs. Their operation follows from the legislation and does not depend on the enforcement authority's discretion. Protection is determined by the nature of the property or income and the particular statutory conditions. Not every amount in a bank account is protected merely because its holder is an individual, but transferring protected income into an account does not allow it to be treated mechanically as freely attachable.

Enforcement against jointly owned property and property held under the matrimonial community regime raises a different issue. Here the interest of someone who does not owe the tax is intertwined with the debtor's right. The special rules of Articles 258 and 259 regulate notification, the possibility of payment, sale and allocation of the proceeds. A spouse or co-owner who is not a debtor does not become the bearer of another person's tax liability merely because common property is affected.

Proportionality continues to operate after enforcement has begun. A lawfully established debt justifies satisfaction, but not an arbitrary choice of actions causing unnecessary additional harm. A debtor's proposal for another permissible method matters where it allows actual and timely collection. The public enforcement officer must compare the proposal with the creditor's interest and the particular circumstances, and refusal is reviewable under the prescribed special procedure.

A sale of assets introduces a further set of legal relationships. Alongside the debtor and public creditor there are bidders, a purchaser, joined creditors and holders of enforceable third-party rights. A defect in valuation, advertising or bidding must be related to the act for which the legislation provides the relevant remedy. A general assertion that the tax is disputed does not replace specific grounds for challenging a public sale.

Discharge and limitation during enforcement

Enforcement proceedings must reflect events that extinguish the liability. Payment, set-off, remission and other statutory grounds have different conditions but share a consequence for what remains enforceable. A principal amount already discharged cannot be collected again, and partial discharge requires recalculation of the balance. Administrative records serve evidential and organisational purposes, but an entry in the tax and social security account does not itself create a substantive liability.

Limitation requires comparison of the starting point under Article 171 with the specific grounds for suspension and interruption under Article 172. The legal classification of the action is decisive. Opening a file, sending a notice and taking an enforcement action are not interchangeable concepts. For each action relied upon by the authority, it must be established whether the legislation assigns it the alleged effect on the limitation period.

Proving the limitation chronology requires access to the enforcement file. The dates, contents and legal effects of the acts, as well as their possible annulment, are relevant. Ordinary limitation, absolute limitation with its statutory exceptions, and the period for commencing proceedings to establish the tax must be distinguished. The last of these does not become a new enforcement period merely because a tax assessment act is issued later.

Voluntary payment after the limitation period has expired has the special consequence provided by Article 174. It is not treated as compulsory collection and is normally not refundable solely because the period had expired. The way in which the budget received the money therefore has substantive legal significance. A refund analysis examines not only when the money was received, but whether payment was voluntary or resulted from a particular enforcement action.

Appeal against an action and a third party's claim

The procedure under Articles 266 - 268 concerns actions of the public enforcement officer. It differs both from an appeal against a security order under Article 197 and from a challenge to a tax assessment act. An appeal against an enforcement action does not revive a missed time limit for disputing the taxable amount. At the same time, a final tax act does not deprive the debtor of objections based on subsequent payment, discharge or unlawful direction of enforcement.

Administrative and judicial review in enforcement have statutory limits. For judicial review, it matters whether the director's decision and the particular action fall within Article 268. Not every determination by a public enforcement officer gives rise to the same judicial procedure. Classification must follow the contents and legal consequences of the act, rather than merely the title assigned to it by the administration.

A third party under Article 269 protects a right of its own affected by enforcement. The action is brought against the debtor and the creditor and places the substantive dispute about the affected right before the court. This explains why the administrative appeal and the civil claim are not duplicate procedures. The former examines the admissibility and lawfulness of a particular enforcement intervention, while the latter determines the third party's right with the binding effect of a final judgment.

Ownership of goods, for example, is not determined solely by who operates the warehouse or is named in a transport document. The basis of acquisition, identification of the goods, time of transfer and effectiveness against the creditor all matter. Conversely, producing a contract does not automatically disapply rules on relative ineffectiveness or the consequences of an earlier attachment. In this form of protection, tax procedure and private law meet without either removing the requirements of the other.

21. Set-off, refunds and compensation

The basis of the right to receive money from the budget

The non-refundable nature of tax characterises a liability that has lawfully arisen and been discharged. It does not justify retaining money without a legal basis. A right to a refund may arise from an undue payment, compulsory collection of an amount not owed, removal of the act that provided the basis for collection, or special legislation. These situations share a claim against the budget, but their conditions and starting points differ.

Articles 128 and 129 of the Code regulate the general set-off and refund procedure. Its subject matter is not an abstract acknowledgement that a person has a credit balance, but determination of a specific amount, a specific basis and a permissible method of satisfaction. Where due public claims collected by the relevant administration exist, the legislation permits their mutual discharge. The remaining refundable balance is repaid.

Set-off in tax law is not a freely negotiated arrangement between parties on an equal footing. Its conditions, competence and form are mandatory. The existence of reciprocal monetary relationships does not, by itself, allow any civil claim against the State to discharge a tax liability. What matters is whether the particular claim falls within the scope of the special public-law rules.

The taxpayer's claim and the public claim must be separately identified. Their periods, grounds and due dates may differ. Recording them in a single information system does not turn them into one legal relationship. The reasons for a set-off or refund act must therefore allow examination both of the amount owed by the budget and of the liability against which it is set off.

Procedure, proof and finality

Proceedings may begin on the authority's initiative or on the person's written request. The period under Article 129(1) is linked to the year in which the basis for repayment arose, rather than always to the year of the original payment. If the legal basis fell away because of a later act, the significance of that event for the starting point must be examined separately. Counting mechanically from the payment order may substitute a different event for the legally relevant one.

After receiving the request, the authority may choose an inspection or an audit. That choice determines the procedural form without permitting avoidance of the safeguards of the relevant procedure. An inspection ends with the prescribed special set-off or refund act. An audit follows the rules for establishing liabilities, including participation by the person, collection of evidence, an audit report and the opportunity to object.

A person claiming repayment must establish the facts from which the claim arises. A payment document proves receipt of the money, but does not always prove that it was not owed. If repayment rests on the removal of an administrative act, the contents and effect of the act that removed it matter. If recovery of input tax is claimed, the corresponding substantive conditions must be established. The authority carrying out set-off must in turn substantiate the opposing public claim.

The relationship with the finality of earlier acts is particularly important. Refund proceedings are not a universal means of appealing again against a final tax assessment act. Where a liability has been established by a binding act, its alteration is governed by the prescribed extraordinary procedure and the limits of the binding effect of judgments. A refund claim cannot be constructed on the assumption that the act simply does not exist.

Conversely, a set-off or refund act issued after an inspection does not always finally exclude a subsequent audit. Article 129(3) and the applicable version of the legislation matter. Older rulings on the finality of these acts should not be carried over unconditionally to periods after an amendment. Here the historical development of the procedural rule directly affects the admissibility of subsequent review.

An express refusal and a refusal implied from silence are subject to the Code's special remedies. Article 131 treats failure to decide as a refusal, while an appeal against a set-off or refund act follows the regime for tax assessment acts. This permits review of the grounds, amount, set-off and refused balance, without administrative silence leaving the request indefinitely unresolved.

The particular nature of VAT refunds

Refundable VAT is not necessarily tax paid without being owed. It may be the ordinary result of the tax mechanism where deductible input tax exceeds output tax for the relevant period. The recipient's right to deduct and the subsequent right to receive the positive difference from the budget are connected but not identical. The first concerns the substantive conditions of deduction, while the second concerns realisation of the resulting tax balance.

The special procedure in Article 92 of the Value Added Tax Act determines the sequence of deduction, set-off and refund, as well as cases of accelerated repayment and the effect of an audit. It applies together with the procedural safeguards of the Code. It cannot be reduced to the general rule on repayment of overpaid amounts because it arises from the particular structure of VAT and the principle of neutrality.

Neutrality requires that a taxable person should not ultimately bear VAT which it is entitled to deduct. At the same time, the administration may verify whether the claimed amount is genuine. The tension between these propositions is resolved through reasonable time limits, effective review and appropriate compensation for retention of the funds. The existence of an audit alone does not permit an unlimited transfer of the financial burden to the person.

In its judgment of 12 May 2011 in Case C-107/10, Enel Maritsa Iztok 3, the Court of Justice examined a Bulgarian dispute over the starting date for interest on a delayed refund. Under the legislation considered, the Court did not permit commencement of an audit to defer interest until its completion, or a retroactive removal of an accrued entitlement to interest. Set-off is in principle a permissible method of repayment, including where the opposing claim is disputed, provided effective judicial protection remains available. The historical national time limit mentioned in the case is not a current time limit for every request. The judgment's enduring significance lies in protection against financial risk from unjustified retention.

Interest and compensation for damage

Interest under Article 129(6) is connected with being deprived of the use of the refundable money. The provision excludes compulsory social security contributions from its interest regime. Its starting date depends on the statutory situation. Amounts unduly paid or collected on the basis of a revenue authority's act occupy a particular position. In other cases, the period within which the administration should have repaid the money matters. For VAT, the special legislation and European Union law must also be considered.

The interest claim requires its own calculation. The amount on which interest runs, the starting and ending dates and any partial payments cannot be assumed. Annulment of a tax assessment act may establish grounds for repayment of the principal, but the particular interest period follows from the applicable rule and the actual movement of funds. The interest dispute may therefore remain independently significant even after the principal has been repaid.

Compensation for damage has a different subject matter. It is not an automatic consequence of every annulment and is not exhausted by repayment of the tax. Article 17(6) recognises protection against damage caused by unlawful acts, actions and omissions, pursued through the relevant procedure. The conditions of the applicable liability regime must be met, including damage and causation. Borrowing costs, interrupted operations or a lost transaction require specific proof, rather than mere reference to the annulled act.

Distinguishing repayment, interest and compensation prevents both incomplete protection and double recovery. Repayment returns money which the budget has no basis to retain. Interest compensates for the delay defined by law. Compensation may cover other proven damage where the relevant conditions are met. One set of facts may give rise to all three consequences, but each needs its own legal basis.

22. Liability for another person's tax and social security debts

The bearer of the tax and the person liable for it

A tax liability normally arises for the person who satisfies the conditions laid down in substantive law. The legislation may, however, require another person to withhold and remit the tax or impose liability for the unpaid debt. Article 14 of the Code distinguishes these categories, and Article 16 regulates the position of a liable third party. The distinction is necessary because the basis on which tax arises for a company is insufficient grounds for collecting the same debt from its manager, shareholder or counterparty.

Liability for another person's debt must be statutory. It cannot be inferred solely from economic proximity, a common address or the personal ability to pay. The particular special conditions must be satisfied. At the same time, the person against whom liability is pursued has procedural rights of its own. It must be able to dispute both the facts connecting it to the other person's debt and the amount and scope of that debt within the relevant procedure.

A liable third party is not the same as a third party holding the debtor's property, or a person owing a receivable that has been attached. In the first situation, legislation extends the range of persons liable with their assets. In the second, enforcement targets a right already belonging to the tax debtor. Confusing these situations leads to an incorrect identification of the addressee, burden of proof and remedy.

Concealment of facts under Article 19(1)

Article 19(1) imposes liability on an exhaustively defined group of persons exercising management or representative functions who conceal facts and circumstances which the legislation requires them to disclose to a revenue authority or public enforcement officer. As a result of that concealment, the legal person's taxes or compulsory social security contributions must have become uncollectible. Each element matters independently. Management status does not prove concealment, and concealment does not automatically establish a causal connection with non-collection.

The duty to disclose must have a statutory basis. Failure to fulfil a contractual promise to a creditor or an adverse business decision is not necessarily concealment within this provision. The authority must identify the fact that should have been disclosed, the recipient, the relevant time and the legal rule. Only then can it assess whether the particular person's conduct prevented timely assessment or collection.

Failure to file a declaration and incorrect declarations may be relevant, but the analysis does not end with the administrative infringement. If the debt remained uncollected because of an independent subsequent event, causation requires particular attention. If the concealed fact prevented timely recourse to available assets, its significance is different. The legal issue is not only what the person failed to disclose, but how that affected the budget's ability to receive what was owed.

Reduction of assets and bad faith

Article 19(2) protects collectibility against certain dispositions made in bad faith. It identifies payments constituting a hidden distribution of profits or dividends, gratuitous disposals or disposals at substantially understated prices, and the prescribed encumbering of property for another person's debt followed by realisation. This enumeration does not make every reduction in assets grounds for personal liability.

Ordinary business activity involves payments, investment and risk. Repayment of a genuine supplier debt, purchasing materials or paying remuneration is not in itself a hidden distribution. Legal classification requires identification of the recipient, basis and economic substance of the movement of funds. The accounting entry is a starting point for evidence, but cannot replace analysis of the actual legal relationship.

Withdrawal of money from a bank account likewise permits different explanations. The funds may actually have entered the cash account and been used for operations, or may have been diverted for personal benefit. The difference is established through the combined evidence of banking documents, cash records, contracts, subsequent payments and actual use. A document prepared later is assessed alongside the other evidence and in light of its reliability. Neither its formal existence nor its late production automatically decides the substantive issue.

Bad faith is a separate requirement. The legislation contains special rules for establishing it where particular temporal connections exist between the actions, declaration or assessment of the liabilities and commencement of the control proceedings. Applying these rules requires precise proof of the triggering facts. They do not relieve the authority of proving the disposition itself, its effect on assets and its causal connection with non-payment.

Causation requires comparison of the asset position before and after the relevant action. Unpaid tax at the end of the audit does not itself explain why it was not paid. The liabilities existing at the relevant time, remaining assets, actual value of the property disposed of and subsequent satisfaction all matter. Where several managers have acted, the involvement and conduct of each must be identified individually.

Liability for breaching an attachment is separate from management liability under Article 19. Articles 206 and 211 regulate the consequences where a third party delivers attached money or property to the debtor, disposes of it or fails to comply with the relevant direction of the public enforcement officer. The amendments in State Gazette No. 69 of 2026, effective from 1 September 2026, require account to be taken of the new scope of these rules. The basis is conduct concerning the attached property, rather than concealment of tax facts. The enforcement order under Article 211(3) likewise differs from the tax assessment act under Article 21.

Amount, persons and temporal application

Liability under Article 19(2) and (3) is limited by paragraph 4 to the amount of the payments made or the reduction in assets. The company's entire unpaid tax debt therefore does not pass mechanically to the individual. Both the outstanding debt and the special property-based ceiling must be considered. Correct determination of that ceiling is a substantive issue subject to review independently of whether bad faith has been proved.

The subsequent paragraphs of Article 19 regulate specific liability of majority owners, persons transferring their interests in a coordinated manner, participants in concealed concerted conduct, and recipients of hidden distributions. Each situation has a particular group of addressees and its own limitation. The liability of a shareholder who received assets is not identical to that of the manager who ordered payment. One person may have several capacities, but this does not permit the statutory conditions to be mixed together.

Amendments to Article 19 are particularly important for historical tax periods. A substantive extension of the range of persons or relevant actions does not apply merely because the audit took place after the amendment. The facts giving rise to liability and the temporal operation of the rule must be classified. A judgment under an older version may remain relevant to causation or proof while not deciding the position of a newly included person.

The distinction between establishment and collection appears again in Articles 20 and 21. Liability is established by a tax assessment act, while security and compulsory enforcement are directed first against the principal debtor's assets under Article 20. Subsidiarity does not mean that the third party has no obligation of its own. It means a statutory order of recourse and dependency that cannot be disregarded for administrative convenience.

Interest, removal of the debt and the burden of proof

In Interpretative Decision No. 5 of 29 March 2021 in interpretative case No. 7/2019, the Supreme Administrative Court resolved the conflict over whether Article 19(1) and (2) liability includes assessed interest owed by the principal debtor. It answered affirmatively, connecting the third party's status under Article 14, item 3 with the scope of Article 16(3). The opposing view relied on strict interpretation of the special liability and the separate nature of the interest claim. Following the interpretative decision, that position cannot be presented as an equally applicable current rule. Inclusion of interest nevertheless does not remove the need for a proved statutory basis and the applicable legal ceiling.

Article 21(3) connects the disappearance of the third party's liability with the disappearance of the underlying obligation for which liability was established by a final act. This dependency does not mean that every termination or deregistration of a legal person automatically releases other liable persons. The legislation expressly provides for liability to be pursued despite certain circumstances affecting the principal debtor. The legal reason for the obligation's disappearance and its scope are decisive.

The revenue administration bears the burden of proving the conditions of liability. The person is not required to prove abstractly that management was proper throughout the entire period. It does, however, bear the consequences of failing to establish particular favourable facts on which it relies, such as repayment of withdrawn funds or a genuine business basis for a payment. The principle of investigation by the authority requires both the authority and the court to consider those circumstances, rather than limiting their analysis to adverse accounting movements.

This liability combines protection of the public claim with an exception to the legal person's separate existence. Its application therefore demands greater factual specificity, not a lower standard of proof. The company's tax debt, the individual's conduct and the resulting difficulty of collection must remain clearly distinguished throughout the proceedings.

23. Liability under Article 177 of the Value Added Tax Act

The place of this mechanism in the VAT system

Liability under Article 177 is a special mechanism for protecting the budget against abuses involving non-payment of tax by a person in a supply chain. Under prescribed conditions, it makes another registered person liable for that unpaid tax. Its European legal basis is Article 205 of Directive 2006/112/EC. Permitting joint and several liability does not give the administration freedom to choose an arbitrary solvent participant in the chain.

This mechanism must be distinguished from refusal of input tax deduction. Refusal concerns whether the recipient is entitled to reduce its own tax result by the tax on an incoming supply. Article 177 concerns liability for another person's tax that is due and unpaid, where the special conditions are satisfied. The fact that the person exercised deduction is itself an element of this liability. Reasons supporting one mechanism therefore cannot mechanically replace those required for the other.

The distinction directly affects the subject of proof and the amount. Absence of an actual supply, participation in fraud and knowledge that a particular payer will not remit the tax are related but different legal situations. If the administration relies on several legal grounds, it must explain which facts support each and must not turn the different mechanisms into unjustified double recovery of the same loss to the budget.

Objective conditions and the connection between supplies

The basic situation requires a registered recipient of a taxable supply who has exercised deduction directly or indirectly connected with tax due and unpaid. The other person's specific tax debt must be established. A general certificate that a supplier has arrears does not connect every customer to them. The tax period, origin of the liability, movement of the goods or services and the extent to which deduction is connected with the unpaid tax all matter.

VAT is determined as a result for the tax period, rather than simply as a sum of unpaid invoices. Issuing an invoice showing tax and the recipient paying its price differ from effectively remitting tax to the budget. Establishing liability requires account to be taken of deductions, set-offs and payments affecting the actual outstanding result. An amount cannot be treated as unpaid if the liability has already been discharged by a legally recognised method.

An indirect connection does not remove the requirement of traceability. The legislation allows examination of earlier supplies of the same goods or services, including in an altered or processed form. In a production chain, this may require technical or accounting expertise. The presence of numerous intermediate participants does not allow a missing factual link to be replaced with a general assumption that all supplies form part of a risky scheme.

Article 177(4) excludes the need for the liable person to have obtained a specific benefit from non-payment. Absence of a proved profit from the abuse therefore does not independently exclude liability. This rule does not, however, remove the other elements. It does not make a recipient acting in good faith a guarantor of every earlier participant's tax compliance.

Knowledge and the statutory presumption

The subjective condition consists of knowledge, or knowledge that ought to have been held, that the tax would not be paid. It concerns the person's position when participating in the relevant supply and deduction, rather than information obtained years later from an audit report. Subsequent discovery of non-payment does not retrospectively prove that the recipient foresaw it. Objective evidence must connect the particular person's conduct and information with the failure to remit.

Actual knowledge may be inferred from a combination of circumstances. Organisation of the entire chain by the recipient, control over payments, common persons actually managing financial operations, an advance arrangement to retain tax or economically unexplained intermediation may be relevant. No circumstance should be separated from its context. A common accountant may be part of established coordination, for example, but using the same accounting firm does not itself prove tax abuse.

Article 177(3) contains a statutory rule on what a person ought to have known where unpaid tax in the relevant chain coexists with a sham supply, circumvention of the legislation or a price substantially different from the market price. These are not freely selectable suspicions. The authority must establish the facts to which the legislation attaches the presumption. Unexplained non-payment by the supplier does not automatically establish the second condition as well.

A substantial departure from market price requires comparability. Quality, quantity, payment terms, risk, condition of the goods and level of trade may explain price differences. Expert evidence must identify the comparable transactions selected and the adjustments made. The definition of market price and the rules on methods apply in the relevant version of the Code. The amendment in State Gazette No. 85 of 2026, sections 24 and 33 changes these general definitions with effect from 1 January 2026. It is also relevant where a market comparison is used for liability under Article 177.

The rebuttable nature of the presumption is an essential safeguard. A person must have a real opportunity to establish good faith through the facts of the transaction, rather than face the practically impossible demand to prove the internal accounts of all preceding suppliers. The administration bears the burden of substantiating the presumption's factual basis. The recipient may rely on circumstances that rebut it or demonstrate the absence of the necessary connection.

Development of the case law on interest

The judgment of 20 May 2021 in Case C-4/20, ALTI, paragraphs 13 - 23 and 36 - 44 arose from a sale of agricultural machinery. The national authorities identified links in financing, transport, accounting and control of bank accounts. The Court of Justice held that Article 205 permits liability for the original payer's interest where knowledge, or what the person ought to have known, about non-payment is proved. It also emphasised legal certainty, proportionality and the genuine possibility of rebutting the presumption. The judgment does not establish that every recipient owes another person's interest merely because its supplier failed to pay.

In Bulgarian case law, the dispute concerned the relationship between the special Article 177 and the general Article 16(3) of the Code. One view limited liability to the tax mentioned in the special rule. The other treated it as liability of a third party covering accessory claims as well. Interpretative Decision No. 4 of 10 May 2022 in interpretative case No. 2/2020 of the Supreme Administrative Court adopted the second view and included default interest on the other person's unpaid tax. The dissent preserves the argument that the special conditions limit liability, but is not the court's binding determination.

This development requires two separate inquiries. First, it must be established whether Article 177 liability arose at all. Only then are the scope of the principal and the relevant interest determined. Correct reliance on the interpretative decision about interest cannot cure unproved knowledge, a missing taxable supply or an unexplained amount of unpaid tax. Conversely, proving the conditions for the principal does not relieve the administration of precisely calculating the interest period and accounting for payments.

The interest relates to the default of the payer of the tax debt for which the third party is liable. It is not determined arbitrarily from the date on which the administration decided to audit that third party. The act must therefore allow the reader to trace when the principal became payable, what balance remained and whether any discharge events occurred. Whether interest is included and its exact amount are distinct legal questions.

Order of recourse, procedure and the effect of payment

Article 177(6) regulates the order of recourse against direct and subsequent recipients. If collection from the direct recipient is unsuccessful, the legislation allows liability to be pursued in the order of the supplies. The corresponding special rules of paragraphs 5 and 7 apply to earlier suppliers. The existence of a chain therefore does not justify freely bypassing statutory conditions and pursuing the most convenient person.

Liability is established through an audit in which the addressee must have the opportunity to examine and challenge the information relied upon. Tax confidentiality and information about other persons require lawful procedural treatment, but cannot turn decisive evidence into an inaccessible basis for another person's debt. Judicial review must cover every cumulative condition, rather than merely the formal existence of an act establishing the preceding supplier's liability.

Payment and other grounds of discharge must be accounted for so that the budget does not receive more than is owed. Joint and several protection increases the prospect of satisfaction, not the amount of the claim. Partial collection from one liable person affects the outstanding balance. Internal relations between the person who paid and the other persons are a separate issue and do not change the administration's duty to account for money already received.

Article 177 and Article 19 of the Code must not be merged. The former concerns participation in taxable supplies, deduction exercised and knowledge of VAT non-payment. The latter protects collection against particular personal conduct in managing, representing or participating in a legal person. Their common element is liability for another person's public debt. Their factual bases, evidential relationships and statutory limits differ. Consistently distinguishing them makes effective collection possible while protecting against unjustified transfer of another person's tax burden.

24. Public liabilities in financial difficulty, insolvency and succession

Temporary illiquidity and changes to payment periods

The existence of a tax liability and the ability to pay it immediately are different questions. Lack of available funds does not eliminate a public claim that has arisen. It may nevertheless matter to the statutory forms of deferral or payment by instalments. Deferral postpones performance to a newly specified point in time, while instalments divide performance into parts. Both alter the payment regime while preserving the liability within the scope determined by the authorisation and the law.

A public creditor does not have a private creditor's general contractual freedom to agree any concession. The competent authority must act within the statutory conditions. The debtor's financial position, ability to service current and deferred liabilities, proposed security and realism of the plan have legal significance. A request cannot be considered merely as an expression of willingness to pay, because the authorisation affects recovery of public funds.

The general regime under Articles 183 onwards of the Code must be distinguished from the special regime under Articles 187a onwards. Their application depends on the type of liabilities and the statutory conditions. The competent authority, maximum period, interest consequences and remedies against refusal may differ. Article 187в(3) expressly provides that refusal under the special regime is not subject to appeal. That feature cannot be transferred to every refusal of a deferral. Deferral and payment by instalments under the Code.

Security and deferral perform different legal functions. Security preserves assets for future satisfaction, while authorisation alters the timing and manner of performance. Providing security is not payment and does not guarantee authorisation. Likewise, an application for instalments is not equivalent to an instalment arrangement already authorised. The relevant effects require a proper decision and compliance with the conditions attached to it.

The financial plan must be assessed as a set of interconnected data. Expected revenues have different evidential weight depending on whether they derive from contracts being performed, existing receivables or forecasts alone. The costs of continuing the business cannot be omitted because they determine the ability to pay current taxes. A plan that proposes servicing old debts by accumulating new unpaid public liabilities casts doubt on the very premise of sustainable recovery.

Failure to comply with the authorised repayment regime may produce the statutory consequences for maturity and recovery. Deferral or instalments also affect limitation periods. They are therefore not neutral steps concerning only current cash flow. Their connection with limitation, security and interest forms part of their legal content and must be distinguished from suspension of enforcement while the claim itself is contested.

Insolvency and collective satisfaction of creditors

Insolvency is a collective procedure governing the relationship between an insolvent or overindebted debtor and its creditors under the Commerce Act. A public claim retains its nature, but its satisfaction must also comply with that procedure. Opening insolvency proceedings does not immediately eliminate tax liabilities. It changes the organisation of management, the lodging of claims and the realisation of assets.

Assessment of a public claim must be distinguished from its inclusion in the list of claims and from actual satisfaction. An instrument assessing tax may affect how the claim is admitted in insolvency, but it does not turn the insolvency court into a tax appellate court. The limits of a challenge follow from the relationship between the special procedure for assessment of the public claim and the Commerce Act. Absence of payment differs from absence of a properly established claim.

The Code also regulates the specific relationship between public enforcement already commenced and subsequent insolvency. Article 193 concerns assets over which precautionary measures were imposed, or enforcement for public claims commenced, before insolvency proceedings opened. The special regime cannot be extended to every asset merely because the debtor has tax liabilities. The particular asset, type of action and time of that action matter. The law also provides a time limit for realisation by the public enforcement officer, after which the asset is handed to the insolvency administrator.

Distribution of the proceeds is a separate legal question. A public claim does not invariably displace every other secured or preferential claim. The applicable order takes account of the type of security, when it arose, the nature of costs and the statutory ranking. A dispute about the amount of tax and a dispute about the order in which a creditor receives satisfaction may therefore have different subjects and different procedural routes.

Payment received in one set of proceedings must be reflected in every other set concerning the same claim. The simultaneous existence of enforcement proceedings, participation in insolvency and established third-party liability does not create a right to multiple recovery. Different remedies may protect the creditor, but they do not multiply the amount of satisfaction. The precise outstanding principal, interest and costs matter to each subsequent action.

Termination of the debtor and third-party liability

Dissolution of a company, its removal from the register and completion of insolvency are different legal facts. Their consequences should not be described through the general statement that the business no longer exists. The existence of a successor, the applicable ground for extinguishment and special liability rules matter. Article 21(2) of the Code expressly permits third-party liability to be pursued in the circumstances under Article 168, points 5, 6 and 7. Loss of the ability to collect from the original debtor therefore does not automatically resolve another person's liability.

This rule does not create unconditional liability for every manager or shareholder. The relevant special statutory requirements must be satisfied and liability established through the prescribed procedure. The company's lack of assets does not replace proof of unlawful conduct, bad faith or causation where the legislation requires them. At the same time, payment or cessation of the liability is reflected in accordance with the rules governing the relationship between the principal claim and third-party liability.

Liquidation starts from a different premise from insolvency. It seeks to conclude the relationships of a dissolved company, collect receivables, satisfy creditors and distribute the remainder. The tax consequences of sales, distributions and the final tax period continue to apply under the relevant legislation. Removal from the register cannot be treated as an accounting step that by itself substitutes for discharge of public liabilities.

Tax liabilities arising after insolvency proceedings have opened must also be distinguished from earlier liabilities. Continued business activity may generate current taxes and social security contributions. Their time of incurrence and connection with the estate's activity matter to the lodging and satisfaction of claims. The aggregate liabilities shown in the tax and social security account do not by themselves permit those categories to be allocated correctly. A chronology of their bases and periods is necessary.

Setting aside or challenging asset disposals in insolvency likewise does not coincide with establishing personal tax liability. An action may seek return of assets to the estate or a finding that a transaction is ineffective against creditors. An audit of a third party has a different subject and statutory basis. Success under one remedy may change the available assets or outstanding claim, but does not relieve the competent authority of proving the requirements for the other.

Reorganisation, transfer of an undertaking and tax rights

Succession allows rights and obligations to pass to another person, but its tax regime requires separate examination. Reorganisation, sale of an undertaking and change of legal form require a distinction between the transfer of assets under civil law, assumption or statutory responsibility for debts, and the special treatment of tax positions. A general statement that the successor receives everything is insufficient for tax losses, unrecognised interest, tax retention relief or other conditional tax rights.

The Corporate Income Tax Act provides general and specific regimes for reorganisations. Application of tax-neutral treatment depends on the particular transaction and statutory conditions. Tax neutrality does not mean that profits disappear permanently from taxation. In certain circumstances it preserves continuity of tax values and defers recognition of a result to a later disposal. Examination must trace the assets, liabilities and their tax values rather than only the entry in the commercial register.

Responsibility for earlier tax liabilities is a separate question. For example, Article 124 of the Corporate Income Tax Act provides joint and several liability in specified reorganisations and transfers of an undertaking, limited to the value of the rights received. This regime must not be confused with a manager's personal liability under Article 19 of the Code. The former is connected with succession and the assets received, while the latter concerns separate conduct satisfying the statutory elements. Legal classification determines both the extent of liability and how it must be proved.

In all these situations, stability in tax relationships depends on consistently distinguishing the existence of the claim, the person liable for it, the assets from which it may be satisfied and the procedure through which satisfaction occurs. Financial difficulty, reorganisation or termination does not give a general answer to all four questions. Each has its own legal basis, and the relationship between them must be derived from the particular facts satisfying the applicable statutory requirements.

Practical appendices

Appendix I. Procedural time limits and the appropriate remedy

The applicable time limit follows the legal nature of the document. An objection to an audit report, an appeal against a tax assessment act and a challenge to a protective measure are different procedural steps. Taking one does not replace the others. The table summarises the general rules of the Bulgarian Tax and Social Security Procedure Code, referred to as the Code, while the special rules governing municipal revenue, customs and administrative penalties apply separately.

The table is based on Articles 22 - 27, 106 - 107, 117, 119, 124, 129, 131, 146, 152 - 157, 197 and 266 - 269 of the Code.

Identifying the beginning and end of a period

A period expressed in days begins to be counted on the following day. If its last day is a non-working day, it expires on the following working day. Personal filing is limited by the authority's working hours. Postal, courier and permitted electronic filing require reliable evidence of the time of dispatch. The date on a document and the date of its valid service are distinct legal facts.

Extension of a period set by an authority, the special extension for an objection to an audit report and restoration of an expired period are different institutions. Article 25 does not create a general power to extend the statutory appeal period. An incorrectly indicated period must be assessed under the special rules of Article 27. Actual lack of knowledge of an act does not invariably mean defective service, and dispatch of a message does not invariably establish valid service.

Appendix II. Evidence mapping and organisation of the case file

Practical preparation follows the constituent elements of the applicable legal rule. For each disputed fact, the working record identifies the provision, the party bearing the burden of proof, the available evidence, any contradictions and the possible consequences of failure to prove the fact. This turns a folder of documents into a reasoned position on the particular dispute.

Practical checklist

• Preserve the original electronic file, signatures, messages and receipt information. A printout does not always contain what is needed to verify electronic authorship and service.
• Prepare a single chronology with separate columns for issue, dispatch, service and legal consequence.
• Number the evidence and connect each item to a specific proposition. Record which documents were requested, which were obtained and which are held by third parties.
• Separate objections concerning competence, form, procedure and substantive law. Explain how each breach affects validity, the right of defence or the amount of the liability.
• For an expert examination, frame questions concerning facts, calculations and specialist knowledge. Do not ask the expert to decide the legal dispute.
• In an enforcement dispute, assess separately whether suspension, substitution or discharge of security should be sought. Filing an appeal does not automatically produce the same suspensive effect in every procedure.
• Keep proof of every submission and the exact set of attachments. The working draft must remain distinguishable from the document actually filed.

An example of sequential application

In a dispute concerning a bank transfer to an individual, the first question is the basis of the payment. It may be remuneration, a loan, repayment of funds or another legal relationship. The next question is which facts fulfil the constituent elements of the relevant tax. Only then are the evidential consequences of a missing document or the applicability of the special procedure considered. If a bank account has also been attached, the legality of that attachment is examined in its own proceedings. Success in one dispute is not presumed merely because the other exists.

Appendix III. Effective dates and the development of case law

Using a judgment requires comparison of the tax period, the version of the law applied, the relevant facts and the legal issue decided. The date of the judgment does not by itself establish which version of substantive law was applied. An interpretative decision must likewise be considered together with the question referred to the court and subsequent legislative amendments.

The legislative verification for this edition includes the amendments to the Code promulgated in State Gazette No. 85 of 15 September 2026. They concern international exchange of information and change the definitions of market price and the methods for determining it. Those definitions also matter outside information exchange where a tax provision refers to market price. The amending act provides for effect from 1 January 2026. Publication and the commencement date specified by the legislature must therefore be distinguished, without automatically applying the new formulations to earlier periods. Act amending the Code, State Gazette No. 85 of 2026, paragraphs 24 and 33.

Case law is used to explain the resolution of particular legal questions. A summary of judicial reasoning does not mean that every later case concerning a similar subject has the same outcome. Applicability depends on the facts proved, the relevant legislative version and the scope of the interpretation.

Legislation and judicial sources

• Constitution of the Republic of Bulgaria
• Decision No. 4 of 9 April 2019 in constitutional case No. 15/2018
• Decision No. 10 of 26 June 2003 in constitutional case No. 12/2003
• Normative Acts Act, Article 14
• Judgment in Case C-255/02, Halifax, paragraphs 73 - 75
• Interpretative Decision No. 7 of 15 April 2021 in interpretative case No. 8/2019
• Tax and Social Security Procedure Code
• Supreme Administrative Court judgment No. 10553 of 29 October 2025 in administrative case No. 7387/2025
• Supreme Administrative Court Interpretative Decision No. 6 of 27 October 2022 in interpretative case No. 6/2021
• Supreme Administrative Court Interpretative Decision No. 5 of 13 December 2016 in interpretative case No. 10/2016
• Supreme Administrative Court Interpretative Decision No. 11 of 3 December 2021 in interpretative case No. 3/2020
• judgment of 14 March 2013 in Case C-527/11, Ablessio
• Act amending the Tax and Social Security Procedure Code, State Gazette No 85 of 15 September 2026, paragraphs 24 and 33
• Social Security Code, Articles 4, 6 and 10
• Articles 237-249 APK
• judgment of 21 June 2012 in Joined Cases C-80/11 and C-142/11, Mahagében and Dávid
• judgment of 6 December 2012 in Case C-285/11, Bonik
• order of 3 September 2020 in Case C-610/19, Vikingo Fővállalkozó
• judgment of 11 November 2021 in Case C-281/20, Ferimet
• judgment of 16 October 2019 in Case C-189/18, Glencore Agriculture Hungary
• Article 1 of the State and Municipalities Liability for Damage Act
• Administrative Offences and Penalties Act, Articles 52, 53 and 83
• CJEU, C-97/21, MV-98
• Mutual agreement procedure under double taxation conventions and the Arbitration Convention
• Directive (EU) 2017/1852
• Directive 2010/24/EU, Article 14
• Regulation (EU) No 952/2013, Articles 44 and 45
• judgment of 12 May 2011 in Case C-107/10, Enel Maritsa Iztok 3
• Interpretative Decision No. 5 of 29 March 2021 in interpretative case No. 7/2019
• judgment of 20 May 2021 in Case C-4/20, ALTI, paragraphs 13 - 23 and 36 - 44
• Interpretative Decision No. 4 of 10 May 2022 in interpretative case No. 2/2020 of the Supreme Administrative Court
• Deferral and payment by instalments under the Code