01.08.2013

This mechanism will prevent economically correct companies from random transactions with incorrect suppliers

The VAT reverse charge mechanism for supplies of cereals and industrial crops is the most effective measure for fighting tax fraud in this sector, said Deputy Minister of Finance Lyudmila Petkova during her presentation aiming to clarify the principles and the anticipated results from its introduction. The Ministry of Finance is preparing two amendments, i.e. to the VAT Law and to the Grain Storage and Grain Trade Law, so as to make the reverse charge mechanism effective in this sector as soon as possible by 1 October 2013. The reverse charge mechanism will be transposed in Bulgarian legislation by Directive 2013/43/EU resulting from an amendment to Directive 2006/112/ЕО which will enter into force as from 15 August 2013.

In her presentation Deputy Minister of Finance Lyudmila Petkova outlined the key points in the concept paper introducing the reverse charge mechanism for the supplies of cereals and industrial crops in the national tax legislation. The essence of the reverse charge mechanism is an exception to the general VAT procedure and the tax on supplies is claimed from the recipient, i.e. a VAT registered person. The goods within the scope of this mechanism are raw cereals and industrial crops. It is applied for supplies within the territory of the state which are received by a VAT registered person and the supplier is a tax liable or non-liable person. The Ministry of Finance thus plans to exercise control on the registered companies which benefit from this mechanism in reference to their supplies to any non-registered companies concerning the tax assessment and payment. The concept paper envisages interaction with the State Agriculture Fund bodies in the exchange of information about the producers of cereals and industrial crops and the areas planted. There will also be joint inspections carried out by the NRA authorities and the National Grain Office authorities of those subject to control, i.e. farmers, traders, granaries, public warehouses and processors.

"The results from this measure will be seen as early as the end of this year and then I will assess the effect from its introduction", added Deputy Minister Petkova and explained that the sector of production of and trade in grain and cereals was most risky in terms of VAT fraud. That is why it is the first sector where the reverse charge mechanism will be introduced. According to Mrs. Lyudmila Petkova, the sectoral organisations also support this measure and the Ministry of Finance thus expects to increase the revenues from VAT and from other taxes by decreasing the share of tax fraud and declaring the real proceeds from the sales of cereals and industrial crops. The Ministry of Finance expects a sizeable reduction in the issuing of fake invoices or of invoices issued by non-existing economic operators used for illegal VAT refund or for a reduction in the amount of the tax due for payment. This mechanism will prevent economically correct companies from random transactions with incorrect suppliers and will secure additional turnover means for grain supplying persons.