Introduction
Recent amendments to the Tax and Social Security Procedure Code (“TSSPC”) notably broadened joint liability of third parties for company’s tax and/or social security liabilities arising from actions hampering discharge of such liabilities. The amendments became effective as of 4th August 2017.
Scope
The joint liability of general managers, board members, commercial agents and commercial representatives (collectively “representatives”) for outstanding tax and social security liabilities of the company resulting from actions in bad faith leading to failure to collect taxes and social security contributions is now extended to shareholders as well.
The scope of representative’s actions in bad faith leading to their joint liability for unpaid tax and/or social security liabilities of the company is now broadened. In addition to the hidden distribution of profits and unfavorable disposal of company’s assets, such actions now also include transfer of company’s ongoing concern and encumbering of company’s assets for securitization of third party’s debt when such assets have been cashed-out. In order to be considered as made in bad faith, the actions should be undertaken within a year as of declaring / issuing tax inspection deed establishing the liabilities, which have not been discharged or after initiation of tax inspection but not later than six months as of its closure.
Majority shareholders (excluding the ones who have voted against or who have not voted) could be held liable if such bad faith actions have been undertaken following resolution of theirs to that effect. The liability for representatives and shareholders in these cases is limited up to the amount of the payments made respectively up to the amount by which the company’s assets have decreased.
It should be noted that in cases of shareholders’ joint liability the law does not make difference between individual shareholders or shareholder entities. Thus, both companies and individuals being shareholders could be held jointly liable for company’s tax and social security liabilities which have not been discharged.
Pursuant to these significant amendments, in case of majority shareholding as at the time tax and/or social security liabilities occurred, shareholders would be held liable for any unpaid part therefrom if, acting in bad faith, they have decreased their shareholding below majority level. Reduction of the shareholding would be considered in bad faith if made knowing about the insolvency/over-indebtedness of the company and before the company was declared bankrupt or, if made after the initiation of a tax inspection. The liability in this case would be proportional to the transferred part of the capital. Excluding the cases of publicly listed companies, minority shareholders who within three-month period transferred minority shareholdings, which in total represent majority shareholding, would be exposed to such liability as well.
Liability of representatives and procurators, for hiding of facts and circumstances, which should have been disclosed to the tax authorities, continues to apply, but in extended scope, covering also any third party authorized with powers of a general manager (pursuant to the amendments considered as “procurator”) or acting on behalf of a company without authorization, where the latter did not object against the actions so taken (considered as “commercial representatives”).
Other important amendments to the TSSPC
Amongst the other important amendments to the TSSPC introduced together with the above, are also:
a) Introduction of the country-by-country reporting;
b) The new rules on automatic exchange of information on advance cross-border tax rulings and advance pricing arrangements. Although such rulings/arrangements are not envisaged under the Bulgarian tax law, the exchange of information would allow the Bulgarian tax authorities to identify potential transfer pricing issues in multinational groups operating in Bulgaria;
c) Mutual assistance for collection of public liabilities under international agreements of Bulgaria (e.g. the Convention on Mutual Administrative Assistance in Tax Matters) will be conducted following the rules and procedures of TSSPC.