News in the Legislation
The tourism industry is one of the worst affected by the COVID-19 pandemic whereupon its recovery would take at least several years. As in all EU countries, Bulgaria has adopted specially designated anti-crisis legislation, aiming at providing financial and other support to affected individuals and companies.
However, since the anti-crisis measures are architected to last only for the time of the crisis, those are usually not fully fit to tackle long-term consequence, including in the quickly deteriorating Bulgarian tourism industry.
In view of the above, in April legislative changes to the Tourism Act have been proposed by a group of MPs, with the purpose of providing so much needed support to both the tourism sector and the population, by introducing the so-called vacation vouchers.
What has been offered at a glance?
The key point in the legislative proposal can be summarized in the following manner;
- the vacation vouchers will enjoy the regime of the food vouchers – they will be paid by the employers and will be provided to the employees as a social supplement;
- in order to stimulate the employers to provide such vouchers to their employees, the value of vouchers, to a certain limitation (BGN 100, as currently proposed), will be considered as a tax-exempt expense;
- the licensed tourist operators and the tourist agent will be entitled to issue the vacation vouchers following a conclusion of a contract with the Ministry of Tourism. In that respect, the minister of tourism will issue a special ordinance, regulating in details the regime of issuing, spending and redemption of the vacation vouchers), similar to the currently existing regime under Ordinance No7, regulating the food vouchers).
As an immediate anti-COVID-19 crisis measure, the MPs propose the expenses for the vacation vouchers for 2020 to be financed by the state whereas the following categories of individuals will be entitled to receive vacation vouchers:
- persons that has paid social securities for a period of not less than 8 months for the preceding calendar year;
- parents of children who attended school and successfully passed the class for the preceding school year.
As of end of April, the expense of the state budget for such 2020 measure was calculated to be BGN 500 mln whereas the cumulative effect for the economy was calculated to be triple (BGN 1.5 bln).
What are the anticipated results?
The introduction of vacation vouchers as a long-term social measure usually supports the local economy by stimulating the population to spend the holidays in the native country, with all corresponding effects thereof (sustainable development of the tourism sector due to a consistent inflow of domestic (guaranteed) tourists, development of local brands, diversification of the tourist product, increase of the popularity of the Bulgarian tourist brand etc). Given the above, the effect of introducing the vouchers as an anti-crisis measure will definitely boosts the Bulgarian economy in the coming hardship years.
According to the official NSI data for 2019, nearly 170 000 people have been directly engaged in the tourism/restaurant sector, however the sector is indirectly connected to transport, agriculture, food and beverage industries. In that respect, the cumulative effect of the tourist sector affects nearly over a million employees and 12% of the GDP (nearly BGN 14 bln).
Are there any other EU states implementing similar anti-crisis measure?
From the East European states, Romania has introduced similar voucher scheme back in 2009 as an anti-crisis measure and has maintained it in the post-crisis years as a sustainable tool to increase local consumption.
Slovakia has used vacation vouchers (exempt from taxation) as a main economic measure to stimulate tourism, decrease unemployment and combat the grey (informal) economy.
In the current months, Poland has started a specially designated program anti-COVID-19 crisis measure to provide free vacation vouchers to all Polish families with children who will receive EUR 110 for each child. The vouchers will be provided until end of March 2022 whereupon around 6 mln children will benefit from the measure.
On the 10th of January 2020 the Supreme Administrative Court held with a final judgment and maintained Judgment No. 1341/31.01.2019 under administrative case No. 8647/2018 of a three-member panel of the Supreme Administrative Court, annulling Resolution No. RD-NS-04-21-1 of 29th March 2016 issued by the Supervisory Board of the National Health Insurance Fund. The Chairman and Senior partner at PM&P, attn. Vladimir Penkov, as well as the attorneys at the Law Firm's litigation team, expressed similar opinion on the nullity of the resolution of the Supervisory Board of the Health Insurance Fund, on the first claims lodged with the courts in the cases for awarding the so-called ‘excess activity’.
It is recalled that the annulled resolution of the NHIF officially governed the relations between the public fund and the providers of medical treatment with regards to the absence of agreement for a National Framework Contract for the year 2016, including for the volumes and the process of the medical treatment pursuant to Art. 45 of the Health Care Insurance Act.
The news about the judgment already raised wide response in the society and the medical profession because the main legal effect of the Supreme Court judgment is the drop-out of the legal basis used by the NHIF in order to refuse to pay the amounts for medical treatment that are above the determined volumes under the contracts with the providers of medical treatment. Therefore, the Supreme Court's judgment is relevant for healthcare undertakings that intend to institute judicial cases against the NHIF to pay them the ‘excess activity’ for the period covered by the invalid resolution. Without being a decisive argument, the court judgment provides additional burden in favor on the healthcare undertakings in their litigation proceedings with the public health fund.
The ‘excess activity’ constitutes performed, reported and unpaid activity for the duration of the implementation of the contracts of medical care providers, which exceeds the limits of the budgets approved by the NHIF. For this reason, the Health Fund refuses to pay it without taking into account the private law nature of the contracts signed with the providers and the lawful rights of the persons with medical insurance, set out in Article 35 of the Health Care Insurance Act. The law provides for the constitutionally guaranteed opportunity for every person to receive medical care as a basic package of health care activities, guaranteed by the NHIF budget and to choose a doctor and health facility that has concluded a contract with the NHIF.
In connection with their rights arising from the contracts with the public fund and the law, many hospitals have already instituted judicial cases against the NHIF, with some already definitively ordering the fund to pay them the ‘excess amounts’.
Implementation of European standards connected to the fight against tax evasion
The latest amendments to the Tax and Social Insurance Procedure Code published in the Official Gazette on 31st December 2019 were adopted in light of harmonizing Bulgarian national legislation with the European requirements and more specifically - Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. The new provisions establish the subject, scope and competent authorities for the exchange as well as what information is to be disclosed.
The fights against tax evasion and aggressive tax-planning is one of the most current topics as for the Member States it has become increasingly more difficult to counteract to the moving of taxable profits by the taxpayers towards jurisdictions with more beneficial tax regimes or to the erosion of the national tax bases. Dealing with problems such as the existence of the so-called tax havens, tax crimes, loopholes allowing certain profits or income of the taxpayers to remain untaxed nowhere, have long been a political priority for the European community. The said amendments introduce some new concepts in the Bulgarian tax legislation, as well as give new meaning to existing ones.
What does a cross-border tax arrangement represent?
Firstly, this concept shall be understood in a quite broad sense, namely as any type of arrangement – whether an agreement, provision, consent, opinion, scheme, transaction. This arrangement carries a potential risk of tax evasion. The assessment of the said arrangement as potentially risky one, however, according to the Supreme Bar Council, is largely subjective. Given the large amount of the sanctions envisaged in case of non-reporting of such cross-border tax arrangement to the Executive Director of the National Revenue Agency by the obliged persons, the latter are basically discouraged from providing legal tax services in the field of tax-planning.
Categories risky cross-border tax arrangements
In the new art. 143ya, para. 4, the legislator has indicated the cases when an arrangement shall be assessed as potentially carrying the risk of tax evasion. The new requirements also correspond to the provisions of the Measures Against Money Laundering Act, more specifically – the obliged persons under the Tax and Social Insurance Procedure Code shall be bound to report in any case of an arrangement where a legal undertaking participates whose beneficial owner cannot be identified.
Information concerning cross-border tax arrangements shall be disclosed to the Executive Director of the National Revenue Agency by a consultant to such arrangement meaning each person who prepares, markets, organizes or manages the implementation or provides for implementation a cross-border tax arrangement. The amendments envisage a second category of consultants – a person who knows or can reasonably be assumed to know that he has undertaken to provide directly or through other persons help, assistance or consultation with regard to the preparation, marketing etc. of a cross-border tax arrangement.
Therefore lawyers, accountants, tax consultants, financial advisers, banks, investment or insurance intermediaries etc. are likely to fall within in the above-described categories. In certain cases, pursuant to the newly adopted provisions, the taxpayers shall also be obliged to report, for instance if there is no consultant, within the meaning of the law, to the tax arrangement. By 31 August 2020, the obliged parties shall submit to the Executive Director of the National Revenue Agency information on each cross-border tax arrangement which was applied between 25 June 2018 and 30 June 2020.
Why there is a strong public reaction?
The Supreme Bar Council argues that all of the information pertaining to the so-called cross-border tax arrangement should be regarded as confidential and no part of it whatsoever should be disclosed. Furthermore, such legislative policy could severely influence the decision of certain economic groups to choose Bulgaria as a place for conducting business and as a place for foreign investments, which should, in no case, be overlooked by the Bulgarian legislative body.
The Ministers Council adopted a new act, which complements the legislative framework in the field of cybersecurity – Ordinance of the minimum requirements for network and information security – „The Ordinance“ (State gazette 59/26.07.2019).
Until November 26, 2019, the obliged persons should take a number of measures to meet the requirements of the Ordinance, including preparation of network and information security policies, providing trainings to the employees related to cybersecurity, preparation of cyber-incident risk assessment methodologies, introduction of internal rules etc.
There is no change in the list of obliged persons, defined by the Cybersecurity Act, as logically, the administrative burden falls primarily on the administrative authorities, “essential service providers” and “providers of digital services”, whose cyber vulnerability is of major public importance.
The competent authority responsible for the annual audit and oversight of the implementation of the set objectives will be the State Agency for Electronic Governance. The sanctions for non-compliance with the provisions of the regulation vary between 1000 BGN and 25 000 BGN.
The Draft Agreement on the withdrawal of the United Kingdom and Northern Ireland from the European Union, (hereinafter referred to as the “Draft” / “Agreement”) which has been published on the 14th November 2018, has given an answer to important questions, related to the intellectual property (IP) rights with a territorial validity in the EU after BREXIT, like EU trademarks, EU industrial designs, EU protected geographical indication, supplementary protection certificates for pharmaceutical and plant protection products (SPC), and copyrights. The main questions, which have been set in relation to BREXIT, were whether the intellectual property rights with territorial validity in the EU, would continue to have protection on the territory of Great Britain after its withdrawal from the EU and if so – under what conditions. In view of the events from the 12th March 2019, of course, it could be expected that the Agreement mentioned above would not take effect. The Draft was already rejected twice by the British government and the only possibility for it to be accepted is to be concluded until the 20th March 2019, which would allow the delay of BREXIT until the 30th June 2019.
Practically, No-deal BREXIT would mean that the conditions, negotiated in art.54-61 (https://ec.europa.eu/commission/sites/betapolitical/files/draft_withdrawal_agreement_0.pdf ) of the Draft, related to the continuation of the protection of already existing registrations and the published filings for registration of different IP rights with territorial validity in the EU, would not occur.
It shall be noted that the EU trade marks and the other IP objects are protected only in the EU and not in third countries. Therefore, after BREXIT, EU trade marks registered prior to that moment will cease to be protected in the UK. EU law does not offer any legal basis which would allow a ‘partial transformation’ of an EU trade mark into a UK trade mark (whether before or after the withdrawal from EU). Therefore, there is still unclarity and legal uncertainty, similar to the one from 1 year ago, whether or not the right holders will continue to possess such rights and whether or not they will have the rights over an equivalent object in the territory of UK after BREXIT. For example, the owner of an EU trademark for the same logo and the same goods and/or services, registered according to the EU legislation, will have to go through a national trademark registration procedure in Great Britain.
After a careful analysis of the mentioned above Draft Agreement, the attorneys-at-law from “Penkov, Markov and partners” are on the opinion that if such Agreement is accepted and signed (BREXIT with a deal) it will offer the best possible solution for the protection of the rights and legal interests of the right holders. The proposed Draft defends the interests of the IP owners with a unified protection within the EU. It is exceptionally important that a legal mechanism is offered, thanks to which the already acquired EU rights would continue to take effect in the territory of Great Britain after BREXIT.
For example, art.55 of the Draft Agreement establishes a registration procedure which shall be completed ex officio by the competent authorities thanks to the available information in the records of the European Union Intellectual Property Office (EUIPO) without the need for an additional payment of fees.
However, if the Agreement does not take effect, the interests of the owners of EU trademark registrations, of EU industrial designs, of SPC published in Britain would be substantially harmed as their rights would automatically stop to have effect after BREXIT. These rights would continue to have protection only on the territory of the other 27 EU member countries, but the right holders would be forced to go through a completely new registration procedure before the intellectual property administration of Great Britain in case they wish to continue to receive protection in the UK. Thus, the holders would lose the advantage of their earlier rights for the equivalent IP object with territory protection within the EU
Such legal uncertainty, as described above, would give the unconscientious competitors an opportunity for misuse. After BREXIT UK courts would no longer be competent in respect to the validity and protection of IP objects registered in EU. It would be possible to receive court and administrative protection of IP rights on the territory of Great Britain only after a national registration procedure is completed. This means that if in the meantime an unconscientious competitor files an application for the registration of an identical IP object, for example a trademark with the same name and/or logo for the same list of goods and services, before this is done by the EU right holder, the interests of the latter would be substantially harmed.
The conclusion is that BREXIT with a deal would be the only logical and legally supported solution for the IP right holders in the Union. Otherwise, a legal uncertainty and possible misuse would arise and such situation could result in essential losses for manufactures and service providers whose trademarks and other IP object would cease to exist after BREXIT for the territory of UK.