Interview of Penkov, Markov & Partners’ Managing Partner Mr. Vladimir P. Penkov for the newspaper Bulgarisches WIRTSCHAFTSBLATT, December 2010
It is of utmost importance for the Public Procurement Act to set
a lower limit of realistic price
The government often gives out contradictory signals when it comes to tax policy. Do you think that our leaders have a comprehensive vision, or they proceed piecemeal?
Unfortunately, it is a piecemeal approach that is adopted in this field, although the tax framework in Bulgaria should generally be estimated positively since it gives the country advantages – not only in relation to neighbouring countries but also on a European scale.
Regrettably, the speculations on whether the current corporate tax rate and personal income tax rate should be retained or not in no way help foreign investors established in Bulgaria feel secure.
The Minister of Finance, for example, is assuring the public that taxes will not be changed this and next year.
This means, however, that in two years’ time they might change.
Therefore, if we assume that these tax rates ensure certain advantages, it should be with the reservation that the insecurity stemming from contradictory statements and inconsistent policy prevent low tax rates from reaching their full positive potential.
Instead of proposing a reduction of the value added tax rate today and then suggesting an increase tomorrow, a better solution would probably be to differentiate the rates, i.e. introduce different VAT rates for the different sectors and products crucial to our economy’s growth, such as education, tourism, agriculture, pharmaceuticals, etc.
We do not venture such measures, and up to now we have only introduced a seven-percent value added tax rate for certain services in the field of tourism.
It is in fact namely in a period of crisis that family income taxation, for example, would be quite appropriate.
Thus a family’s investments in household appliances, cars, computers or education could be subject to zero or preferential tax rates.
Currently children are practically not counted as family members.
It is only the income-generating family members that are taken into account.
If consumption increases, production would expand, too.
After the excise duty on cigarettes was increased by 20 percent, statisticians noted that Bulgarians had started smoking less, based on the decreased amount of revenue into the state exchequer from this kind of duty.
But do they really smoke less? Such measures will not produce economic results.
Introducing tax reliefs for energy efficient insulation of homes would have a positive effect.
The Minister of Energy and the Minister of Finance have voiced their support for that idea. However, as we all know, it is sometimes two or three years until an idea promoted at a forum is turned into law.
This process must be accelerated.
There are estimates that if all 400,000 homes in precast concrete residential buildings in Bulgaria were thermally insulated, that would save so much energy that two of the NPP’s reactors could be decommissioned.
The economic effect of such a measure would be even greater as far as the state is concerned.
The Value Added Tax Act should necessarily exclude the unjust provision based whereon good taxpayers are considered to be guilty just because they have made a contract with an entity which fails to observe its tax obligations.
There is no way they could be aware of that beforehand, and they should not be punished for it.
You are criticising the bill to amend and supplement the Commercial Register Act as developed by the Ministry of Justice. What, in your view, are the drawbacks in this bill?
This new bill lacks some very important elements.
The proposal to introduce a provision preventing the illegal use of a name already registered by another company has not been taken into account.
The draft developed under the auspices of the American Chamber of Commerce in Bulgaria and other non-government organisations provided for a mechanism preventing the theft of intellectual property and goodwill.
In all the discussions on this bill I have kept bringing forward the 35 Sony´s example.
It is more than obvious why that name was chosen.
It was not by chance – it was an attempt to mislead customers by creating an association with a world-famous brand.
That is inadmissible, which is why it is so important to introduce regulations enabling those who first establish a brand to defend their rights.
There is another problem here too.
It is related to the fact that there used to be 28 separate, unconnected registers in Bulgaria.
When they were merged, it turned out that some identical names appeared in the different registers.
AmCham’s draft provided for possibilities to protect a brand, as well as to bring an indictment in court. Unfortunately that was all dropped.
The proposal to introduce a mechanism to eliminate faults prior to registration denial has also been rejected.
Currently, there is a delay of 22 to 23 days in the case of limited liability companies, and of 14 days in the case of joint-stock companies.
At the same time, fault correction is not allowed.
Wherever an official notices a fault, it would be fair for such official to draw the filer’s attention thereto, so that the fault can be eliminated.
That would save administrative time and would make things easier for the Register’s users.
It was namely these faults that faced particularly severe criticism.
It is also surprising why the need for procurators to be recognised as legal representatives is not explicated, when procurators are so qualified in the Commercial Register.
Moreover, the priorities of this legislative act, such as speed, publicity, etc., have not been defined. If they had, that would help employees in construing and applying the Act.
In the document developed by AmCham, we paid special attention to publicity, on the one hand, and to personal data protection, on the other.
That is why we proposed controlled access.
Bulgaria is among the countries where personal data is abused the most.
Nevertheless I believe that the new act will improve this to a certain, yet not sufficient, extent.
How fast does the court act when it comes to solving commercial disputes?
We can’t say that is a fast process, because each adjournment of a case wastes five to six months.
Civil law and commercial disputes are often protracted for years.
Given that there are some circumstances influencing the unpredictability of the court’s decision, the Bulgarian system cannot be assessed as particularly good or efficient in this field.
However, we deserve to be praised for the speed of administrative proceedings.
The Competition Protection Commission has recently been quite fast in issuing its decisions.
The Supreme Administrative Court resolves all cases within one year, which is, in my view, a good achievement in comparison with other European countries.
Dealing with civil courts, however, is a real ordeal for the parties to the proceedings.
In your view, a number of provisions in the Commerce Act need to be reformulated too. What are the changes that ought to be made?
The Commerce Act is generally a very good act, with just a few reservations.
Currently the Ministry of Justice is attempting to make certain changes.
We have suggested a mechanism for bringing indictments for abuse of company names, which would correspond to the Commercial Register Act.
In addition, for the sake of improved security, we have suggested that property-related contracts and contracts of incorporation should mandatorily be notarised, as is the case in a number of European countries.
Numerous cases of abuse have been registered in Bulgaria.
Currently companies’ articles of association are being scanned, which would probably make it more difficult to abuse data from the Register.
Yet I believe that notarisations would inspire more confidence in shareholders and partners.
The third point under criticism is a provision introduced some time ago, according to which a limited liability company could be registered with a minimum capital of BGN 2.
That is good, but in our experience we have seen cases of companies investing BGN 10 million.
Is it normal for such a company to be registered with a minimum capital of BGN 2? There ought to be a mechanism allowing for initial payment of the minimum capital and fixing a deadline for the entire capital to be later paid in.
Otherwise the rest of the parties involved in the business turnover would believe that the registered capital is BGN 10 million and would thus be misled, since the capital actually paid in would amount to BGN 2 only.
Indeed, there is something written in small print in the excerpts from the Register, but who reads it all? The lack of legal provision for the cases where the minimum capital has not been paid in is inappropriate, because it is namely these cases that constitute serious violations of the law.
Besides, the Commerce Act should forbid the reduction of quorum percentages and include a provision to the effect that important decisions should be passed by a majority of at least 50 percent plus 1 vote.
That should apply to the liquidation or winding up of a company, to capital increases, and to the disposal of important assets.
Currently it is possible for ten percent of the votes to pass a resolution binding to all shareholders.
I see a major problem in the Ministry of Justice’s proposal to include a provision pursuant whereto the details of shareholders are to be entered into the Register.
This contradicts the theory and practice related to joint-stock companies, since such details are to be entered into the shareholders’ book and stored at the company’s premises.
The names of shareholders should not be made public.
The government promised that a new public procurement act would be passed by the middle of next year. Which are the most