In the business world, especially in Bulgaria, where it is clear when, who and why appoints inspections, tax audits are an inevitable part of the management of any company. In order to be prepared and protected from all sorts of checks by the National Revenue Agency (NRA), it is critically important to understand the basic aspects of a tax audit. Our goal is to provide you with a comprehensive understanding of the tax audit process, covering key questions such as “How many years ago is an audit done?”, “What are the consequences of a lack of documents in an audit?”, “What is a tax audit act?” and “What is the starting balance when auditing a legal entity?”.
If you are interested in tax audit of an individual, you can read more here!
Proper preparation and understanding of the process can significantly reduce stress and prevent possible troubles. It is important to know what an audit deed is, how you can react when receiving it, and how to prepare an application for suspension of an audit if you consider it necessary. In the article, we will also consider examples of an audit act, as well as a sample application for the suspension of an audit, so that you can be as informed and prepared as possible for all aspects of the tax audit.
Tax audit protection is not only a matter of strategy, but also of a good understanding of the laws and regulations that govern your business. With this article, we aim to provide you with a guide to help you navigate the complexities of tax audits, while protecting your company's interests in accordance with Bulgarian law.
The tax audit of a company in Bulgaria is a complex and thorough process initiated by the National Revenue Agency (NRA) in order to verify and establish the legality of tax and insurance obligations. It is a control production, which can be directed not only to the company itself, but also to establish liability for obligations of third parties. This process is built on the principles of legality, objectivity and transparency, which allows the state to ensure correct and timely taxation, as well as to protect the interests of society and business.
The tax audit procedure is initiated with the issuance of an order for the assignment of an audit, which determines the scope and period of the inspection, the audited person, the head of the audit and other important aspects. This order may be amended by the authority that issued it if new circumstances or data arise that require the extension or limitation of the scope of the revision. It is important to note that service of the order initiates the time limit for carrying out the audit, and from now on the procedure passes into an active stage of examination and collection of the necessary evidence.
In the process of conducting a tax audit, the revenue authorities carry out a thorough analysis of all submitted documents and data relating to the financial and economic activities of the company. The main goal is to establish facts and circumstanceswhich have to do with the legality of taxation and the determination of tax and social security contributions obligations. Each element of the information collected is subject to objective analysis and evaluation, taking into account all relevant legal requirements.
The review procedure ends with Issuance of the Audit Act, which is the result of the verification and analysis of documentation and data carried out. Before its final issuance, an Audit Report is prepared, which sets out the findings and recommendations of the audit authority. The revision act formalizes the establishment, determination, modification or set-off of public tax and social security contributions obligations and can be appealed in whole or in part within 14 daysfrom its delivery to the obligated person.
In addition to the traditional types of audits that focus on the establishment of tax liabilities, specialized audits are also applied in practice, such as audits to establish the liability of third parties, audits in the event of succession, as well as audits in relation to issued decisions of the Directorate of Appeal and Tax Insurance Practice. Thus, the tax audit process becomes a tool for Ensuring correct and fair taxationwhile providing mechanisms to protect the rights of obligated persons.
When it comes to tax audits, understanding the process and the rules by which they are assigned, that is, they begin, is essential for any company. The assignment of an audit is a procedure that requires strict adherence to the steps and criteria established by the legislator. This part of the article will look at how an audit is assigned to a company, focusing on the process of issuing an assignment order, the key elements of the order and the options for its amendment.
Audits of companies are commissioned by certain bodies within the National Revenue Agency (NRA) - namely those auditors authorized by the territorial director of the respective territorial directorate of the NRA, as well as the executive director of the NRA or a deputy designated by him.
The audit procedure begins with the issuance of an order for the assignment of an audit. This order defines:
Cases for assigning audits are allocated automatically using the information system “Control”. The order is issued as an electronic document signed with an electronic signature, and in case of technical impossibility, it can also be issued in paper form.
The issued assignment order is served on the audited person. It is important to note that this order can be amended by the authority that issued the original order. Amendments may affect the time limit for carrying out the audit, the registration details of the audited person, the scope of the audit, the head of the audit or the audit authorities. Any such amended order shall also be served on the audited person.
It is important to emphasize that the order for the assignment of an audit is not subject to appeal separately from the revision act. This means that objections to the revision itself can only be expressed in the context of an appeal against the revision act after its conclusion.
According to the Tax and Insurance Procedure Code (DOPC), the revision period for which a tax audit can be ordered is up to 5 years from the end of the year in which the tax or social security obligation concerned has been or should have been filed. This means that if, for example, a company received income in the financial year 2022, the limitation period begins to run from January 1, 2024, insofar as it should have reported this income in the Annual Financial Statement (AFO) in 2023. After the expiration of thisfive-year term, the tax administration loses its right to forcibly collect debts.
It is important to note that there are exceptions to this rule. If, within the five-year period, it was formed criminal proceedings under the Criminal Code, on the outcome of which the establishment of tax obligations depends, this period may be interrupted. This means that an audit can also be ordered after the expiration of the five-year period, if it is related to criminal proceedings.
The limitation periodis a period after which the right to prosecute an obligation is extinguished if the debtor objects to the court - it does NOT result in automatic repayment of the fundamental right, but only concerns the possibility of its enforcement. However, the limitation period entails the repayment of the right itself after its expiration, which directly affects the subjective rights, and is automatically applied by the court or other competent authority. The main difference between limitation periods and limitation periods is that the limitation period applies only on the objection of the debtor, whereas the limitation periods are applied ex officio by the court and lead to the loss of the right itself, not only the right to prosecute it.
The specified period is preclusive, which means that its omission by the tax administration represents final procedural obstacle to the initiation of audit proceedings.Any revision act issued in violation of this deadline is null.
The expiry of the five-year limitation period entails the termination of the right of the tax administration to seek recovery of unpaid taxes and insurance. However, if a taxable person voluntarily pays his obligation after the expiry of this period, the state will accept the payment and the person/company cannot claim it back. In order to benefit from the repayment of the limitation obligation, the person must actively invoke this right of his own by giving written notification to the tax authority.
Knowing these deadlines and procedures is critical for any company, as they provide important legal certainty and allow companies to plan their financial and legal strategies with clarity about their tax and insurance obligations.
The tax audit of a company in Bulgaria is a strictly regulated process that is carried out by the revenue authorities in order to verify the accounting records, tax and insurance obligations of companies. It begins with the receipt of order for the assignment of an auditspecifying the timing and scope of the forthcoming inspection. It is important for the audited company to make sure that the employees carrying out the audit are obliged to authenticate themselves with their service card and a copy of the order that corresponds to the one received by the company.
In the course of the audit, NRA employees are authorized to request and review any necessary documentation - accounting records, payment documents, contracts, invoices, and others - to determine whether all public obligations such as taxes and insurance have been correctly declared and paid. The procedure can be carried out on the spot at the company's site or, if necessary, the documents can be transferred for review to the territorial directorate of the NRA. In such a case, it is compiled written descriptionof the submitted documents, issuing two copies - one for the NRA and one for the company.
Revenue authorities have the right and obligation to collect and secure all collected evidenceto support its findings in the audit act. This includes the description, copying or even seizure of accounting books, documents, information from technical media and other information carriers. If necessary, in order to keep the evidence intact, the tax authorities may seal the object or part of it for a period of up to 48 hours, and if necessary they can ask the court for an extension of this period.
Important! According to Art. 41 of the DOPC (Tax and Insurance Procedure Code)Actions to secure evidence can be appeal within 14 days of their execution to the territorial director of the NRA at the location of the object, which shall give a reasoned decision within one day of receipt of the appeal. By decision, the territorial director may reject the complaint or grant it by ordering the cessation of the contested actions. The decision should be notified to the applicant on the same day. The decision ordering the suspension of the actions shall be implemented within the period specified therein by the revenue authority which took them.When the Territorial Director of the NRA has not given a ruling within the established time limit or has rejected the appeal, the actions for securing evidence may be appealed within 7 days from the expiration of the above period, respectively from the receipt of the decision, to the administrative court where the actions for securing the evidence were carried out with respect to their legality formality. The court rules within 7 days with a definitionwhich is not subject to appeal. However, the complaint itself does not stop the actions to secure evidence.
Appeal of an act of revisionis possible and provided for by legislation as a right of any taxable person. It is important to note that it is not the order itself to assign the audit, but the revision act, issued on the basis of the audit carried out and after the presentation of any objections by the company, is the one that is subject to appeal. This act determines the final tax and insurance obligations of the company and specifies the deadlines for their implementation, as well as the possibilities for appeal.
Tax audit is a procedure that requires strict adherence to procedural norms and provides an opportunity to protect the rights of taxable persons. Each step of the process is regulated in order to ensure the legality and fairness of taxation.
The deadline for conducting a tax audit is regulated by law and is key to guaranteeing the rights and obligations of both the audited persons and the revenue authorities. According to Art. 114from the Tax and Insurance Procedure Code (DOPC), the main deadline for conducting an audit is up to three monthsand begins to run from the moment of service of the order for the assignment of the audit to the person or company concerned. This period is provided in order to ensure sufficient time for a careful and objective examination of all relevant documents and facts.
However, there are situations in which the initial period of three months turns out to be insufficient to complete the audit process due to various circumstances. In such cases the term can be extended for up to two additional months, the decision to extend the period shall be taken by an extension order issued by the authority which commissioned the review. This allows flexibility in the management of the audit process and ensures that all aspects of the tax and social security of the person or company are thoroughly reviewed and analysed.
In exceptional cases, where the factual complexity of the particular case requires more time for consideration, the period for carrying out the audit may be extended to a total of no more than three years. This extension is approved by order of the Executive Director of the NRA, issued on the basis of a reasoned proposal by the territorial director. Thus, the legislation provides an opportunity to flexibly manage the audit process, while setting up frameworks aimed at protecting the interests of all parties and ensuring fairness of taxation.
These regulations show the legislator's desire to strike a balance between the need for a thorough examination of companies' tax and insurance obligations and the right of these companies to have information about the duration of the audit process. This ensures that the audit process is both effective and transparent, respecting the rights of taxable persons and ensuring the legality of their financial and economic operations.
The audit act (including the tax audit act) is a key element in the tax audit process carried out by the National Revenue Agency (NRA) in Bulgaria. It is an official document that is issued after the completion of the audit procedure and contains the specific conclusions and conclusions of the audit authorities regarding the tax and insurance obligations of the audited person or firm. The main purpose of the inventory audit act is to establish the presence or absence of unlawfully spent funds for which there are no documents and which must be recovered.
The process of issuing a revision act begins with the drafting of audit report, which describes all actions performed, observations and established facts in the course of the audit. This report must be completed and provided to the audited person within 14 days of the expiry of the time limit for carrying out the audit. It includes: the names of the employees who carried out the audit, the scope and period of the audit, as well as a detailed description of the tax and social security obligations or liabilities established.
After the audit report is served on the audited person, he has the right to express his objections to the established facts and conclusions within 14 daysfrom receiving the report. This period may be extended by a further month at the request of the audited person if he considers that the initial period is insufficient to prepare a reasoned reply.
The inventory revision actis issued by the NRA authorities after an analysis of the objections submitted by the audited person or after the expiry of the deadline for their submission, if such objections have not been submitted. The act establishes the final tax and insurance obligations of the audited person and is issued on the basis of an approved template, which includes all the mandatory elements provided for by law, including the grounds for its issuance and the regulatory part, which indicates the specific obligations and deadlines for their fulfillment.
In the event that the person or company does not agree with the content of the audit act, they have the right to appeal. The first step is the administrative appeal to the Appeals and Tax Insurance Practice Directorate of the National Revenue Agency. Once a decision has been made through the administrative route, if the person continues to be dissatisfied with the outcome, they can also proceed to appeal in court. This provides an opportunity to protect the rights of taxable persons and ensure their legal certainty.
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Within the framework of a tax audit or verification by the National Revenue Agency (NRA), a variety of evidence can be collected and analyzed to establish the correctness of the tax and social security obligations of the audited individuals. Art. 37of the Tax and Insurance Procedure Code (DOPC) specifies that evidence can be collected ex officio by the revenue authority or on the initiative of the audited person himself. All evidence is subject to objective judgment and analysis, which ensures a fair and unbiased approach to each case.
The audited person is obliged to provide all information, documents, papers, information carriers and other evidence that is relevant to the establishment of his rights and obligations. Art. 38emphasizes the obligation to store accounting and commercial information, as well as other documents important for taxation, for certain periods that vary depending on the type of documents.
Revenue authorities have the right to undertake actions to secure evidence, as stated in Art. 40. This may include inventory or seizure of documents, papers and other information carriers, as well as copying information from technical media. In the event that it is impossible to carry out these actions immediately, the revenue authority may seal the object or part of it where the evidence to be secured is located for a period of up to 48 hours.
Art. 42and Art. 43regulate the assistance that the revenue authorities may request from other state or municipal authorities, including the police, to carry out a search or seizure where there is evidence of concealment of facts and circumstances related to tax and social security legislation.
The appeal of actions to secure evidence is regulated in Art. 41, giving the audited persons the opportunity to appeal these actions within 14 days to the territorial director, who may reject the complaint or grant it by ordering the cessation of the contested actions.
These provisions provide a framework in which the rights of the audited persons are protected, while at the same time allowing the revenue authorities to collect the necessary evidence to establish tax and social security obligations.
The absence of documents in a tax audit can lead to significant consequences for the audited company or person, especially when it comes to estimates related to misspent funds for which there is no adequate documentary evidence. In the context of the inventory revision act and the general framework for the collection and assessment of evidence described in the previous answer, it is important to understand that revenue authorities have the right and obligation to collect all necessary evidencewhich support their findings on tax and social security obligations.
At lack of necessary documents, the revenue authorities may accept that the missing evidence does not exist and draw their conclusions on the basis of the evidence gathered to date, as set out in Art. 37from the Tax and Insurance Procedure Code (DOPC). This may lead to the issuance of an audit act, which establishes tax and social security contributions obligations based on the audit authority's assessment of the information and evidence available.
In addition, lack of documentscan serve as a basis for the revenue authorities to take actions to secure evidence, including an inventory and seizure of other available documents, papers or information carriers as described in Art. 40from DOPC. Such actions may have direct effects on the company's operational activities and impose additional administrative and operational burdens.
In the event that the revision act issued as a result of such an audit establishes tax obligations or criminal penalties as a result of failure to submit the necessary documents, the company or person has the right to appeal the actin the established order, as provided for in Art. 144and subsequent provisions of the DOPA. However, this does not exempt the company from the responsibility to provide the necessary evidence and documents that support its assertions about the correctness of its reporting operations and its tax obligations.
In every situation, the responsible and preventive management of accounting documentation and evidenceis key to avoiding negative consequences in a tax audit. The obligation to retain documents as described in Art. 38, serves as a reminder of the importance of good archiving and management of documentary evidence to support the financial and tax operations of the company.
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In Bulgaria there is no such concept as “initial balance on audit of a legal entity”. The starting balances in the various accounting accounts when audited by a legal entity reflect the financial position of the company at a certain starting date of a certain period for certain audited years. It indicates the amount of all assets and liabilities of the company for the relevant reporting period and serves as a starting point for analyzing the financial results and operations during the audited period. In the context of a tax audit, the initial balance is particularly important, since the accuracy and legality of the reported income, expenses, tax liabilities and insurance contributions for the relevant period depend on it.
When conducting a tax audit, the revenue authorities will analyze the initial balance to make sure that all financial transactions during the audited period are reflected correctly and in accordance with accounting and tax regulations. They will be interested in evidence that supports the starting balance, including primary accounting documents, accounting records, financial statements and other documents reflecting economic events in the company.
The starting balance is of key importance for assessing the accuracy of tax and social security taxation for the period of the audit. Any discrepancies or ambiguities in the opening balances may give rise to additional questions on the part of the auditors and require the provision of additional evidence or explanations by the company. Therefore, it is extremely important for legal entities to maintain accurate and well-organized accounting records that allow easy verification of opening and closing balances, as well as all financial transactions carried out during the relevant period.
In summary, the initial balance in the audit of a legal entity is a fundamental element that provides the basis for analyzing the financial condition and operations of the company during the audited period. It helps both the legal entity and the revenue authorities to establish the correct tax and social security taxation and to ensure compliance with the relevant regulatory requirements.
Appealing an audit act and defending yourself in the tax audit process are critical steps in which it is essential to have professional support and expertise. Elan Consulting offers full assistance in this process, working hand in hand with leading law firms andtax lawyersto ensure the most effective protection of the interests of its customers.
The appeal of an audit act begins with an administrative appeal within 14 days of receipt of the act, with the initially audited/audited company turning to the Directorate “Appeal and Tax Insurance Practice” at the National Revenue Agency (NRA). In this process, the complaint must include all relevant evidence and state exactly what the applicant's request consists of. Elan Consulting assists its clients in collecting the necessary documentation and formulating the arguments for appeal.
Elan Consulting can help its clients file a request for suspension of the execution of the audit act, which is especially important to prevent undesirable financial consequences while the appeal process is ongoing. This requires appropriate collateral and can be carried out both at the administrative and judicial levels.
If the administrative appeal does not bring the desired result, the next step is a court appeal. Elan Consulting in close cooperation with leading tax lawyers will prepare and submit the complaint to the court, making sure that all procedural and substantive requirements are met. Support through this process is critical to ensuring the best possible outcome for the client.
Elan Consulting plays a key role in the appeal process by providing:
Cooperation with Elan Consulting provides a significant advantage in the process of appealing audit acts, maximizing the chances of a successful outcome and minimizing potential stress and uncertainty for the business.
Appealing a revision act in court is a critical step that enables those affected by tax authorities' decisions to seek justice and legal redress. A key element in this process is filing a complaint with the relevant administrative courtwithin a strictly defined period, usually 14 days from the receipt of the decision by administrative order. This appeal must be carefully prepared and include all the necessary elements, such as the identification of the complainant, a detailed statement of the grounds for the complaint and the application of relevant evidence supporting those grounds.
IMPORTANT! The Revision Act cannot be appealed in court in the part where it is not appealed administratively. In addition, the revision act cannot be appealed in court to the extent that the appeal is fully upheld by the decision.
This means, in practice, that the correct statement of the arguments already in the administrative appeal is of paramount importance, since any arguments and arguments that were NOT set out in it may not be considered by the court at all!
It is important to emphasize the importance of suspending the implementation of the audit actwhich may be requested by the applicant. In order for such a request to be granted, it is necessary to provide adequate security to ensure the potential financial consequences for the State in the event that the revision act is subsequently confirmed. Suspension of execution prevents the possibility of irreparable damage in the period until the final resolution of the dispute.
The process of consideration of the appeal by the court is the next critical phase. The Administrative Court analyses the appeal in the context of the evidence and arguments presentedand may also admit new evidence which has not been submitted during the administrative procedure. The court decision can be varied — from complete or partial annulment of the revision act, to amendment of the contested part or complete rejection of the appeal.
It is especially important to understand that the costs of the case and the award of the lawyer's remuneration are determined in accordance with the approved part of the application. This means that a successful appeal can lead to reimbursement of the costs incurred for the defence, which adds an additional dimension to the strategic planning and decision-making by the complainants.
In conclusion, the process of appealing a revision act in court is complex and requires careful attention to detail and strict adherence to procedural deadlines and rules. In this context, professional support from specialists in the field of tax lawcan be crucial for the successful conduct of the appeal and the protection of the rights and interests of the persons concerned.
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