Ombudsman found wrongly charged VAT in the balancing bills for heating in Sofia

Bulgaria’s Ombudsman Diana Kovacheva on August 24 sent a recommendation to the new Executive Director of the National Revenue Agency Boris Mikhailov, in which she asked for an inspection of all heating companies in the country to check whether they apply the reduced VAT rate of 9% for the balancing invoices for the heating season 2021-2022.

As it is known, the Parliament voted to approve reduced VAT for central heating from 20% to 9% as of 9 July 2022. The reason for the ombudsman's recommendation is the numerous complaints and signals from members of the public against the high balancing bills for heating energy invoiced by the largest company in the sector - "Toplofika Sofia" EAD.(Sofia District Heating).

Prof. Kovacheva draws attention to the fact that a large number of the balancing invoices have a "Date of issue/Date of tax event" of 31 July 2022, as they are issued on the basis of the balancing bills for the period prepared by the heat accountants, by 15 July 2022.

"A review of the balancing bills provided by the membersof the public and issued by Sofia District Heating EAD shows that as of 31.07.2022, the heating company charges the standard rate of 20% of value added tax (VAT) for heating energy instead of the reduced rate of 9% effective from 9 July.2022, pursuant to § 15e, para. 2, item 1 of the Transitional and Final Provisions of the VAT Act, adopted by the Law on Amendment and Supplement to the State Budget Act of the Republic of Bulgaria for 2022 (promulgated - SG 52/05.07.2022)", writes prof. Kovacheva.

Due to the fact that the largest heating company in the country has applied a 20% VAT rate for balancing bills issued after 9 July 2022 in violation of the VAT Act, the public defender insists that the NRA's inspection should also cover all other heating companies.

"Since § 15e, para 2, item 2 of the Transitional and Final Provisions of the VAT Act also concerns the taxation of natural gas supplies at the lower tax rate of 9%, I believe it is imperative that the inspection also cover the application of this legal provision by the gas supply companies," Diana Kovacheva is adamant.

Kovacheva pointed out that the reduction of the VAT rate for the supply of district heating and natural gas is an anti-crisis measure against their unprecedented rise in price, which is evident from the transcripts of the meetings of the Parliamentary Budget and Finance Committee, Energy Committee, Economic Policy and Innovation Committee and others.

The Ombudsman adds that on the practical application of § 15e of the Transitional and Final Provisions of the VAT Act, a Guideline was issued on 15 July 2022 by former Deputy Prime Minister for EU Funds and Minister of Finance, Assen Vassilev, with which heating companies should be familiar.

Kovacheva stresses that under the VAT Act, in the case of a supply with periodic or continuous performance, each period for which payment is agreed is considered a separate supply and the taxable event for it occurs on the date on which the payment became due (Article 25(4)).

She pointed out that on the date on which the taxable event occurs, the tax registrant is liable to charge VAT (Article 25(6)(1)).

"In this regard, my opinion, as a defender of the rights and interests of the public, is that the charging of a VAT rate of 20% instead of the reduced rate of 9% by Sofia District Heating company on the balancing bills invoiced as at 31 July 2022 is unlawful and significantly harms the company's customers," concludes Diana Kovacheva.

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