Place of performance of the acquisition of goods and follow-up sale of the goods

When goods do not arrive and their transportation does not end on the territory of Bulgaria, the Bulgarian company – a buyer, shall not be entitled to a tax credit.

Question: A Bulgarian company, holding a registration under the VAT Act only in Bulgaria, acquires goods in Greece and organises their export from Greece to Turkey, where the goods are transported from Greece to Turkey. The Greek vendor has issued ab invoice for an Intra-European Union supply of goods for the sale to the Bulgarian company, which has been declared in the VIES return of the relevant period.

Which is the place performance of the acquisition of goods and the follow-up sale of the goods to the Turkish company?

Answer: On the grounds of Article 62, paragraph 2, of Value Added Tax (VATA), the place of transaction shall be in Bulgaria, despite the fact the goods never arrive in the country. The Bulgarian company shall self-charge VAT rate with a memorandum under Article 117 of VATA, which must be reflected in the sales journal. Regarding this question, there is a practice adopted by the National Revenue Agency, a Letter with Outgoing reference No 24-39-65 of 18 December 2015 and a Letter with Outgoing reference No 24-33-151 of 1 March 2012, which makes a specific provision that for any Intra-European Union supply of goods, when goods do not arrive and their transportation does not end on the territory of the country, the Bulgarian company – a buyer, shall not be entitled to a tax credit. The argument provided in support of the statement why no right of tax credit arises in this case is that in this scheme of supplies the goods are not used for making taxable supplies in Bulgaria or EU, because they have been exported to a third country. The letters stipulate that in the case of trans-border transactions, which are of a more complex nature and where the opportunity to exercise fiscal control of member states and the taxation of the actual final supply are made difficult, the provisions of Article 62, paragraph 2, of VATA have the role of a “protective net”, ensuring the operation of the VAT mechanism, by eliminating the possibility that the end use of goods or services is not charged with tax, where for the charging of tax in case of an Intra-European Union supply of goods, on the grounds of the bylaw mentioned above, no deduction of tax credit shall be done in view of judgments by the Court of Justice of the European Union on similar cases – associated cases Facet, C-536/08 and C-539/08 of 22 April 2010.

Regarding the follow-up sale of the goods to Turkey, it should be pointed out that this is not a case of export to Turkey within the meaning of Article 28 of VATA, because the goods do not leave from Bulgaria to Turkey. This supply from the Bulgarian company to the Turkish company is a supply with a place of transaction in Greece because it is there that the transportation of the goods begins (Article 17, paragraph 2 of VATA, analogous to Article 32 of Directive 2016/112/EC). No VAT is charged for this supply on the grounds of Article 86, paragraph 3, of VATA, because the place of transaction of this supply is outside the territory of Bulgaria, but the Bulgarian company should be familiar with Greek legislation due to the fact that this export most likely forms a turnover for registration under VAT in Greece.

In this case, if the Bulgarian company is registered under VAT Act in Greece, the Greek company – a supplier, will charge Greek VAT by issuing an invoice with the Greek VAT number, and for the export of the goods from Greece to Turkey, the Greek VAT number of the Bulgarian company shall be entitled to deduction of the charged Greek VAT.