The dispute concerned the pricing of goods sold by Vitana 21 (VAT-registered) to related parties, which were then sold by those related parties (not VAT-registered) to end customers.
The authorities alleged that the pricing of the goods sold by Vitana 21 were below the arm’s length price and that the transactions resulted in lower taxable income and avoidance of VAT obligations. The tax base was recalculated by the authorities using the comparable uncontrolled price method.
On appeal the Administrative Court later largely upheld the assessment issued by the tax authorities.
An appeal was then filed with the Supreme Administrative Court.
Judgment
The Supreme Administrative Court dismissed the appeal of Vitana 21, confirming the decision of the Administrative Court.
The court held that the tax authorities had lawfully applied the special audit procedure, that the company had not disproved the market price analysis or justified its pricing structure, and that the lower court correctly amended the liabilities based on a revised expert report.
Excerpt in English
“The Administrative Court of Ruse correctly took into account that when applying the comparable uncontrolled price method, adjustments should be made in accordance with Article 11 of Regulation No. H-9 of 14 August 2006 in order to eliminate differences between the controlled and uncontrolled transactions. In this case, there was no long period of time between the controlled and uncontrolled transactions during which significant changes in economic conditions could be taken into account in accordance with Article 14(1) of Regulation No. H-9 of 14 August 2006. and in view of the requirement of Article 20(1) of the PPVAT, the market price must be determined on the date of the taxable event for the supply, i.e. at the time of transfer of ownership of the goods.
The cassation argument that sales to related companies are wholesale sales, where the market logic is to sell at lower prices, and that the market transactions being compared are for single items, which is not the same condition, is unfounded. There is no evidence in the case file as to whether and/or which sales are wholesale and retail, nor is there any information on discounts applied for the quantity of goods. In this regard, the conclusions of the revenue authorities regarding the absence of economic logic between the presence of related companies in the commercial chain between Vitana 21 Ltd. and the final independent customers have not been refuted. It is undisputed that K. S. carries out commercial activities through a number of registered companies and has the real possibility of selling to end customers without the intermediation of related companies.
Therefore, the overall assessment of the evidence supports the conclusion that the RA is lawful in the relevant part, which was also reached by the court of first instance. There are no grounds for annulment under Article 209(3) of the Administrative Procedure Code as alleged in the appeal, and the decision in the appealed part, being valid, admissible and correct, should be upheld.”
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