CJEU's “Bad Debts” Judgment Prompts Rethink on VAT Refunds in Bulgaria
On February 29, the Court of Justice of the European Union (CJEU) delivered a landmark judgment regarding VAT refunds on bad debts in Bulgaria, potentially reshaping VAT refund practices for periods before 2023. The 2024 CJEU judgment clarified that suppliers could adjust their tax base and claim VAT refunds on uncollected debts without having issued a credit note or notifying the debtor.
Background and legal developments
Previously, securing VAT refunds on "bad" debts could be challenging, both in Bulgaria and the wider EU. Until amendments in 2023 to Bulgaria’s VAT Act of 2006, the legal framework lacked clarity on handling VAT on uncollected payments. The landmark CJEU case from 2018 resulted in the amendment of the VAT Act, which now includes a mechanism for VAT refunds when the consideration for a supply is uncollected.
Before this, Bulgarian tax authorities and courts frequently rejected VAT refund claims on procedural grounds, like the absence of a credit note, creating barriers for suppliers.
Implications of the 2024 CJEU judgment
This judgment broadens the scope for claiming VAT refunds by not strictly requiring a credit note. This will open up refund opportunities for businesses previously denied on these grounds. The decision also has implications for ongoing tax disputes and unclaimed VAT refunds. It could lead to claims for state compensation by businesses negatively impacted by prior national decisions that imposed stringent conditions for VAT refunds, contrary to EU law.
