Corporation Tax for Companies Over 5 yrs?

We don't like them but we gotta pay them! How does it work in Bulgaria?

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BG9374

Postby BG9374 » Wed Sep 21, 2011 5:55 pm

Point I think the advertisement has grasped is tha if you cannot prove the funds to be a loan, then they are taken as income.

The above seems reasonable and sure in UK if you gave a company money you would have to provide evidence of a loan and that is from documentation.

Guess what this accountant has latched onto is that if no paperwork exists then the BG revenue services then take the income to be income.

Somewhere within BG law their has to be written rule, the five year rule must be in writing. If accountant cannot produce the paperwork of rule of law, then there is a scam. The loan should be recognized within year one of the accounts.

Mere have a meeting with accountant and ask them to "Prove it" and when they cannot walk away.

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Slaphead
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Postby Slaphead » Wed Sep 21, 2011 7:31 pm

As a 'let's panic the Brits again' ditty by a law company who probably need a bit of dosh to improve their balance sheet, this one is quite clever.
Ignore it. It'll go away.

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gimlet
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Postby gimlet » Wed Sep 21, 2011 8:46 pm

What Tomovski is saying is that after 5 years some sort of limitation period becomes effective and the debt is no longer recoverable from the company at law. So the company has made a taxable gain. That is plausible.

What the Wig is saying is that Tomovski's argument is tosh and that debt financing is not subject to any period of limitation during the term of the agreement. That seems likely, otherwise all creditors would pile in shortly before 5 years to get their money back before their right of recovery was barred. In the real world a lot of debt is longer term than 5 years.

But if the debt was not documented Tomowksi's argument might be stronger.

If Bulgaria were UK, which of course it isn't, a simple acknowledgment by the company debtor would start a limitation period running again.

If that wasn't enough in Bulgaria maybe you could have a paper agreement paying back the loan and readvancing it.

In my experience most Bulgarian accountants probably don't show debt finance in their balance sheets. Maybe that's Tomovski's experience as well! Opening capital is different.

Definitely a case for taking accountancy and legal advice.

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gimlet
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Postby gimlet » Wed Sep 21, 2011 8:51 pm

Sorry, Mr. Tomovski, on re-reading your article I see that you say that this transformation of debt into income takes place even if the debt is documented and that it cannot be re-scheduled. If true, that creates a bigger problem.

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gimlet
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Postby gimlet » Wed Sep 21, 2011 10:23 pm

I think this might relate to Art 46 of the Corporation Tax Act:-

Article 46. (1) (Amended, SG No. 110/2007) Upon determination of the tax financial result, the accounting financial result shall be credited with the amount of the debts of the taxable person, and the said crediting shall be effected in the year in which one of the following circumstances occurs:
1. the debts are extinguished by prescription, but not more than five years after the time when the debt became exigible
....................


Any comments on that, Advocate Wig?

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booboo
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Postby booboo » Thu Sep 22, 2011 5:36 am

gimlet wrote:I think this might relate to Art 46 of the Corporation Tax Act:-

Article 46. (1) (Amended, SG No. 110/2007) Upon determination of the tax financial result, the accounting financial result shall be credited with the amount of the debts of the taxable person, and the said crediting shall be effected in the year in which one of the following circumstances occurs:
1. the debts are extinguished by prescription, but not more than five years after the time when the debt became exigible
....................


Any comments on that, Advocate Wig?


Two brief comments from me, first the meaning of exigible which I am sure you know...

EXIGIBLE. That which may be exacted demandable; requirable.

IS the date in which the 'loan' is made the date it becomes demandable? Or could this be argued to be, lets say you allowed your company 10 years to repay you, then if after 10 years it has not paid (the demandable date if you like) then 5 years later (15 in all) it becomes an accountable credit? What you think?

Secondly I noticed the article 46 is listed as amended 110/2007. That would suggest 110th day of 2007 to me. Question is, what did it read before and is this only relevant for companies formed from roughly april 2007?

:roll: :roll:

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booboo
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Postby booboo » Thu Sep 22, 2011 5:46 am



I could be being dim here, more than possible however I don't totally get this bit.. from the link

'EXAMPLE: The companies who have bought property in 2005 and don’t have any activity, don’t have the right to reschedule the obligations for a longer period, so in 2012 they will have to pay 10% income tax on the transformed income under condition that they haven’t done the necessary legal actions in their company documentation.'

Surely that would be 2010?

EDIT: It would be useful if someone had a copy of the art 46 before the amendment, however reading between the lines, it seems the revised art 46 was enforced from 01/01/08. (Perhaps this is the main part that changed in the amendment - or perhaps added from nothing rather than amended - dare I say to screw expats!!) That would therefore mean 2012 as above. This is seeming pretty real now, rather than just something that might go away!!

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Postby booboo » Thu Sep 22, 2011 6:32 am

gimlet wrote:I think this might relate to Art 46 of the Corporation Tax Act:-

Article 46. (1) (Amended, SG No. 110/2007) Upon determination of the tax financial result, the accounting financial result shall be credited with the amount of the debts of the taxable person, and the said crediting shall be effected in the year in which one of the following circumstances occurs:
1. the debts are extinguished by prescription, but not more than five years after the time when the debt became exigible
....................


Any comments on that, Advocate Wig?


So to clarify my edit on the immediately preceding post, COULD it be that "1. the debts are extinguished by prescription, but not more than five years after the time when the debt became exigible" is a complete NEW entry in Art 46 (which came into force 01/01/2008) meaning we now have to act on this whether you have had your company 20 years, 10 years or merely 4 and half?[/b]

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Postby Milka » Thu Sep 22, 2011 7:53 am

If I understand what's being said here...

...having formed a company in 2005; we as shareholders paid BGL 5,000 into the bank for our shares and (say) paid BGL 15,000 for a property with us as directors 'loaning' the company the extra BGL 10,000 needed...

...and because the company hasn't repaid us (the directors) our BGL 10,000 it's about to become taxable...

How is a non-trading company expected to pay the tax without the directors increasing their loan to the company, and will this additional amount then become taxable at a future date? It doesn't make sense to me.

Edited to add:

In a situation where a trading company buys something on credit and subsequently doesn't pay for it, the purchase reduces profits chargeable to corporation tax. Having a time limit for the outstanding payment to be paid otherwise it gets written back and the corproation tax falls due makes sense; we have something similar in the UK with claiming input VAT. Could the legislation be covering this scenario?

M
Last edited by Milka on Thu Sep 22, 2011 10:00 am, edited 1 time in total.

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kazz
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Postby kazz » Thu Sep 22, 2011 9:06 am

Even if there is something in this, (apart from an attempt to scare us silly :) )
I think the part to focus on at this stage is;

There are legal options to avoid such problem, but you will need the assistance of qualified person, who can clarify you what actions to take, what procedures should be carried out and how to avoid such kind of a situation, when only because of lack of information as owner of a company you would pay high taxes and fines.

I still think that any competent accountant should be aware of this issue and should have taken the necessary steps.
I'm awaiting an answer from our accountant....if a few days I hope to have more information....or if not watch the soap box for a rant!!


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