VIRTEU National Workshop - Bulgaria

VIRTEU
NATIONAL WORKSHOP
Bulgaria

On the 29th of June 2021, it was held the VIRTEU National Workshop, which focused on Bulgaria.

During the workshop, and through a series of questions, several experts were called upon to provide critical evaluations based on their professional experience about the relation between tax crimes and corruption. The discussion aimed at shedding light on systemic weaknesses within the context of contrasting such criminal phenomena from a legal and practical perspective.

Organization and Moderation:

• Dr. Costantino Grasso

Associate Professor in Business and Law at Manchester Law School
VIRTEU Principal Investigator

• Dr. Lorenzo Pasculli

Associate Head for Research at Coventry Law School
VIRTEU Co-lnvestigator

The video recordings of the event are available below.

Suggested Citation

APA: [Speaker's surname, initial(s)] (2021, June 29). VIRTEU National Workshop - Bulgaria, Session [1 or 2]. Video recording at [00:00]. Retrieved from https://www.corporatecrime.co.uk/virteu-workshop-bulgaria

HARVARD: [Speaker's surname, initial(s)] (2021) VIRTEU National Workshop - Bulgaria, Session [1 or 2] [Online]. Video recording at [00:00]. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria

OSCOLA: [Speaker's name and surname] ‘VIRTEU National Workshop - Bulgaria’, Session [1 or 2] (Corporate Crime Observatory, 29 June 2021), Video recording at [00:00], <https://www.corporatecrime.co.uk/virteu-workshop-bulgaria>

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National Experts:

• Vera Denizova
Journalist at Capital Weekly
• Bistra Nikolova
Chief Assistant Professor at University of Economics - Varna
• Petar Tsankov
State Revenue Expert at the National Revenue Agency

Project Experts:

• Daniela Mineva
Senior Analyst at the Center for the Study of Democracy

• Ruslan Stefanov
VIRTEU National Expert for Bulgaria, and Director of the Economic Program at the Center for the Study of Democracy

• Kristina Tsabala
Intern at the Center for the Study of Democracy

• Sanni Tiusanes
Intern at Director of the Economic Program at the Center for the Study of Democracy

• Dr. Donato Vozza
Lecturer in Criminal Law at the University of Roehampton

VIRTEU NATIONAL WORKSHOP - BULGARIA - SESSION 1

The first session of the workshop was devoted to the exploration of the following topics:

• The phenomenon of tax crimes;

• The complexity of the legal system and adequacy of the legal definitions;

• The potential deficiencies of the legal system;

• The sectoral vulnerabilities to fraud and corruption in the area of taxation.

Interactive Table of Contents

Welcome and Introduction: Dr. Costantino Grasso
Topic 1: The phenomenon of tax crime in Bulgaria
Topic 2: National and Transnational tax crime practices
Topic 4: Complexity of the Bulgarian taxation system
Topic 5: Complexity and adequacy of Bulgarian criminal law
Topic 6: Actions against tax crimes
Topic 7: Suspicious Activity Reports (SARs)
Topic 8: Effectiveness and deterrence of enforcement
Topic 9: Sectors most vulnerable to tax crimes

Select Opinions and Arguments

The Bulgarian legal system adopts a restrictive approach to the criminalization of tax crimes. From the analysis of Chapter 7 of the Penal Code - Crimes Against the Financial, Tax and Insurance Systems - it emerges that it is a crime only where not declared taxes are not paid whereas it is not criminalized the conduct of who declares a tax but does not pay it [see article 255] (Nikolova, 2021).

Suggested citation: Nikolova, Bistra (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 13:50. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

The problem lies in how criminal law is applied in practice. There is an insufficient level of communication between authorities, there are a lot of restrictions in relation to the exchange of information. In particular, this affects the disclosure of tax information to prosecuting authorities. For instance, only the Chief Prosecutor of Bulgaria can access directly tax information whereas if an ordinary prosecutor would like to start an investigation in the area of tax crime he or she has to be authorized by the court to get relevant tax information. On many occasions, the prosecutors, who are not familiar with the tax system, do not even know what exactly they have to ask for. This impasse can be solved only where the tax administration is proactive and sends this information to the prosecutor's office spontaneously (Tsankov, 2021).

Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 15:52. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

Due to the complexity of tax law, the absence of prosecutors specialized in tax crimes is another relevant problem in Bulgaria (Tsankov, 2021).

Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 19:40. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

From the experience gathered by the tax administration, the most perpetrated tax crimes are MTIC/VAT frauds (Tsankov, 2021).

Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 22:55. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

In the Bulgarian penal code, there is no general definition of tax fraud but only the description of specific fraudulent conducts such as submitting false tax returns. The absence of a general definition of tax fraud may do not allow the system to capture all relevant criminal practices in the area of taxation (Nikolova, 2021).

Suggested citation: Nikolova, Bistra (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 40:39. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

In order to fill the knowledge gap, tax authorities, which have the best knowledge of the taxation system, should play an active role in anti-tax crime criminal investigations (Tsankov, 2021).

Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 47:56. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria. See also Session 2: Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 53:27. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

From the perspective of media, the most interesting cases are the ones that involve the use of a straw man in order to hide corrupt practices or the participation of politicians (Denizova, 2021).

Suggested citation: Denizova, Vera (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 49:55. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

The adoption of Ordinance No. H-18 of 2006 (later amended), which imposed requirements for the software management for the persons who make sales through e-shops, is a perfect example of a too complex to-comply-with regulation that business operators strongly opposed (Denizova, 2021).

Suggested citation: Denizova, Vera (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 51:09. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

The introduction of tax reductions could give rise potential tax fraud scenarios. For instance, the introduction in Bulgaria of a COVID-19 measure that reduced the VAT tax to 9% for hotel, restaurants, and entertainment facilities increased the risk of misrepresentation of other trade activities in a way that it seems they fall into those categories, this also because of the vagueness of the criteria used to distinguish between different types of business operations (Mineva, 2021).

Suggested citation: Mineva, Daniela (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 1:10:22. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

Reports of suspicious activities are sometimes sent by tax authorities to prosecuting authorities instrumentally to allow the former to stop working on the related issues when the office is overloaded with cases (Tsankov, 2021).

Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 1 [Online]. Video recording at 1:13:52. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

VIRTEU NATIONAL WORKSHOP - BULGARIA - SESSION 2

The second session of the workshop offered a special focus on the following topics:

• The role of professionals as enablers of economic crime;

• Institutional corruption and undue influence on the political decision-making process;

• Effectiveness and limits of investigative powers and anti-tax crime/corruption strategies;

• Attribution of corporate criminal liability and settlement procedures;

• The relevance of whistleblowing and whistleblowers protection.

Interactive Table of Contents

Topic 1: Enablers and facilitators of tax crimes
Topic 2: Undue influence on the administrative process
Topic 3: Undue influence on the political process

Topic 4: Revolving Door Phenomenon
Topic 5: Case Overview (Ruslan Stefanov)
Topic 6: Adequacy of investigative powers and resources
Topic 7: Liability of legal entities for tax crimes
Topic 8: The role of whistleblowers in fighting tax crimes

Topic 9: Supranational check and the role of EPPO

Select Opinions and Arguments

Due to their knowledge of tax law and tax mechanisms, accountants and lawyers are the professionals most likely involved in fraudulent tax schemes. They provide advice to the organizers of tax fraud schemes. In particular, the role of accountants is fundamental. Without them, it would be not even possible for the organizers to assess the profitability of a tax evasion scheme. The involvement of accountants is absolutely necessary to develop such schemes. Although their intervention is not necessary in all cases, the role played by lawyers is important where the schemes become more complex and there is the need to evaluate the legal relationships between the various perpetrators and involved legal entities (Tsankov, 2021).
Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 4:25. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

External auditors can also play a relevant role in tax evasion cases in that, on the one hand, they may give advice to the perpetrators and, on the other, they may turn a blind eye to the perpetration of tax evasion schemes (Nikolova, 2021).

Suggested citation: Nikolova, Bistra (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 8:42. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

Although it is not necessary to have the support of the tax administration to design and activate a tax evasion scheme, it is easier to perpetrate these crimes where you have the support of someone inside the tax administration. Although there are not so frequent, there are cases of "rotten" administration where clear cases of tax fraud emerged but they were not investigated (Tsankov, 2021).
Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 10:38. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

Undue political influence exerted on tax authorities can be considered as the most relevant cause of administrative power's deviation from
public interests. This political influence is commonly exerted by external politicians, who are not part of the administration, at both the local and central government levels (Tsankov, 2021).
Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 13:54. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

There is no established practice of investigating and applying criminal or even disciplinary sanctions to professionals, who act as enablers of financial crime (Nikolova, 2021).

Suggested citation: Nikolova, Bistra (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 18:09. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

Unethical lobbying practices are very difficult to be identified because the related deals are almost always shrouded in secrecy. However, a case that emerged during the pandemic is represented by the pressure exerted by the entrepreneurs operating in the restaurant and food service industry that obtained, also thanks to their close connection with politicians, a reduction of the VAT applicable to their business operations (Denizova, 2021).

Suggested citation: Denizova, Vera (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 20:29. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

In Bulgaria, oligarchs represent the most relevant group who exerts undue unethical pressure on the administrative process, not only in relation to the tax administration but also with respect to the functioning of the justice system (Nikolova, 2021).

Suggested citation: Nikolova, Bistra (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 22:54 . Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

The elite may use its power and wealth to unfairly distort the tax administration's activities in two ways: on the one hand, to avoid tax inspectors' controls on the aligned firms; and, on the other, to let the tax administration focus their investigative efforts on competitors so to cause trouble for their business operations. As a result, it is in the interest of the powerful to have an effective tax administration, which could be manipulated according to their private purposes (Tsankov, 2021).
Suggested citation: Tsankov, Petar (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 25:51. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

The interconnections between fraudulent and corrupt practices involving the public administration is a very sensitive topic and it is very difficult to speak freely about it (Stefanov, 2021).
Suggested citation: Stefanov, Ruslan (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 36:09. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

In general, judicial intervention against corrupt practices in Bulgaria appears inadequate. In any given year there are around 200/220 cases of corruption that are investigated and they usually do not lead to the imposition of an effective sanction. "This gives you an idea of how hidden the issue is" (Stefanov, 2021).
Suggested citation: Stefanov, Ruslan (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 37:24. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

Corrupt and fraudulent practices are particularly relevant in the VAT area. Bulgaria is an "indirect taxation" country and VAT is the most relevant source of budget. As a result, there are two opposing forces: on the one hand, politicians and tax administration push for increasing compliance with the payment of VAT; on the other, the ones that manage to evade VAT obtain great competitive advantages. In particular, this advantage is even greater where the evasion of VAT is combined with the evasion of other taxes such as the excise duties (e.g., in relation to cigarettes and fuel) (Stefanov, 2021).
Suggested citation: Stefanov, Ruslan (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 37:55. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

In Bulgaria, it has been adopted a piece of legislation that does not allow individuals to report cases of corruption to the authorities in an anonymous way. Due to the generalized mistrust that people have of institutions, this discourages greatly whistleblowing and other forms of reporting because the potential reporting persons think the public authorities will share their identity with the accused individuals or organizations and, consequently, suffer retaliation (Denizova and Stefanov, 2021).
Suggested citation: Denizova, Vera, and Stefanov, Ruslan (2021) VIRTEU National Workshop - Bulgaria, Session 2 [Online]. Video recording at 1:03:22. Available at: https://www.corporatecrime.co.uk/virteu-workshop-bulgaria.

VIRTEU NATIONAL WORKSHOP Bulgaria

VIRTEU
NATIONAL WORKSHOP
Bulgaria