International transportation - expenses under the Corporate Income Tax Act (CITA) and documentary coverage under the VAT Act
A Single Person Limited Liability Company provides international transport of goods in the EU. This company has no employees. The owner of the company carries shipments himself and is insured as a self-employed person.
The following questions arise:
1. Does the owner have right of travel expenses and are they recognized as expenses?
2. Are the costs of purchased fuel, lubricants, fee-vignettes, tolls and tax due in the relevant country in relation to transportation, recognized for tax purposes?
3. Do invoices for refuelling in the EU, for which value added tax is paid and the invoices are not with zero rate, have to be entered in the records of purchases and sales?
On question 1:
The provision of Art. 2, para. 1 of the Ordinance on Business Тrips and Specializations Abroad determines that business trip abroad is sending persons to perform a specific job task abroad by order of the posting authority. Posted workers or employees are paid compensation for additional costs related to the trip - travel and subsistence allowance. Their purpose is to reimburse the employee for the financial costs connected to his/her travel and stay in another place, outside the country. With regard of drivers in international road transport, in accordance with Art. 32, para. 1 of Ordinance on Business Тrips and Specializations Abroad, the unified rate of the due allowance money is connected to mileage and other specific indicators based on the Ordinance of the head of the enterprise.
According to Art. 33, para. 1 of CITA accounting expenses for travel and stay of individuals are recognized for tax purposes when all of the following conditions are met simultaneously:
- travel and stay expenses are implemented in connection with the activities of the taxable person,
- are expenditures on travel and stay of individuals who are in labour relations with the taxable person, or
- are expenditures on travel and stay of individuals who are employed by the company in non-labour relations, including managers, members of management or supervisory bodies of the taxable person.
The legal grounds indicated determine that the expenditures on travel and stay of an individual in the country and abroad will be recognized only if there is a contractual relationship in connection with the activities of the enterprise.
If there are no relationships between the company and the partner, one of the conditions specified in Art. 33, para. 1 of CITA will not be met. Upon failure to meet one of the requirements above, the provisions of Art. 33, para. 2 of CITA take effect, and under them the accounting expenses for travel and stay of partners, when they travel and stay in such a capacity, are not recognized for tax purposes.
So that the costs associated with the operation /fuel, lubricants/ and movement of vehicle can be recognized, their actual use for the company’s activities should be demonstrated. Documenting and accounting the costs specified in the question should be carried out in strict compliance with the Accounting Act /AA/ and the applicable accounting standard /AS/ 2 "Valuation of Inventories".
Basic accounting principle is documentary substantiation of operations /Art. 4, para. 3 AA/, which is connected to the types of documents substantiating accounting of expenditures in connection with international transport. Requirements for the requisites of the primary accounting document are regulated in detail in Art. 7 of AA. This Act has a territorial scope of action and its provisions are mandatory in cases where the compiler of documents is a Bulgarian enterprise.
However, this does not eliminate the need for primary documents proving refueling or use of a service /vignette, motorway toll, etc/, which contain enough information on the name of the document, identifiers of the company issuing the document, the subject of purchase, quantity, unit price, total cost and others. Current effective regulations of Art. 7 of BAA do not specify the type of the primary accounting document, but require that it reflects a true business transaction. The requirement of Art. 10, para. 1 of CITA is the same. Under this rule, the accounting expense is recognized for tax purposes when supported by an accounting source document within the meaning of AA, reflecting truly the business transaction. According to Art. 10, para. 2 CITA, documentary substantiation of a business transaction is also present provided that the missing information under AA may be supported by other documents certifying it.
Ordinances for business trips, waybills, travel books, contracts with foreign counterparties, correspondence, bills of lading, customs declarations and other documents certifying the employment of the vehicle in the pursuit of business of the company and the purpose for which it was used. Otherwise costs will not be documentally substantiated and will not be recognized for tax purposes.
Accounting costs which are not substantiated by documents are not recognized for tax purposes and an this results in increase in the accounting financial result under Art. 26 item 2 of the CITA.
In connection with the invoices charging VAT received in other countries for the purchase of fuel, the following should be considered:
According to Art. 124, para. 4 of the VAT Act, the registered person is obligated to enter the tax documents received by it in the records on purchase no later than the twelfth tax period following the tax period in which they were issued, but no later than the last tax period under Art. 72, para. 1 of the Act /amendments to the VAT Act, effective since 01 Jan 2010/.
As per the text of Art. 112, para. 1, item 1 of the VAT Act, tax documents are invoices issued under this Act /applicable in the country/. Pursuant to Art. 125, para. 1 of the Act, for you as recipient, there is no obligation to enter the received documents /invoices/ issued by suppliers from other countries, for these supplies in the records on purchases, respectively in the VAT declaration, which is drawn on the basis of the accounting registers under Art. 124. Although there is no requirement that such documents shall be entered, if you wish, the received invoices can be entered in the records on purchase in column 9 - "Taxable base and tax on received supplies without right of tax credit."
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