The team of Georgiev, Todorov & Co. Law Offices is constantly monitoring the measures to deal with the economic consequences of the coronavirus pandemic in the country. Our legal adviser Vili Datsov prepared detailed information in connection with the latest amendments to the Value Added Tax Act.
On June 19, 2020, the amendments to the Value Added Tax Act (VAT Act) were published in the State Gazette, which reduced the tax rate to 9% for part of the restaurant and catering services, as well as for certain supplies related to book publishing and baby food. The new rules are in force from July 1, 2020 and aim to support some of the areas which are most affected by the COVID-19 pandemic. On June 29, 2020, the National Revenue Agency (“NRA”) issued an “Opinion on the application of the reduced value added tax rate of nine percent, according to the provision of Art. 66, para. 2 ” (the ‘Opinion’), which is in line with the practice of the public authority to issue explanations and practical interpretations of tax issues of essential public importance.
The rate of 9 percent is not a novelty in the legislation, Art. 66, para. 2 of the VAT Act provided that 9% was taxed only on “accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and rental of places for camping sites or caravans”. The amendments in the same subparagraph create new cases for which the rate is now 9% instead of 20%.
- Restaurant and catering services
Art. 66, para. 2, item 3 of the VAT Act already stipulates that the rate is 9% for restaurant and catering services, consisting of food delivery.
The restaurant services are defined in item 62 of § 1 of the Additional Provisions of the VAT Act. They consist of the provision of food and / or beverages for consumption on the premises of the supplier, followed by sufficient support services to enable the immediate consumption. The definition of “Catering services” is in item 61 of § 1 of the Additional Provisions of the VAT Act. According to it, those services are ‘a set of characteristics and actions in which services predominate and in which the supply of food and / or beverages is only one component. The predominant services are mainly the same as restaurant services, but the delivery takes place outside the supplier’s premises. ‘These descriptions correspond to the case law of the Court of Justice of the European Union (“CJEU”).
1. Catering, restaurant service or ordinary delivery of goods / food?
Many situations that we perceive in life as a restaurant / catering service do not actually fall into the definitions and will continue to be taxed at 20%
According to the Opinion of NRA, if, after reviewing the VAT Act, we remain uncertain whether a particular supply is a restaurant, catering or ordinary food supply, we should look for the answer in EU law and especially in the practice of the CJEU, which states the criteria on the basis of which the supply of a service is distinguished from the supply of a good.
In order for food to be taxed at a rate of 9%, it must be accompanied by ancillary services, and these services must be the main thing that the customer seeks for.
Thus, according to Art. 6 of Council Implementing Regulation (EU) № 282/2011 for restaurant and catering services the supply of food and/or beverages for consumption is accompanied by sufficient ancillary services to be able to be consumed directly. The delivery of the food / drink itself is only one component of the whole service in which ancillary services play a greater role. The difference between the two types of services is that in the case of restaurant services the delivery is made in the restaurant of the supplier, and in the case of catering it is done outside the premises.
In Case C-231/94, the CJEU held that restaurant transactions were a fixed set in which the supply of food was only a part and in which services mainly dominated. It is different when the transaction is related to take-away and is not accompanied by services designed to support its consumption on the spot and in an appropriate setting.
The CJEU provides a number of guidelines in its judgment of Joined Cases C-497/09, C-499/09, C-501/09 and C-502/09. According to the latter, in restaurant services, the provision of ready-to-eat meals and drinks is conditioned by a number of services, such as providing premises, furniture and utensils, advising customers, explaining food and drink, communication between the waiter and the chef, preparing the dishes, serving them on a plate, providing utensils and their arrangement and after consumption the tables are cleaned.
When delivering food or meals for immediate consumption (in this case, the CJEU has specifically discussed providing them from stands, caravans or cinema lobbies), we must analyze the whole transaction and assess whether it is dominated by ancillary services. NRA’s website explicitly states that “The sale of food from a pavilion, shop or vending machine, as well as home deliveries, remain under the current 20% tax regime“. Subsequently, the opinion of the NRA confirmed this statement, arguing that in these cases the provision of food is not actually accompanied by other services.
2. How the assessment is made?
The NRA refers to the practice of the CJEU and points out that when assessing whether ancillary services dominate, we must take into account the point of view of the average consumer and make a comprehensive assessment of both quantitative and qualitative significance of the elements of comparison services with the elements related to the delivery of goods.
When services supporting the delivery and immediate consumption of food are absent or insignificant to the consumer’s purpose, we have only a simple delivery of goods.
3. Which is not a catering or restaurant service?
The legislator explicitly states in item 62 of § 1 of the Additional Provisions of the VAT Act hypotheses that do not constitute catering or restaurant services, namely:
– ordinary food delivery (e.g. home delivery from restaurants, supermarkets and the like)
– delivery of cooked food and the food delivery at home from restaurants;
– delivery consisting of the preparation and delivery of food and / or beverages without other ancillary service
The provision is in line with Implementing Regulation (EU) 282/2011, according to which the supply of food / beverages, whether or not transport is included but without any other ancillary services, is not considered to be a restaurant or catering service.
4. Practical cases
We should keep in mind that if we only order food to be delivered to us at a certain place (home or office), the rate will be 20%.
It will be the same when we visit a restaurant and wish to have the food prepared for us and packaged on the spot so that we can consume it outside or at home.
If we visit a shopping center and buy food to be consumed in the separate dining areas, the rate will be 9%, but if we tell the seller to pack it for us for takeaway, the rate will be 20%. The opinion of the NRA explicitly states the so-called Food Courts.
When we visit a cafe with a cozy atmosphere, sit down at a table and order coffee, which the waiter serves with a smile to us in a beautiful cup and then takes it from the table, the rate will be 9%. However, if we visit the same cafe and because we are in a hurry, we ask them to serve the coffee in a cardboard cup for takeaway, then the rate will be 20%
In its opinion, the NRA takes a principled attitude towards certain cases. For example, restaurant services are also available at self-service restaurants. Such services also exist when, after using ancillary services, we want the unconsumed part of our food to be packaged in order to take it out of the restaurant or from the place of consumption during catering.
At the same time, the NRA points out the sale of vending machines, mini bars, shops, including a warm shop window, for ordinary food delivery; on food from restaurant counters for consumption outside the premises of the restaurant (‘drive in’, ‘walk through’), or food served at a train or bus.
- Alcoholic beverages
Art. 66 of the VAT Act explicitly stipulates that the rate remains at 20% for restaurant and catering services for the supply of beer, wine and spirits, including in the case of ancillary delivery.
For the definition of “beer”, “wine” and “spirits” new items 98, 99 and 100 have been created in § 1 of the Additional Provisions of the VAT Act, which refer to the concepts in the VAT Act and the Wine and Spirits Act.
- Books and magazines
The VAT Act in Art. 66, para. 2, item 2 provides for a rate of 9% for the delivery of books on physical media and / or electronically (including textbooks, cognitive books and study sets, children’s books with illustrations, for drawing or coloring , printed or handwritten music editions).
The opinion of the NAR explicitly reminds that there is no legal definition for the word “book” and its interpretation must be based on its generally accepted meaning (argument Normative Acts Act and Decree No. 883). According to the NRA, in order to be able to distinguish a book from a magazine, we must proceed with the definitions in the Interpretive Dictionary and in the Dictionary of the Bulgarian Language, published on the official website of the Institute of Bulgarian Language of BAS.
The delivery of a book on physical media includes not only the traditional sale of a book that is printed on paper. Here it is important that the contents of the book are delivered on physical media, as it can be not only paper but also a cassette, disk, CD, DVD, CD-ROM, USB memory, etc.
The opinion accepts that there is no need for text in the book, arguing that the norm clearly states that the rate is 9% for children’s books with illustrations. The reduced rate also applies to audiobooks if their content is wholly or mainly audio and not musical.
It should be emphasized that the rate remains at 20% for publications that are wholly or mainly intended for advertising and posts that are wholly or mainly composed of video or audio-music content.
- Baby items and food
With the changes in the VAT Act an Appendix No. 4 to Art. 66, para. 2, items 4 and 5 were adopted. The delivery of the foods specified in it, suitable for babies or small children, as well as baby diapers and similar baby hygiene items, shall be taxed at 9 per cent.
In a number of public discussions, the representatives of the restaurant owners pointed out that the reduced rate will not improve the overall condition of the industry. The reason given is the fact that the sale of alcoholic beverages continues to be taxed at 20%, and most of the revenues of the establishments derive from them. Opinions were also shared that no reduction in prices is expected in the restaurant business.
We have yet to see exactly how the changes in VAT Act will affect business and society.
*This text does not constitute a legal advice and should not be taken into account in resolving legal disputes, but only to inform readers.
By Vili Datsov, Legal Advisor, Georgiev, Todorov & Co.