"For." и "against" the execution of a tax assessment transaction. In Bulgaria it is perfectly legal to conclude a purchase and sale transaction of a property at its tax valuation, which is always lower than the market valuation. What is actually illegal is to lie that you have sold/purchased the property at tax valuation, and to actually get/give more money. This is now considered tax fraud and you fall foul of the law because in most cases it is considered large scale tax evasion. The threshold amount for whether it would be considered large scale tax evasion is £3000. With current house prices, this is valid in most cases.
In addition to income evasion, the legislator has considered that this type of behaviour may also lead to non-payment of other types of taxes by companies, such as profit tax and VAT.
Transaction participants may also become vulnerable to sourcing, corruption, money laundering, influence peddling, etc.
The freshest and widely popular example in Bulgaria is the "Apartmentgate" affair from the end of the rule of one of the leading parties in the country, when its prominent functionaries were accused of having bought expensive and luxurious properties at prices many times lower than the market ones. Even one of the former attorneys general of the republic was involved in a similar deal, this time with land. Many of the people who were involved in "Apartmentgate" are actually lawyers themselves, and this means that they know that there are loopholes in the law that can get them out "dry" in case of complications of any kind. And apparently they were right- none of them received their rightful punishment under the law, which is imprisonment from 1 to 6 years or a fine of up to 2000 BGN. At least it hasn't been heard... Most likely because there are other loopholes in the laws that not everyone knows about and that some use. One of them is in the VAT Act, which allows the builder in certain circumstances to sell at cost of service, which in turn in property can fall below the tax valuation.
Important to know
"Apartmentgate" happened 10 years after an amendment was made to the Law on Notaries and Notarial Activity in 2011, according to which every notary must require both parties to the transaction to sign a declaration that this is the real price of the property transaction. Thus, a part of the participants in the purchase and sale of properties at tax valuation were introduced into another possible hypothesis of crime, namely the signing of a document with false content. The mass practice of concluding property transactions on tax assessment is related to saving sums that are not indifferent to most people because they are measured in thousands of leva.
Here are some examples. If you have to pay the full amount, the sum of municipal tax, notary fee and the fee for registration in the property register for a two-room panel apartment of old construction in Sofia with an approximate price of 100 000 euro, your cost will be about 7200 BGN. If you declare 100,000 BGN instead of 100,000 EUR, the cost for the same taxes and fees drops to approximately 4,000 BGN, which again is not small at all. However, if the tax valuation of the property is BGN 50,000 and you conclude the transaction for this amount, the taxes and fees payable will be just over BGN 2,000, which is manageable. There are now online calculators that allow you to get a good idea of the amounts due.
What is the difference between tax assessment and market price
The tax valuation is the legal minimum on which the notarial transaction fees are calculated and is the basis on which the tax due on the specific real estate is formed. In the rare case where the sale price of the property is below the tax assessment, the notarial fee is calculated on the higher amount. And the market price is the amount at which a transaction for the purchase and sale of a property can realistically be concluded.
What you earn if you pay everything
The short answer is: you save yourself future anger, problems and possible deal-breaking, with significant losses for you. Here are the cases in which this can happen.
Most risky situations are for the buyer of the property. Therefore, he should not agree lightly to a possible offer to notarize the transaction on a tax basis if such is offered to the seller on a cost-sharing basis. One of the most common threats are hidden creditors of the seller that come to light later, as well as unpaid debts to the tax authorities for example. These two circumstances are sufficient to void the transaction, where the buyer can only claim the price officially /documentally/ paid for the property. Thus, in practice, he may be left without a property and without a large part of his savings.
For the seller, there are also pitfalls. You never know who you will end up with, and an unscrupulous buyer could bank the money declared on the paperwork and "forget" to pay the rest. Thus, he would be fully documented and the seller would be helpless to protect his rights. This is a situation in which even the notary cannot help you, because he checks the documentation technically and legally and only requires the payment document. The verbal arrangements are left alone between the parties to the transaction.
Paying in cash also risks future problems. While Europe is considering a ban on cash payments above €10,000 for all member states, in our country the limit is still BGN 10,000. Fines, if you get caught, start from 25 % upwards. Think which case you will lose more- if you pay your taxes and fees, or pay on the amount illegally paid in cash? The question is rhetorical. And yet the overwhelming majority prefer to declare the transactions at tax valuation and save the money on taxes and fees.
How to protect yourself from potential problems in a tax assessment transaction
If your courage outweighs the real threats, there is a way to at least partially insure against future problems. One of these ways is to have the notary include liquidated damages in the purchase and sale agreement in case of future problems and credit and/or tax liabilities of the sellerthat would lead to the deal being off. Keep in mind, however, that whatever penalties are written into your contract, if it comes to that, it is the court that will decide exactly what penalties you get. He has the final say. So spit in your bosom and count to five... years- that's the time limit after which whatever liabilities arise, they have a statute of limitations.
The appearance of the seller's creditors is not the only case that can arise and lead to the transaction being cancelled. Problems also often arise when a sale is made by one spouse without the knowledge of the other (especially when mixed marriages are involved). It is also possible that an heir who does not appear on the certificate of heirs may appear. Practice shows that the mistake can also come from the investor and he sells you a property that was due as compensation to one of the owners.
Ultimately, the decision is yours. But the experts advise not to risk it, because in their practice there is more than one negative example. If you do decide to save a few thousand leva, which is a serious motive, at least try to insure yourself as much as possible against possible future problems by prior research, trusting experts and including safeguard clauses in the contract.
The information in this article is not legal advice and please contact an attorney for current information.