The registration of a branch of a foreign merchant in Bulgaria does not lead to the creation of a new legal entity, but only to a territorially and organizationally separated part of it.
With regard to VAT taxation, it is assumed that there is no taxable supply of a service when the supply is between a person established on the territory of a member state of the European Union and its branches or structural units established on the territory of Bulgaria, and vice versa. In the same way, delivery between branches or structural units established on the territory of Bulgaria and branches or structural units of the same person established on the territory of another member state is not a supply of service. In these cases, there is internal turnover.
According to the practice of the Court of the European Union, insofar as the branch does not have its own capital, the risk related to the economic activity remains entirely with the “mother company”, i.e. the branch depends on the “mother company” and together with it represents one single taxable person. Given this, there is no legal relationship between the branch and the “mother company” on which there are mutual benefits, i.e. the provision of services between the branch and the “mother company” as well as between the “mother company” and the branch is not taxable. The Court held that a permanent establishment, which is not a legal entity, separate from the company to which it belongs, established in another Member State and to which the company provides services, should not be treated as a taxable person because of the costs charged to it in connection with these supplies. This is also applicable to the provision of services between branches or structural units established on the territory of another EU member state and branches or structural units of the same person established on the territory of Bulgaria.
In view of the above, the relations that arise between a branch located on the territory of Bulgaria and a branch located on the territory of another EU member state, which are part of the group composed of the same person – a principal located on the territory of a member state of the EU, do not create obligations as in the case of the taxable supply of services, and in this case there is an internal turnover.
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