Банкеръ Weekly



DUE TO ANTIMONY IN TAX LAWS A BLOW OF MOBILE GROUPS IN VARNA MAY NOT YIELD SIGNIFICANT RESULTSThe new five mobile groups for control in customs, formed in the beginning of 2005 could have hardly dreamt of a better debut. On January 6 they seized in Varna 56,820 bottles of imported spirits without excise labels. The smuggled goods were hidden in a warehouse under customs control. The results of the raid were made public by Finance Minister Milen Velchev in person after a phone conversation with Gen. Boiko Borissov, Chief Secretary of the Interior Ministry. A special meeting was organized, attended by the Director of the Customs Agency Assen Assenov and the head of the National Service for Combating Organized Crime Valentin Petrov. After the meeting it became known that the Treasury missed EUR200,000 from VAT and excise duties because of smuggled spirits without excise labels. The confiscated bottles were with the trademarks Smirnoff, Johnnie Walker, J B, Grants, Baileys, and others. At the end of the meeting participants in it threatened that by the elections Bulgaria will seem a narrow place to smugglers of excisable goods.Strangely enough, some more piquant details about the spirits affair in Varna were suppressed.The names of the firms who owned the confiscated spirits were passed over in silence with the excuse that the Varna Regional Department of the Internal Ministry was investigating the case. However, Gen. Borissov hinted in front of the media that a world-known spirits producer was involved. According to unofficial information of the Finance Ministry, the warehouse where the bottles without excise labels were found, is owned by Avendi OOD, importer of Pernot Ricard. A check in the Daxy Global information database shows that Vassil Mirchev holds the majority share in Avendi OOD, registered in 2002, whose subject of activity is trade mediation. A curious detail is that Mr. Mirchev owns 2% of the capital of the Jupiter insurance company. The majority shareholder in the insurer, with a 82% stake, is Maccar AD, involved in whiskey imports. Maccar had long legal lawsuits (and finally lost the battle) against the Bulgarian branch of UDV Central Europe and Asia Ltd. (part of the multinational giant Diageo) about the rights on the spirits with the trademarks Johnnie Walker, J B, Smirnoff, Gordon and Baileys. The bottles confiscated in Varna were with some of those labels. Avendi OOD, owner of the above-mentioned warehouse, has recently become the main distributor of UDV Central Europe and Asia Ltd. on the domestic market. According to customs officers, the seized bottles are owned by Diageo's Bulgarian branch. Customs Agency insiders say that the scheme Diageo chose in order to attract sub-contractors is like a time-bomb. Bulgarian partners are initially loyal to the foreign producer, but at a certain moment they start importing themselves in order to evade customs regulations. Eli Gerganova, Manager of UDV's Sofia branch, neither confirmed nor rejected that information. In her words, Diageo had no VAT or excise duty liabilities for imports as of the end of 2004. The representative office of the multinational company explained they would wait for the end of the investigation in Varna before they come out with an official statement. An analysis of the so-far known facts and a thorough reading of taxation and customs legislation show that all labour of mobile customs officers may be wasted due to certain gaps in taxation laws. Preconditions for cases like that in Varna are created by some strange provisions in the regulations for application of the Excise Duty Act and the Ordinance on Introduction of Excise Labels for Spirits. For instance, article 26, item 2 of the regulations for application of the Excise Duty Act stipulates that the sticking of labels on the trademark spirits imported into Bulgaria could be done both in the country and abroad. Warehouses under customs control have been designated as the places for doing that. Of course, this should be done before the goods are placed under import regime or prior their sale in duty-free shops. And here we come to the vicious circle, so typical of domestic reality. On one hand, the Excise Duty Act bans storage of excisable goods without excise labels, but at the same time subdelegated legislation leaves loopholes through which companies' lawyers can deftly work their way in a lawsuit against sanctions imposed by tax or customs administrations. If the owner of the warehouse in Varna proves that excise labels for the 56,820 bottles have been purchased but sticking them was just delayed (which is the case according to BANKER weekly sources) only the above-mentioned ordinance will be in fact violated. The Excise Duty Act stipulated a maximum fine of BGN5,000 for such an infringement. And if it is established that the confiscated spirits were not under a customs storage regime, but were freed as regular import (as customs circles say) then the ball will be in the court of controlling authorities. According to lawyers, one of the possible legislative solutions in order to eliminate that gap in the regulations is to oblige importers to send to the producer the excise labels purchased by them and require that they should be stuck before the goods are imported into Bulgaria. Such a practice is applied for the import of cigarettes. But due to unknown reasons, law-makers have decided that excise labels on spirits could be stuck in Bulgaria as well. Despite the most recent spirits scam, experts who observe that market share the opinion that smuggling practices in the import of trademark spirits have been somewhat subdued recently. According to them, this tendency is mostly due to the fact that the representative offices of big companies such as Diageo, Alide Domake and Maxium, have managed, with the customs' assistance, to corner the so-called parallel importers. The latter are dealers, unauthorized by the producers, who use double invoices to import spirits at token prices. In that way they dump big companies' market. A research of the Coalition 2000 NGO shows that by the end of the 1990s almost 90% of the import of spirits into this country was black (contraband) or grey (at dumping prices). The market started to normalize after the year 2000 when foreign producers began to open their representative offices in Bulgaria through which import is practically effected. Another heavy blow against illegal importers was the stepping onto the domestic market of big chains of hypermarkets such as Metro, Billa, Fantastiko, Oazis, etc. NGO experts recall one more fact. Several contraband channels for import of spirits were activated before the previous parliamentary elections in 2001. There will be parliamentary elections this year as well. So, we could expect occasions for new feats of the mobile groups.

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