Cause and Effect in European Politics and Law

Is 0 a revenue?

Ralitsa Kovacheva, March 7, 2010

Is it possible someone to have 0 salary and to owe social securities over it? If yes, how much? The reason for this judicial-mathematical case is Instruction No.24-00-7/25.02.2010, issued by the Executive Director of the National Revenue Agency (NRA) of Bulgaria. This Instruction interpretes changes in the Social Securities Code, which entered into force in the beginning of the year. The document wouldn't have caused such an indignation in society if it did not obligate managers of companies to pay social securities over non-existing salaries. This means that owners and managers of companies will have to pay twice - aside from their current obligatory payments as self-employed, now they will have to pay social securities if they are managers too. And for managers the threshold of the securities is much higher.

Here is how Preslav Nedev, an accounting expert, is explaining the situation: "The most popular situation with firms (mostly Ltd-s) is when management is being performed by working owners. This means that they are registered in the Trade Register as managers. And what does the NRA say? Since the associate (owner) has financial activity, aside from being a manager of the company, he owes social securities for two positions - once as a manager and then, as being self-employed".

The question here is what if the manager has a salary of 0 levs? If a zero revenue is still a salary, then social securities must be paid but if 0.00 levs is not a revenue, then the NRA should not require payment of social securities because it cannot be calculated - it will again be a 0.

According to an Initiative Committee of consumers from the specialized portal, who initiated a petition against the changes, small companies would suffer the most because they are the most popular case in which the owner, the manager and the worker are one and the same person. In other words, they should pay 4 times, no matter if the company is functioning or not. The Committee insists in the petition that the members of parliament should review the respective articles in the Social Securities Code and either change them, or clarify them so that such broad interpretations are avoided.

Preslav Nedev, as well as many other people, says that he clearly understands what this is all about: "To be honest, I understand why this type of interpretation popped up right now. The money in the Pensions' Fund are dropping sharply, the salaries also drop because many people choose as a source of revenue a type which frees them of social securities payments. But the solution to the problem is not issuing Instructions but changing the tax and securities laws. This can be done by changing the entire philosophy of taxation - an example of how the problem was solved in Austria and Germany could be reviewed. If there is political will, a lot of things can be done, but ordering the revenue agency to make operations of the style "there's no mony, think of how to get more" is not one of them."