The new requirements of Ordinance No. N-18 from 13.12.2006 for the registration and reporting through cash registers of sales in commercial premises, the requirements for sales management software and the requirements for persons who execute sales through digital vendors fueled much discussion among representatives of the business circles. One of the core issues identified by the private sector are the provisions regarding the SMS (Sales management software) which impact all vendors who take payment in any way that isn’t banking. The National Revenue Agency (NRA) has both the grounds and the capabilities to mount aggressive action to ensure compliance with the requirements of Ordinance No. N-18, while the lack of clear guidelines for the application of the regulations puts software users in risk of serious fines under the Bulgarian VAT Law, including closure of their commercial premises for a period of up to 30 days.
The Ordinance will substantially affect not only merchants, but also the software developers who are exposed to a number of risks related to liability imputed by the NRA, ambiguities and lacunae in law.
On the bright side, the new additions to the Ordinance create a convenient market niche for the manufactures of SMS. The regulation introduces a quasi-licensing regime for activities in this area by obliging merchants to use only SMSs included in the licensing list maintained by the revenue agency. The current legal framework assigns to the developer a guarantor role for the performance of the merchants’ obligations under the Ordinance, and the latter will predictably hold the manufacturer accountable if they happen to be in breach of the regulations. Given that the imperative regulations of the Ordinance, the Tax and Social Security Procedure Code and the VAT law don’t include any guidelines regarding liability distribution, relationships between manufactures and users of SMS will necessarily be subject to the rules of commercial law, and any damage suffered by the users could easily be redirected through a claim against the developer.
One eventuality where contract liability of the developer might be considered is where a SMS utilized by the merchant is removed from the register on the NRA’s volition. It is highly likely that such cases will be relatively common, as the NRA does not subject newly declared software to initial checkups for compliance with Annex No.29 of the Ordinance. Conformity and reliability of the software rest entirely upon what the manufacturer or distributor declares without any mandatory administrative oversight for compliance with regulations. Developers are therefore forced into a situation where they cannot receive confirmation that their SMSs actually comply with the legal requirements, therefore taking upon themselves the risk of any omissions or bugs. The software can only be subjected to follow-up revisions through expert examinations pursuant to TSSPC (in accordance with Art. 52f of the Ordinance).
The removal of any given SMS from the register will most often happen as a result of administrative proceedings – if established that the software no longer conforms to the Ordinance’s requirements or was initially licensed despite lacking some core function. On the one hand, the criteria to be employed when evaluating the software’s compliance remain unclear; on the other hand, the NRA is vested with operational independence in such matters. Given that the license loss of an SMS used by a merchant is not grounds for transition to ‘analog’ sale operations, SMS users will most likely look after their own interests and will jump ship to a competing licensed product without waiting for the Individual administrative act (IAA) which removes the SMS from the register to enter into force. In that sense, the very opening of an administrative procedure, even if without merit, could cause irreversible damage to the business and reputation of the SMS manufacturer.
Art. 52g of the Ordinance provides that IAAs which remove a particular SMS from the register are to be published on the NRA’s website and users of this software are notified through digital means that they must immediately cease using the software. Lacunae can be found in cases where the users are not notified of the removal of the SMS they use from the list on the NRA’s website – even though there is distinct lack of case law regarding the characteristics of the merchant’s liability notwithstanding the lack of notification. Regardless of the legal grounds, many SMS users who suffered direct or indirect damage from the revoked license of the software they utilize will resort to ‘regressive’ claims for damages against the developer. In that sense manufacturers will find themselves respondents in cases filed by users of their SMSs for damages the developer could never prevent.
Next, the enterprises’ obligation to store accounting information for the periods specified in Art. 38 of the TSSPC will necessarily evolve based on the Ordinance’s new requirements. Such accounting documents are now generated by SMS and merchants will think it obvious that the documents will be stored in the software’s own database. Annex No. 29 of the Ordinance indeed establishes that the software must allow for export of data, but also allows for somewhat free reign for the developers in the formatting, ordering and content of the database (for example it is explicitly stated that some table columns can be merged into one). The Ordinance therefore secures the minimum requirements for successful discourse with the administration but leaves open possibilities for variations which would make transfers of information in cases of introduction of new SMS incredibly difficult. Any delay in data transfers as a result of such complications will necessarily put the user in breach of their obligations under Art. 38 TSSPC and Art. 12 of the Accounting Law. However, it is entirely possible that SMS users who have not altered their practices other than the introduction of the new software will flag such change as problematic and hold the developers accountable.
It is evident that the newly introduced licensing regime and the obligation for utilization of SMSs are a breeding ground for numerous situations where the manufacturer could be held accountable for unforeseen damage. The manufacturers should pay special attention to the contracts for sale of licensing of SMS to protect their interest in the emerging liability vacuum. SMS manufacturers would be wise to see the overall process of development, licensing and sale of the software as preventive preparation not only for the inevitable cases filed against them by injured clients, but also for the administrative proceedings initiated by the NRA regarding these clients, where the manufacturers have a vested interest in a favourable outcome.
Obretenovi Law Firm’s team is ready to assist you in developing a singular strategy and reliable prevention for your business.