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A SINISTER FIRESTAKE OF LEGAL PRINCIPLES AND INTERNATIONAL TREATIES

On 01.07.2014 enter into force the sanctions of the Law for Economic and Financial Relationships with Companies, Registered in Jurisdictions with Preferential Tax Regimes, their Related Persons and Real Owners (Bg State Gazette Nr 1/03.01.2014), named in short The Offshore Companies Law. This is one of those products of the Bulgarian Parliament which cause living lawyers to envy the dead ones.

      In general and concise the structure of the law is the following:

a/  28 business branches of the Bulgarian economy become banned for acces by companies registered in territories from a long black list.
b/  the law requires a full disclosure of the identity of the physical owners of the offshore companies. And not only the direct but also the indirect ones- with no definition what indirect means.
c/ in case of non-disclosure of the physical owners the accomplished investments of those companies in the country shall be confiscated because of their retrospective invalidity- because the mutual restitution after invalidity under yart.34 of the Law on Obligations and Contracts in this case does not apply to the state. I.e. it does not give back what it was given- only the miserable investor does.
d/ through the identification of the physical owners some evidential fictions for related persons and assumed income are introduced which do not claim any link to reality. Their logic is reminiscent of a middle age torture museum.
e/ the companies and their “enemy” owners shall be executed under the law not for any actions or inactions of theirs but for tax and registration systems in the banned territories for which the companies and their owners have absolutely no responsibility. I.e. the massacre on companies and owners is not for liabilities for specific wrong doings but for objective legal realities in third countries beyond their control.
f/ if a court or an arbitration awards a sum in favor of an offshore company against a Bulgarian defender for a contract default- that awarded compensation shall be taxed as a Bulgarian income of the offshore company?!?
g/ the list of banned territories is tragic-comic: it includes half of the former British empire, the Dutch Aruba and the Antilles and the US belongings Guam and Virgin Islands as well as purely European territories on the continent which are under the sovereignty of EU member states: Andorra, Gibraltar, Liechtenstein, Monaco, San Marino. But this is not the end of the nice story- the law shall automatically apply to any jurisdictions on the globe whose income or corporate tax is 60% less the Bulgarian rate- whichever they are, you should know.

      I have a few basic questions to this masterpiece of Bulgarian legislation which entertain my soul:

1. What legal relevance to a company has the disclosure of its physical owner?
Isn’t he not liable for the obligations of the company and vice versa? Or the purpose is to have a true target for intimidation?
2. How can be disclosed the identity of an owner of shares to the bearer? They are such because their ownership is manifested through their possession and not through the name of the possessor at the moment- like money banknotes.
3. How can you impose obligations to a shareholder in a foreign company when under private international law the governing law is the law of the country where the company has been registered?
4. More than half of the “doomed” jurisdictions are under the sovereignty protection of countries with which Bulgaria has treaties for mutual protection of investments. For example with the USA since 1993, with the UK since 1995 and with the Netherlands since 1999. The doomed jurisdictions are part of their territory covered by the respective investment treaties. Who gives us the right to introduce discrimination measures against companies and persons from these protected territories in violation of the investment treaties? Under art.5 s.4 of the Bulgarian constitution in case of conflict between a local law and an international treaty the latter shall prevail. That means this law shall not apply to them.
5. Each company or citizen from such a state against which the cruel measures of the law are applied can easily turn to an international investment arbitration court as a private investor against the Bulgarian state. I do not recommend the sight of such a conflict to people with weak nerves.
6. Why have the sponsors of the law missed in the black list of territories Turkish Cyprus, Turkey and Russia but have included so many European territories? May be my brain is not mature for this “divine” providence.
7. Current Bulgarian taxes are the lowest in EU. What if other member states decide to outlaw Bulgarian companies since they come from a territory with 60% lower taxes?
8. Have foreign embassies objected to this law? Yes or No?

I would like to ask all Bulgarian great lawyers:

Why are you watching benumbed this “happening” before the Altar of Law?

      Back in 1935 the US Court of Appeals (Judge Learned Hand /1872-1961/) in the case of Helvering v/s Gregory ruled:

“ANYONE MAY ARRANGE HIS AFFAIRS SO THAT HIS TAXES SHALL BE AS LOW AS POSSIBLE; HE IS NOT BOUND TO CHOOSE THAT PATTERN WHICH BEST PAYS THE TREASURY. THERE IS NOT EVEN A PATRIOTIC DUTY TO INCREASE ONE’S TAXES”.

But for this wisdom there is no place on the billposter of Comedie Balkanaise.

June 2014                                                                                                 Valentin Braykov