Law Reform Program
In 1997, the Law Reform Program concentrated its
efforts in two main fields: expansion of legislative reform in
Bulgaria and training legal specialists. In summary the main
achievements of the Law Program in 1997 were:
- Successful completion of a six-year-long project
for the design and promotion of a modern and comprehensive legal
framework for NGOs;
- Continued institution- and team-building:
strengthening and deepening the integration and interaction within
a diversified, highly qualified group of external legal, financial
and accounting experts committed to, and capable of, implementing
law reform projects;
- Expanding an international network of legal experts
committed to assisting legal reform in Bulgaria;
- Increasing involvement of widely respected policy
makers and academic experts in implementing law reform projects:
ensuring continuity of traditions and support for reforms;
- Review of the entire existing tax framework for
NGOs and drafting substantive proposals for amendments which
introduced a full set of modern principles and specific mechanisms
of NGO taxation;
- A substantial contribution to the process of
approximating Bulgarian laws with EU legislation by way of
developing a modern, EU compatible taxation framework for
NGOs;
- Producing four concept papers on the modern
principles of taxation of NGOs;
- Drafting the legislative motives to the Draft Law
on NGOs;
- Producing a Commentary on the new legal framework
for NGOs;
- Developing and implementing a pioneering concept
for a centralized, computerized, nation-wide Secured Transactions
Registry;
- Drafting Regulations governing the structure and
operations of the Secured Transactions Registry;
- Working on the creation of the computerized system
underlying the Secured Transactions Registry;
- Implementation of numerous training and awareness
raising programs involving representatives of the judiciary, public
administration, legal counsel, financial and accounting
professions, commercial companies and NGOs.
I. Legislative Reform
1. Reforming the Legal Framework for NGOs in
Bulgaria
A Continuing Effort Brought to a Successful
Completion
The year 1997 was saturated with events and
activities oriented towards completing a six-year-long effort for
the development and promotion of a comprehensive set of measures
intended to introduce a radical, overall reform and modernization
of the legal framework for NGOs in Bulgaria. Work started back in
1992 with the first steps towards creating the Draft Law on
Non-Profit Organizations. The Draft was developed in the course of
a continuing national and international discussion, thus setting
forth a concept of a legal framework for NGOs tailored to the
highest standards of EU contemporary visions and practices. The
Draft introduces an enabling legal basis for the creation, growth
and prosperity of mutual and public benefit organizations, of
grant-making and operating NGOs, shifting the emphasis off
administrative controls and placing reliance for its successful
implementation on the motives and driving forces essential to civic
society.
Following the successful completion of the Draft,
work had to continue on supplying the infrastructural categories of
the NGO sector. This required adequate, properly matching tax law
provisions, thus completing a balanced and comprehensive legal
framework. Additionally, an effort had to be made for drafting the
legislative motives supporting the expected enactment of the Draft
Law on Non-Profit Organizations and a body of commentaries
explaining the philosophy and proper interpretation of the Draft's
provisions. Continuation of the reform work developed throughout
1997 under the auspices of EU Phare Democracy Program, in the
context of CSD's Phare funded project "Reforming the Legal
Framework for Non-Governmental Organizations in Bulgaria".
The Expert Teams: a Diversified Approach
In accomplishing the tasks set forth in the reform
agenda, the CSD built upon its continuing working relationship with
a diversified team of legal experts. The team combines
representatives of academia, the court system and private legal
practice. Thus, a well balanced approach towards creation of new
legislation and establishing a model for interpreting same
legislation was made possible.
The CSD also relied on a team of NGO management and
finance experts. Their input was extremely useful and decisive,
especially in the process of designing the parameters of the NGOs'
taxation legal framework.
Finally, the CSD relied on a team of experts from
the Max-Plank-Institute for Private International and Comparative
Law, Hamburg, the Charity Aid Foundation, United Kingdom, and the
International Center for Not-for-Profit Law based in Washington,
D.C. In addition, the project relied on the assistance of numerous
individuals from various institutions in Western and Eastern
Europe. They were selected for their outstanding individual
reputation as experts on NGO law. With that support, the CSD was
able to bring into the project a strong European basis for
developing reform legislation.
The Expert Council: Monitoring and Independent
Internal Evaluation
To ensure social and cultural continuity, and
support the reform effort in the transition stage, the CSD provided
for the involvement of recognized scholars and experienced policy
makers in the reform process. Selected experts and policy makers
were invited to take positions in an Expert Council which closely
monitored and supported the process of designing legal reform
proposals. In the process of work, the Expert Council was extremely
valuable by identifying unworkable solutions or defining supporting
arguments for desirable reform solutions. The CSD team had the
benefit of working with experts and policy makers, such as:
- Professor Vitali Tadjer, JD, distinguished
Professor in Civil Law, Sofia University School of Law;
- Professor Georgi Petkanov, JD, Professor in Tax Law
and former Dean, Sofia University School of Law;
- Professor Maria Pavlova, JD, Professor in Civil
Law, Sofia University School of Law;
- Professor Todor Vulchev, Professor in Finance at
the University for National and World Economy in Sofia, former
Governor of the Bulgarian National Bank, Chairman of the Union of
Bulgarian Foundations and Associations;
- Professor Hristina Vucheva, Professor in Economics
at University for National and World Economy in Sofia, former
Deputy-Prime Minister of the Republic of Bulgaria;
- Mr. Valentin Russev - Director of Legal Department
of the National Customs Office, Lecturer in Customs Legislation at
the Sofia University School of Law, a principal drafter of the
newly enacted Customs Code.
An European Dimension: Proposed Amendments to Tax
Laws
In the course of 1997, the teams of experts and the
Expert Council worked hard to review, analyze and identify reform
needs with respect to the following effective laws: the Law on
Individuals' Income Tax; the Law on Corporate Profit Tax; the Law
on Value Added Tax; the Law on Local Taxes and Fees; The Law on
Excise Taxation and the Law on Customs.
The review of existing laws and the development of
proposals were based on in-depth studies of the legislative
practice in the EU member countries. Thus, a very important
component of the work to approximate Bulgarian tax law with modern
EU legislative standards was accomplished.
A number of fundamental concepts of NGO taxation
were provided with modern legal definitions, such as:
- a legal definition of "economic activity of
NGOs";
- a legal definition of "related economic activity of
NGOs"; and
- a legal definition of "unrelated economic activity
of NGOs".
The expert teams developed proposals to amend and
supplement the tax laws in effect, providing legal procedures and
mechanisms for the following:
- release from taxation of income from non-economic
activity of NGOs;
- full taxability of income from unrelated economic
activity of NGOs;
- release from taxation of related economic activity
of qualifying public benefit NGOs;
- release from taxation of "passive income", such as
interest, dividends, royalties, capital gains, etc.;
- deduction from taxable income of donations made by
corporate entities or individuals to qualifying public benefit
NGOs;
- release from taxation of donations and bequests
made to public benefit NGOs;
- release from taxation of buildings used for
activities related to the purposes of NGOs;
- release from customs duties of imports by
qualifying public benefit NGOs engaged in cultural and educational
activities;
- release from outgoing VAT of goods and services
provided as a result of non-economic or related economic activity
of qualifying public benefit NGOs;
- release of import excise duties of medical and
educational equipment imported for use by qualifying public benefit
NGOs.
The Concept Papers: Theoretic Justification and
Support for Proposed Reforms
The CSD commissioned leading tax and legal experts
to write concept papers on each tax law topic which was affected by
the reform project. The papers were prepared with the purpose of
facilitating the work of the expert teams and educating politicians
and the public at large about the proposed reforms. The papers
include the following titles:
- "Personal Income Tax" by Georgy Smatrakalev,
Ph.D
- "Corporate Taxation" by Georgy Smatrakalev, Ph.D.,
Research Fellow, Institute of Economics, Bulgarian Academy of
Sciences;
- "Custom Duties" by Angel Kalaydjiev, Associate
Professor, Sofia University School of Law;
- "Value Added Tax" by Georgi Sarakostov, Tax Expert,
Price Waterhouse, Bulgaria.
Legislative Motives to the Draft Law on
Non-Profit Organizations: Justification and Active Promotion of
Proposed Reform
The concluding phase of the five-year-long effort to
create the Draft Law on Non-Profit Organizations involved the
creation of the legislative motives which need to accompany the
Draft throughout the process of its transition into good law,
following reviews at the level of the Ministry of Justice, the
Council of Ministers and, finally, Parliament. The motives are
useful in the process of enactment of a new law, for they help the
legislators understand the meaning of proposed legislation, thus
increasing the chance of gathering sufficient support for
enactment. In addition, the motives are important in the phase of
implementation of the enacted law, for they have an official
interpretative binding force on the law implementing authorities.
The creation of detailed and properly devised motives is crucial to
the smooth and proper transition to a new legal framework. The
motives created by the CSD legal team of experts provide an
in-depth analysis of the following:
- the need for reform in current law;
- the problems with continuing to live with current
law;
- the manner in which the proposed law is intended to
solve the problems existing under current law;
- the new techniques used in designing the proposed
law.
Commentary on the Draft Law on Non-Profit
Organizations: An Impact on Future Interpretation
The team of legal experts with the CSD spent
significant effort to produce a Commentary on the Draft Law on
Non-Profit Organizations. The Commentary is intended to have a
preventive effect on potential erroneous interpretations of the
Draft when enacted into law. It will provide useful and reliable
guidance to judges, practicing lawyers, tax authorities, and NGO
activists, in the process of adjustment to the new and unfamiliar
with the legal framework. Written as a comprehensive document, the
Commentary consists of a General Part and a series of
article-by-article comments, containing:
- a detailed discussion of the Constitutional
principles underlying a modern legal framework for NGOs;
- a detailed discussion of the legal principles and
concepts underlying the new NGO legislation;
- a detailed discussion of individual legal
provisions comprising new NGO legislation;
- a detailed discussion about the transition from an
outdated legal framework for NGOs towards a modern legal
framework;
- highlights and explanation of novel solutions
contained in the new NGO legislation.
Ms. Lydia Mileva and Ms.
Dessislava Bijeva briefed Professor Zhivko Stalev (middle), Chair
of the Constitutional Court on the work of the CSD Law Program
team. |
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May 1997 International Discussion: A Regional
Dimension
In May, the CSD held an international conference in
Varna with the purpose of initiating an international discussion
over its concept for NGO law reform activities. The discussion was
particularly useful for other countries in Eastern Europe and among
the Newly Independent States who are often ahead of Bulgaria in
terms of having implemented NGO legal reforms and having tested how
they work in practical situations. At the conference, the CSD
expert teams got invaluable input in terms of the merit of the
reform concept and the potential risks which would threaten the
future reform implementation.
The participants were selected on the basis of CSD's
connections in the international NGO reform community of which the
CSD had for five years been an integral part. The conference was
attended by representatives of Poland, Russia, Croatia, Latvia,
Estonia, Belorussia, and Ukraine. In addition, outstanding Western
legal experts took part in the discussion. Special recognition must
be made of Professor Ulrich Drobnig, Director, Max-Plank-Institut
for Private International and Comparative Law, Hamburg, Mr. Douglas
Rutzen, Vice President of the International Center for
Not-for-Profit Law (ICNL), Washington DC, Mr. Pasquale Ferraro,
Deputy Director of the International Development Law Institute,
Rome, and Mr. Childerik Schaapveld of the European Human Rights
Foundation.
As a result of the discussions, foreign participants
were acquainted with CSD's ideas about the reform projects and took
that experience to their own countries. The concept for Bulgarian
NGO law reform was improved in light of the most up-to-date visions
of NGO law reform throughout Europe.
2. Commercial Law
Law on Registered Pledges (LRP): Introduction of
a New Concept and Creation of the Central Pledges Registry
(CPR)
During 1997 the LRP continued intensive work on the
Secured Transactions Project of the CSD. As a result of the
drafting work of CSD experts under the same Project, the Law on
Registered Pledges was created and enacted in 1996. This law
requires the creation of a CPR as a vehicle for giving publicity of
and perfecting security interests. The designing and creation of
the CPR were the object of LRP efforts during 1997.
Designing a Concept for the CPR: Transition to
Information Society
The LRP set forth as its task the creation of a
modern and highly technological CPR. It was aided tremendously in
its work by USAID-funded IRIS - Bulgaria project which made it
possible for LRP experts to draw on the experience and examples of
leading registry jurisdictions worldwide as well as work with
recognized leading international experts.
The heritage of registry institutions law in
Bulgaria is unfavorable to the creation of modern registries.
Registries in Bulgaria are normally decentralized, court managed,
and paper based. As a result, they are slow, inefficient, fail to
make the expected publicity and are usually a bottle-neck where
courts become involved in fundamental review and scrutiny of
matters clearly not intended for government interference.
Additionally, tradition with registry fees in Bulgaria is not
favorable: a registration would normally be charged with a fee
defined as a percentage of the rights being perfected. Therefore,
defining the right concept for the CPR was an innovative exercise
which could make the breakthrough towards an emerging information
society.
- The LRP experts designed the CPR as a system
entrusted for administration to the executive branch of Government
(Ministry of Justice). Thus, the pattern of having three highly
qualified judges administer something as simple as a pledge filing
set forth the pattern of having well trained clerks administer
filings.
- The LRP experts designed the CPR as a centralized
institution where everyone could file and search for filed
information. Thus, instead of replicating the traditional
horizontal structure of multiple independent registries with
identical functions and parallel venues, the CPR set forth a model
of a centralized and secure information structure.
- The LPR experts designed the CPR as an institution
which may develop on a need basis, numerous local terminals from
where filings and searches could be made with respect to the
centralized data base.
- The LPR experts designed the CPR as a computer
based system. Thus, centralized information could be accessed from
any point within Bulgaria for reference purposes. Searches on the
system are fast, convenient and reliable. Administration of filings
and references is streamlined with minimal human intervention.
- The LPR experts designed the CPR as a cheap vehicle
for perfection of creditors' rights. Instead of the philosophy of
the percentage fee charged on filings, the CPR is based on the idea
of a small, flat, per-page fee. The latter is proportional to the
amount of resource that the CPR would need for processing and
maintaining information.
Drafting CPR Underlying Regulations: Setting the
Model for the Future
The Law on Registered Pledges provides that the CPR
structure, internal operating procedures and filing administration
procedures, be provided for by way of a regulation issued by the
Minister of Justice. In addition, the setting of the filing fees
was to be made by way of a regulation to be issued by the Council
of Ministers. The regulations were to be drafted and put into
effect prior to April 1, 1997. This was the effective date of the
Law on Registered Pledges.
Drafting of the regulations was critical to
implementing the LRP developed concept of the CPR. The time-frame
that had to be followed for the timely commencement of CPR
operations was extremely tight. LRP experts took on the
responsibility for creating the regulations and worked closely with
Ministry of Justice experts until the successful completion of the
drafting work.
- The timely creation and enactment of CPR
regulations made it possible for the CPR to commence timely
operations.
- The regulations drafted by LRP experts fully
implemented the philosophy and principles embedded in the concept
for a modern CPR.
- As part of their work, LRP experts designed
standardized forms for filing with the CPR as well as standardized
forms of search reports to be produced by the CPR.
- LRP experts designed the regulations for the
purpose of implementing a computerized registry, but also provided
an interim, transitional legal framework for running the CPR on a
paper basis during the period preceding the introduction of CPR's
computerized system. Thus, timely and uninterrupted operation of
the CPR was assured.
- LPR experts designed the fee structure of the
filing system on the basis of low, flat fees for filings. Thus,
transaction cost will be reduced and the social efficiency of the
CPR would be increased.
Work on the Creation of the Computerized CPR System:
Bridging Technology and Law
LRP experts worked closely with Sofia based
Technologica software development company which was assigned with
the task to develop the CPR system and software. LRP lawyers
bridged the gap between law and information technology, thus making
it possible for a modern legal/information institution to be
created. In this work, LRP and Technologica were helped by
USAID-sponsored IRIS. The IRIS Bulgaria Project made it possible
for them to communicate with international experts on designing
registry information systems.
The designed software system is based on Oracle
standard software and maintains the following capabilities.
- The software is in full harmony with the delicate
legal procedure of submission, processing, effecting of filings,
denials of filings, and appeals therefrom.
- The software makes the administration of filings
simple and reduces human intervention to a bare minimum.
- The software is capable of generating automated
search reports which are ready for execution by the CPR
officers.
- The software is open to accommodating long distance
filing or search requests which are received from the local
terminals of the CPR.
- The software is open-ended and allows expansions of
the system, such as to possibly integrate the corporate
registration system, the real estate registration system, etc.
II. Training: Bringing New Concepts to
Life
The CSD has continually had the mission of being an
agent of change. Change begins with taking the challenge of trying
to look with different eyes at the surrounding world. Change
acquires its delicate outline through the difficult process of
converting a vision into a concept for a better practical solution.
Change happens when there is a critical mass of individuals and
institutions willing to take up a concept and implement it in their
everyday practice. Training is the key to inducing the process of
accumulating a critical mass of people and institutions.
1997 Training Program: A Continued Contribution
to Raising Awareness
For years CSD's practice has been to combine its
research and development efforts with proper training and
educational programs. When a new legal concept is being devised, it
has always been important to the CSD to bring the same concept to
the attention of all potentially affected agents: implementing
officers (such as judges, tax officials, prosecutors, etc.) and
addressees of the new legislation (such as commercial entities,
NGOs, legal counsel, finance and accounting experts). Thus, when a
new concept starts being embodied into life, there is a sufficient
level of awareness and likelihood for a failure to be greatly
reduced. In the course of 1997 the CSD put together the following
training and awareness raising programs in the field of law:
- Training seminar: Introduction and Discussion of
the Draft Law on Non-Profit Organizations, January 27-28. The
seminar involved 18 judges from District Courts throughout
Bulgaria.
- Training Seminar: Accounting and Audit for
Non-Governmental Organizations, April 23. The seminar was organized
jointly with Open Society Fund, Sofia, and involved four
consecutive sessions on the following topics: "Accounting",
"Auditing", "Corporate Taxation of NGOs" and "Problems, related to
the economic activities of NGOs". The seminar was attended by 43
NGO financial managers and economists.
- Training Seminar: Accounting and Audit for
Non-Governmental Organizations, December 15. The seminar was
organized jointly with Open Society Fund, Sofia, and covered the
topics of customs duties payable by NGOs, new corporate taxation
for on NGOs economic activities,state subsidies and the control for
disposal thereof. It was attended by approximately 40 participants
including managers and administrators of NGOs both from Sofia and
other parts of the country.
- Training Workshop: Concession Law, December 8-12.
The workshop was organized jointly with the International
Development Law Institute - Rome, Italy. It was attended by 21
participants coming from 11 ministries and governmental agencies,
private legal practice and the judicial system. The major
objectives of the workshop were to identify the main interests of
the parties to a concession scheme, draw up a checklist of
questions which the lawyer will need to follow to assist one of the
parties, identify elements of the Bulgarian legal framework which
will have impact on the concession agreement, draw up a checklist
of the types of legal documents which may be used in connection
with the concession agreement, list typical representations,
warranties and covenants or promises by the various parties which
are likely to appear in the various legal documents related to the
concession agreement, outline the most important clauses common to
all types of concession agreements.
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