II. Legislative Reform
III. Training: Bringing New Concepts to Life
In 1997, the Law 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.
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II. 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.
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.
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III. 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.