The European Commission said on May 6 that it had sent Bulgaria written warnings, the first step in the infringement procedure, for failing to issue new or updated permits for industrial installations, and also for obstructing the free flow of capital through discriminatory taxation of inbound and outbound dividends.

In a statement, the EC said that Bulgaria was among nine countries that had failed to issue on time, in line with the directive on integrated pollution prevention and control, new or updated permits for industrial installations in operation by the date of their accession to the European Union.

"On several occasions before the 2007 deadline, the commission advised all member states of the forthcoming cut-off date for issuing operating permits to industrial installations. In November 2007 the commission asked member states for data on the total number of existing installations in operation before the date by which the directive came into effect and the number of new, reviewed and updated permits issued," the statement said.

"The replies show that nine member states (Belgium, Bulgaria, Estonia, Greece, Italy, the Netherlands, Portugal, Slovenia and Spain) had an especially large numbers of installations for which new or updated permits had not been issued, amounting to a combined figure of over 9000 out of a total of about 52 000 targeted industrial installations throughout the EU.

It is clear that these member states have not complied with provisions in the directive. This is why the commission has decided to take legal action against these member states."

Bulgaria's Ministry of Environment and Water Affairs responded with a statement saying that it had already submitted its detailed schedule for issuing new permits to the EC, which would be done by the end of September, ruling out any chance that the infringement procedure would progress any further. "There is no risk that the letters of notice adopted by the commission today would result in legal action against Bulgaria," the ministry said.

In a separate statement, the EC said that it had sent letters of formal notice concerning the taxation of inbound and outbound dividends paid to companies may be taxed more heavily than domestic dividends, thus opening two infringement procedures on the issues.

In the first case, although Bulgaria exempts domestic dividends from withholding tax or corporation tax, it did impose a withholding tax of five per cent on outbound dividends paid to companies resident in the EU with a shareholding of less than 15 per cent and companies from the European Free Trade Area (EFTA) - Iceland, Norway and Switzerland - regardless of the size of their shareholding. Additionally, it levied a 10 per cent tax on inbound dividends for shareholdings of less than 15 per cent in companies of other EU member states and EFTA.

The higher taxation of inbound and outbound dividends than of domestic dividends was likely to restrict the free movement of capital, one of the cornerstones of the European Economic Area, the commission said, adding that it was not aware of any justification for such restrictions. By May 7, Bulgaria's Finance Ministry had not commented on the issue.

Article 226 of the Treaty of Rome, which governs the way in which the EU functions, allows the commission to take legal action against a member state that is not respecting its obligations. The infringement procedure starts with letters of formal notice, the first step, requiring a member state to submit its justifications by a specified date, usually 60 days. It is followed by the second and final warning, the "reasoned opinion", after which the EC can take its case to the European Court of Justice.

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