BulgariaBulgaria

Legal ReferenceCorporate Income Tax Act, Chapter 4, Art. 15

Although there is no specific reference to the TPG in the Bulgarian TP legislation, it generally follows them. However, there are certain differences (e.g. there is a hierarchy of the methods under the Bulgarian legislation).

Legal ReferenceCorporate Income Tax Act, Supplementary provisions, §1, p. 13; Tax and Social Security Procedures Code, Supplementary provisions, §1, p. 3 and p. 4

The Bulgarian Corporate Income Tax Act refers to the definition of related parties contained in the Tax and Social Security Procedures Code (TSSPC). According, to the TSSPC: 3. "Related persons" shall be: a) the spouses, the relatives of direct line of descent, collateral relatives – to third degree inclusive; and the relatives by marriage – to second degree inclusive, and for the purposes of Art. 123, para 1, item 2 – when they are included in joint household; b) an employer and an employee; c) the partners; d) the persons, one of whom participates in the management of the other or of his subsidiary company; e) the persons, in whom managing or controlling body participates one and the same corporate body or physical person, including when the physical person represents another person; f) a company and a person who owns more than 5 % of the social parts or the shares, issued with a right of vote in the company. For the purposes of Title One, Chapter Eight "a" (the rules for preparing a master file and a local file), the amount of the participation in the letter "f" shall be 25 percent of the voting shares or shares issued with the right to vote; g) the persons, one of whom exercises control over the other; h) the persons whose activity is controlled by a third person or his subsidiary company; i) the persons who joint control a third person or his subsidiary company; j) the persons, one of whom is a trade representative of the other; k) the persons, one of whom has made a donation to the other; l) the persons who participate directly or indirectly in the management, the control or the capital of another person or persons, because of what between them may be negotiated conditions, different from the usual ones. (n) resident or foreign persons with whom the resident person has concluded a transaction, if: (aa) the foreign person is registered in a country which is not a Member State of the European Union and in which the payable income tax or corporate tax... is lower than the income tax or corporate tax in the country by 60 per cent or more... and (bb) the country in which the foreign person is registered refuses to, or is not able to exchange information... (o) the owners of the resident legal person and the foreign person in the cases referred to in letter “n”. 4. "Control" shall be present when the controlling party: a) owns directly or indirectly... more than the half of the votes... b) has the possibility to appoint directly or indirectly more than the half of the members of the managing or the controlling body... c) has the possibility to manage... d) as a shareholder or a partner... controls independently... more than the half of the numbers of the votes... e) may, in another way, exercise a decisive influence...

Legal ReferenceTax and Social Security Procedures Code, Supplementary provisions, §1, p. 10.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (not provided)

Legal ReferenceOrdinance № H-9 of 14.08.2006 for the Order and Manner of Applying the Transfer Pricing Methods, Art. 7 and Art. 9.

The applicability of the CUP method should be tested first. If it is not appropriate, it should be checked whether the Resale Price or the Cost Plus methods could be reliably applied. Only when all the three traditional methods have been deemed inappropriate the transactional ones (the TNMM and the Profit Split) may be used.

• Hierarchy of methods (selected)
• Most appropriate method (not selected)

The Bulgarian TP legislation does not contain specific guidance on commodity transactions. The general rules and guidance apply.

• For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (not selected)
• Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (if so, please explain) (not selected)
• Other (if so, please explain) (not selected)

Legal ReferenceCorporate Income Tax Act; Ordinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods; TP Guidelines of the National Revenue Agency in Bulgarian.

The guidance on comparability analysis outlined in Chapter III of the TPG is generally followed in Bulgaria.

Legal ReferenceOrdinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods.

Under the Bulgarian TP legislation, five factors should be considered for the comparability analysis. One of them is the economic environment. The domestic comparables are usually preferred as they are generally considered more reliable, since it is difficult to find other countries with similar economic environment. However, if there are not enough local comparables, foreign ones could be used.

Legal ReferenceOrdinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods.

The use of arm’s length range as well as statistical measure (e.g. interquartile range and median) is allowed under the Bulgarian legislation.

Legal ReferenceOrdinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods.

In case, as a result of the comparability analysis, it is found that there are significant differences between the controlled and the comparable uncontrolled transaction, comparability adjustments should be performed in a reliable way to achieve a sufficient degree of comparability between the compared transactions.

Legal ReferenceOrdinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods.

Under the Bulgarian legislation, the following two factors should be considered with respect to the pricing of controlled transactions involving intangibles: (i) the economic benefits in the form of additional profits or reduction of costs, as a result of obtaining and/or use of the intangible, that are expected by the entity receiving it (main factor), and (ii) the possibility for the transferor of the intangible to recover the expenses related to acquiring or creating the intangible, and to realise a reasonable rate of return (secondary factor).

The Bulgarian legislation does not provide for special rules regarding the HTVI.

Legal ReferenceCorporate Income Tax Act

The transactions involving intangibles are subject to the general rules for taxation in Bulgaria (e.g. the substance over form principle and general anti-avoidance rules are applicable).

Legal ReferenceOrdinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods.

The Bulgarian legislation states that the arm’s length nature of the remuneration for the service transactions should be tested by using either the CUP method or the Cost Plus method. Only if these two methods may not be reliably applied, other methods may be used. In case of subscription services, a multiple year period should be reviewed. The remuneration for the services should be determined by applying the direct charge method. When this is not possible or requires unreasonably high costs, the indirect charge method may be applied. The allocation key used with the indirect charge method should: be appropriate from business and accounting perspective, have safeguards against artificial increase or decrease of the remuneration for the services, and guarantee cost allocation between the service recipients in line with the actual or expected benefits for each of them. The Bulgarian TP legislation explicitly states that the indirect charge method should not be applied when the service provider renders identical services to related and unrelated parties and the services provided to the latter form significant part of the business of the service provider. In addition, there is a general guidance on the tax treatment of intra-group services transactions contained in the Guidelines on Transfer Pricing, published by the National Revenue Agency.

Legal ReferenceCorporate Income Tax Act

The transactions related to intra-group services are subject to the general rules for taxation in Bulgaria (e.g. the substance over form principle and general anti-avoidance rules are applicable).

The Bulgarian TP legislation and regulations do not provide guidance specific to financial transactions.

Legal ReferenceCorporate Income Tax Act, Chapter 3, Art. 16; Corporate Income Tax Act, Chapter 8, Art. 43 and Art. 43a, as well as Supplementary provisions, §1, p. 20 and p. 86; Corporate Income Tax Act, Supplementary provisions, §1, p. 4 and p. 5

The Bulgarian Corporate Income Tax Act establishes certain rules outside the scope of transfer pricing that are relevant for the tax treatment of financial transactions. The most significant of these rules are the GAARs described in Chapter 3 of the Corporate Income Tax Act (CITA), the thin-cap and interest limitation rules described in Chapter 8 of the CITA and the hidden profit distributions described in Supplementary Provision 1 of the CITA.

Legal ReferenceTP Guidelines of the National Revenue Agency in Bulgarian, Section 15.

There are no specific regulations on the cost contribution agreements (CCA) in the Bulgarian TP legislation. However, Section 15 of the TP Guidelines of the National Revenue Agency provides some guidance in this respect. This section includes: definition of CCA, general information about the benefits from the CCA and its participants, guidance regarding the determination of the contribution of each of the participants, suggestions to the revenue authorities for issues to be investigated during a tax check or a tax audit, possible risk factors, from fiscal perspective, information that may be requested during a tax check or a tax audit, with respect to a CCA, and other information.

Legal ReferenceTax and Social Security Procedures Code, Chapter 8 “a”; Tax and Social Security Procedures Code, Chapter 15, Art. 116; Tax and Social Security Procedures Code, Chapter 16, Section VI; TP Guidelines of the National Revenue Agency in Bulgarian, Section 2.

The TSSPC contains a general requirement that obliges taxpayers to demonstrate the arm’s length nature of their related party transactions. Taxable persons who are not obliged to prepare Master File and Local File with a certain content provided by law are required at the request of the tax authorities to present evidence of the arm’s length outcome of their controlled transactions, which is most often again in the form of TP documentation. The TP Guidelines of the National Revenue Agency (a document with no legislative power) provide guidance about the content and structure of such TP documentation, as well as the principles to be followed by the taxpayers in its preparation. This guidance generally follows the 1995 version of the TPG and the Code of Conduct on transfer pricing documentation for associated enterprises in the European Union. Although not mandatory, the TP Guidelines of the National Revenue Agency are generally followed by both the revenue authorities and the taxpayers.

• Master file consistent with Annex I to Chapter V of the TPG (selected)
• Local file consistent with Annex II to Chapter V of the TPG (selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (not selected)
• Other (specify): (selected)

Legal ReferenceTax and Social Security Procedures Code, Chapter 8 “a”; Tax and Social Security Procedures Code, Chapter 16, Section VI.

Local file: The Local file should be prepared by 30th June of the year following the year to which it relates. If corrective CIT return has been submitted, the Local file should be updated within 14 days of the submission of the corrective tax return, but no later than 30 September. The Local file should be prepared annually. In the absence of significant changes in the comparability factors, the benchmarking study shall be updated at least every three years, but financial data must be updated annually. The Local file should be kept by the taxpayers and provided at the request of the tax authorities. All documents presented to the Bulgarian tax authorities should be in Bulgarian or accompanied by a certified translation into Bulgarian. Master file: Taxpayers should have a Master file for the tax year of the Ultimate Parent Entity, beginning on or after January 1 of the year for which the Local file is prepared, not later than 12 months after the deadline for preparing the Local file. The Master file should be kept by the taxpayers and provided at the request of the tax authorities. All documents should be in Bulgarian or accompanied by a certified translation into Bulgarian. CbC reports: CbC reports should be filled within 12 months of the end of the MNE’s tax year. Resident entities and PEs that are members of an MNE group should file a notification annually online in a standardized form. Taxpayers may use either Bulgarian or English when preparing CbC reports and notifications.

Legal ReferenceTax and Social Security Procedures Code, Chapter 5, Art. 22; Tax and Social Security Procedures Code, Chapter 28, Art. 278a; Ordinance № H-9 of 14.08.2006 for the Order and Ways of Applying the Transfer Pricing Methods, Art. 62 and Art. 63.

A Reporting Entity that has an obligation to file CbC report in Bulgaria, but does not do so within the stipulated deadline, should be subject to a fine of BGN 100 000 to BGN 200 000. If a Reporting Entity files a CbC report, but omits, or declares false or incomplete data in it, the Reporting Entity should be subject to a fine of BGN 50 000 to BGN 150 000. A Constituent Entity that fails to notify the Bulgarian tax authorities when the Ultimate Parent Entity has refused to provide the requested information should be subject to a fine of BGN 10 000. A Constituent Entity should be subject to a fine of BGN 50 000 to BGN 150 000 if it fails to notify the tax authorities whether it, or some other group entity, will file the CbC report. A taxpayer who is obliged to prepare a Local file but does not prepare it should be fined up to 0,5 % of the total value of transactions. A taxpayer who does not have a Master file when obliged to do so should be subject to a fine of BGN 5 000 to BGN 10 000. A taxpayer who provides incorrect or incomplete information in the transfer pricing documentation should be subject to a fine of BGN 1 500 to BGN 5 000. In case of a repeated violation, higher fines apply. Incentive: if during a tax audit a taxpayer presents TP documentation (that meets certain requirements), then the tax authorities should start their analysis from the method chosen by the taxpayer.

Legal ReferenceTax and Social Security Procedures Code, Chapter 8 “a”; Tax and Social Security Procedures Code, Chapter 16, Section VI; TP Guidelines of the National Revenue Agency in Bulgarian, Section 2.

Local file: Bulgarian entities, foreign entities acting through PEs in Bulgaria and sole traders should prepare Local file if as at 31 December of the preceding year at least two of the following thresholds are met: balance sheet value of assets exceeds BGN 38 million, net sales exceed BGN 76 million, average number of employees exceeds 250. Corporate income tax exempt companies and companies subject only to alternative taxes are not subject to mandatory TP documentation. Exempt are also Bulgarian taxpayers participating in domestic inter-company transactions only. The Local TP file should cover transactions exceeding: for sale of goods – BGN 400 000, for all other transactions – BGN 200 000, for loans - BGN 1 000 000 or for loan related interest/income/expenses - BGN 50 000. Master file: Taxpayer obliged to prepare a Local file who is a Constituent Entity of a MNE group should have a Master file. Groups comprising only of resident entities are not required to prepare a Master file. CbC reports: The requirement to file a CbC report applies to a Reporting Entity with consolidated group revenue of 750 million Euro or more. Other TP documentation: Based on TP Guidelines: micro enterprises may not prepare TP documentation, and simplified documentation should be prepared if thresholds have not been reached: (i) BGN 200 000 for supply of goods or provision of services; (ii) BGN 400 000 for grant of intangibles or financing (interest amount). Micro enterprises are those which do not exceed at least 2 of the following: balance value of assets – BGN 700 000, net revenues from sales – BGN 1 400 000, average number of staff – 10 people.

Legal ReferenceNational Revenue Agency Act, Art.10; Tax and Social Security Procedures Code, Chapter 4, Art. 17; Tax and Social Security Procedures Code, Chapter 16, Section II “a”.

It is possible for a taxpayer to obtain an opinion from the revenue authorities on a case-by-case basis, which is not binding but may protect the taxpayer involved from being subject to payment of interest for late payments and/or penalties. Bulgaria is a party to the Arbitration Convention and has implemented Council Directive (EU) 2017/1852. Transfer pricing cases fall within the scope of the Mutual Agreement Procedure Clause provided for in all 70 Double Tax Conventions that Bulgaria has in force.

• Rulings (not selected)
• Enhanced engagement programs (not selected)
• Advance Pricing Agreements (APA) (not selected)
• Mutual Agreement Procedures (selected)
• Other (please specify): (selected)

Legal ReferenceCorporate Income Tax Act, Chapter 4, Art. 15

The Bulgarian Corporate Income Tax Act allows for compensating adjustments in case the reported transfer prices for goods, services or rights transferred in a controlled transaction deviate from the prices which would have been established had the transaction taken place at arm’s length.

Legal ReferenceCorporate Income Tax Act, Supplementary provisions, §1, p. 4 and p. 5

The Bulgarian Corporate Income Tax Act allows for secondary adjustments in case of reporting a transfer price for goods, services or rights transferred in a controlled transaction higher than the price which would have been established had the transaction taken place at arm’s length. According to the Bulgarian legislation, secondary transactions could only take the form of constructive profit distribution.

In all 70 Double Tax Conventions that Bulgaria has in force.

In all cases related to the attribution of profits to PEs Bulgaria follows the approach established in Art. 7 of the OECD Model Tax Convention as it read before 22 July 2010 and the related Commentaries.