Bulgarian transfer pricing legislation is anchored in the arm’s length principle, following OECD guidelines. It draws from several sources, including the Corporate Income Tax Act and the Tax and Social Security Procedure Code. Bulgaria’s transfer pricing guidelines were updated in 2010 and align with the OECD Transfer Pricing Guidelines. The legislation mandates TP documentation, comprising a local and master file. Related parties include spouses, relatives, shareholders, and entities with a 5% shareholding. The documentation is not submitted regularly but can be requested by tax authorities. Penalties exist for non-compliance.
Bulgaria’s transfer pricing regulations are founded on the arm’s length principle as outlined in the 2017 OECD Model Tax Convention. These regulations are drawn from various sources, including the Corporate Income Tax Act, the Tax and Social Security Procedure Code, and other legal provisions.
In general, Bulgaria’s transfer pricing guidelines align with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TP Guidelines). The Bulgarian TP guidelines, last updated in 2010, are integral to Bulgarian legislation, aiding in the interpretation of the arm’s length principle.
Bulgaria’s Corporate Income Tax Act refers to the definition of related parties established in the Tax and Social Security Procedure Code (TSSPC). Related parties in Bulgaria encompass a broad range of relationships, including spouses, relatives, employers and employees, shareholders, entities with shared management, and more. Notably, the definition for tax purposes differs from that used for accounting purposes, with tax regulations being more inclusive.
Mandatory transfer pricing documentation in Bulgaria is based on the master and local file structure, mirroring the OECD TP Guidelines and BEPS Action 13. While there is no regular filing requirement, tax authorities can request documentation during a tax proceeding. The required information for documentation is explicitly stated, with the deadline for local file preparation as of June 30, 2021.
As of 2020, specific thresholds have been set for transfer pricing documentation in Bulgaria. These include net book value of assets, net sales revenue, and employee count. All taxpayers must be able to prove the arm’s length nature of their related-party transactions.
The documentation process includes an analysis of the industry’s value drivers and an in-depth look at the local entity’s management structure and business strategies. It also considers business restructurings and intangibles transfers in the recent past.
Bulgaria adopts the OECD transfer pricing documentation model based on the Master file and Local file, following BEPS Action 13 recommendations.
Benchmark studies are mandatory in Bulgaria, with a requirement to update comparable transactions annually. These studies should begin with the Bulgarian market data.
While inter-company legal agreements formalize relationships between entities, they hold a lower rank as per the prevailing concept outlined in the OECD 2017 Guidelines.
Taxpayers must provide annual local entity financial statements for the fiscal year for which documentation is required.
Taxpayers must maintain records for five years after the expiration of the statute of limitations for the relevant tax year. Failure to provide documentation upon request can lead to penalties. There are also specific fines for violations in filing Country-by-Country reports.
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