Bulgaria Implements Rules For Preparation Of Documentation For Transfer Pricing – Tax
Bulgaria Implements Rules For Preparation Of Documentation For Transfer Pricing
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In the issue 64/13.08.2019 of The State Gazette, the Law on the
Amendment and Supplementation of the Tax and Social Insurance
Procedure Code (TSIPC) has been promulgated. A new Chapter 8 A has
been created and it specifically introduces rules for the
preparation of transfer pricing documentation.
The Transfer Pricing documentation should be prepared to
demonstrate the nature of commercial and financial relationships of
the taxpayer with related parties. This obligation is in force in
the existing TSIPC but there were no clear and specific rules about
the means of proof and the necessary content.
As of 01.01.2020, the documentation must provide that the
conditions of commercial and financial relationships between
related parties are compliant with the arm’s length principle.
Specifically: ” the conditions that would be established
between independent persons in comparable circumstances ” the
transactions were carried out at market prices
The transactions that establish a commercial and financial
relationship between related parties are called controlled
The TP documentation consists of a local file that includes
activity information, controlled transactions (related party
transactions) and market pricing methods used. The local file must
be prepared by 31 March of the year following the year to which it
relates. This deadline is consistent with the deadline for filing
the annual tax return under Art. 92 of the Corporate Income Tax
When individuals are part of a multinational enterprise group,
they should also have a summary dossier containing information
about the group, including organizational structure, activity,
controlled transactions, functions of group entities and the
applicable transfer pricing policy.
Entities which have the obligation to prepare TP documentations
include: ” As per Art. 71b, par.1, the local legal entities,
foreign legal entities carrying out economic activity in the
Republic of Bulgaria through a place of business, and sole
proprietors who determine their taxable income in accordance with
Art. 26 of the PITA, are obliged to prepare a local file when
conducting controlled transactions.
The obligation is not applicable to:
- The persons who are exempt from
corporate tax under Part Two, Chapter Twenty Two, Section II of the
- The persons carrying out activity
subject to an alternative tax under Part Five of the CITA
- The persons who did not exceed the
following indicators as of December 31 of the previous year: a) the
carrying amount of the assets does not exceed 38 000 000 BGN b) the
net sales revenue is up to 76 000 000 BGN or c) the average number
of employees over the reporting period does not exceed 250
- The entities are conducting
controlled transactions only in the country.
The TP local file is not to be prepared for controlled
transactions with individuals other than sole traders. Thresholds
have been introduced in order to determine the requirement to
prepare the TP file. Specifically, transactions involving sale of
goods exceeding BGN 400,000 (or BGN 200,000 in other cases) give
rise to the requirement to prepare a TP file. Additional thresholds
are defined for loan-related transactions.
A taxpayer who fails to prepare a local file under Chapter Eight
(a) shall be liable to a pecuniary sanction of up to 0.5 % of the
total value of the transactions for which the documentation was to
be prepared. Additional sanctions have been prescribed as well, for
incorrect or incomplete information.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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