On 5 November 2018, the Ministry of Finance (MoF) published a draft consultation, proposing new mandatory documents for transfer pricing documentation, and a penalty for failure to comply with up to 1% of the value of undocumented transactions. The bill will subsequently proceed through the legislative process and is expected to enter into force on 1 January 2019.

According to the draft, the local file needs to be available upon request by 31 March of the year following the year to which it relates. Members of multinational enterprises should also be prepared to present the master file of the group upon request. The master file needs to be ready within 12 months from the end of the fiscal year of the group’s ultimate parent entity.

Using action 13 of the OECD/G30 base erosion and profit shifting (BEPS) action plan outcomes and European Union Transfer Pricing Documentation (EUTPD) rules as a milestones, the Bulgarian draft law proposed following requirements:

• Starting from 2019, taxpayers will be obliged to prepare the local TP file every fiscal year if they have more than (i) BGN 16,000,000 of net sales, or (ii) BGN 8,000,000 asset net book value as at 31 December of the prior year. Exempt are the entities not liable to corporate income tax or subject to alternative taxes under the CIT Act.
• The local file should be prepared for transactions exceeding certain monetary thresholds per annum (BGN 400k for goods, BGN 200k for services/intangibles/financial assets, BGN 2 m loan principal/ BGN 100k interest).
• Documentation of controlled transactions with natural persons (except sole traders) is not mandatory.

While the master file and local file need to be updated each year, the bill proposes that applicable benchmarks must be updated every three years. It is expected that TP documentation will be requested during tax reviews or audits.

The draft bill also proposes a penalty for failure to provide TP documentation ranging from 0.5 to 1% of the volume of the related-party transactions that should have been documented. Failure to present the TP file may also lead to other negative tax consequences, including that the penalties proposed may end in significant liability.

The proposed law is part of the amendment to the Tax and Social Security Code. Public comments are expected by 5 December 2018.