On 9 October 2019, a draft Law on “Amendment and Supplementation of the Corporate Income Tax Act” was presented to the National Assembly (NA). The bill proposes provisions transposing the exit taxation measures of the EU Anti-Tax Avoidance Directive 2016/1164 (2016) (ATAD) and the anti-hybrid mismatches rules of EU Directive 2017/952 (2017) (ATAD II). The amendments includes the following measures:

Anti-hybrid mismatch rule

The proposed measures contain rules for removing inconsistency mismatches and double deduction mismatches. This also includes a primary rule that denies deduction for incurred costs and payment by a taxpayer if this results in a hybrid mismatch. Also included a secondary rule, which provides for the inclusion of income for a taxpayer who receives a payment, provided it is deducted in the taxpayer’s territory.

The proposed hybrid mismatch rules apply to transactions between associated entities, parts of the same enterprise or to structured arrangements (transactions between independent parties for which the financial benefit of a hybrid mismatch is part of the system) both between EU Member States and between EU Member States and third states.

Exit taxation

Under the proposed rules, a taxpayer is liable to tax if he transfers assets outside Bulgaria or changes his tax domicile to another jurisdiction. The departure tax applies only to transfers between parts of the same company and not to transactions between subsidiaries of multinationals.

In addition, the exit tax does not apply if assets are returned to Bulgaria within 12 months, provided that the transfer is related to certain financing transactions. It is also provided that the departure tax can be deferred with the payment of installments over a period of five years if a transfer is made to an EU Member State or an EEA Member State with which Bulgaria has concluded a Mutual Assistance Agreement.

The proposed rules are effective from 1 January 2020.