The Finance Ministry is consulting on draft legislation for the execution of certain measures of the EU Anti-Tax Avoidance Directive (ATAD).

A new interest limitation rule was proposed in this draft Law. This new rule would restrict the amount of interest that a company can deduct. This rule will increase the tax amount to 30% of earnings before interest, taxes, depreciation, and amortization (EBIDTA). Extra expense would allow to be carried forward until further notice and a safe harbor exemption of amount BGN 500,000 per annum would be granted.

The draft law introduced new controlled foreign company (CFC) rules in line with ATAD. If a taxpayer directly or indirectly holds itself, or with associated enterprises, more than 50% of the foreign entity’s (PE’s) capital, voting rights or rights to profit, and that low-taxed profits of a CFC must be included in the taxable income of a taxpayer in proportion to their holding, then a foreign entity or permanent establishment (PE) will be considered as a CFC. Previously, companies are able to shift their profits to dependent companies in low-tax countries reducing, the taxable profits in the EU. But in the proposed rule, companies can shift their profits, condition that those profit will be taxable in EU.

No changes will be made in general anti-abuse rule (GAAR) of ATAD. The interest limitation and CFC rules are to apply from 1 January 2019 after approval. Again, the explanatory note to the draft Law notifies that hybrid mismatches rule and exit taxation rule in the ATAD should be implemented by December 31, 2019 and December 31, 2021 respectively.