Bulgaria’s new Transfer Pricing Methods Application Ordinance, effective from 1 January 2026, introduces a two-stage transfer pricing analysis, stricter risk-control and documentation requirements, and updated rules for intragroup services, intangibles, and financial transactions.
Bulgaria’s new Ordinance on Transfer Pricing Methods Application (the New Ordinance) entered into effect on 1 January 2026, replacing the previous 2006 regulatory framework. Introduced to align national tax regulations with updated OECD Transfer Pricing Guidelines and support Bulgaria’s OECD accession process, the New Ordinance explicitly establishes that its provisions must be interpreted and applied in accordance with the most recent edition of the OECD Guidelines.
The New Ordinance details specific requirements for assessing intragroup services, intangible assets, and financial transactions, such as the potential reclassification of loans into equity. The new rules also emphasise transparent documentation and the most appropriate method to ensure transactions meet the arm’s length principle.
Mandatory two-stage TP analysis framework
The New Ordinance defines a binding two-stage methodology for transfer pricing evaluations:
- Delineation of the controlled transaction: Evaluating the transaction based on its true economic substance, actual party behaviour, available options, and five core comparability factors. Transactions may be disregarded or reclassified if independent parties in comparable circumstances would not have accepted the agreed terms.
- Comparability analysis: Comparing the delineated transaction against uncontrolled market transactions to determine compliance with the arm’s length principle.
Functional analysis and risk control standards
The Ordinance requires parties assuming higher risks to have actual control over those risks and sufficient operational and financial capacity to bear potential losses. Taxpayers must also document the human and financial resources used to manage the risks.
Comparability analysis and TP method selection
The New Ordinance formalises the six stages of comparability analysis and updates key procedural rules:
- Most appropriate method concept: Taxpayers are no longer required to review and systematically eliminate traditional transactional methods before selecting the Transactional Net Margin Method (TNMM). TNMM can be chosen directly if justified as the most appropriate method.
- Other methods: Non-traditional methods outside the five standard OECD methods are permitted provided their appropriateness is properly documented.
- Timing & historical data: Priority must be given to uncontrolled transaction data from the same period. Multi-year data can only be used to clarify key circumstances or analyse multi-year transactions.
- Prohibition of hindsight: Transfer pricing analyses cannot rely on facts or information that were unpredictable or unknown to parties acting in good faith at the time of the transaction.
Documentation standards and audit impact
Tax authorities may reject taxpayer-selected comparables if the transfer pricing analysis lacks transparency, objectivity, or consistency. Arm’s length conclusions are binding on tax authorities only when the required transfer pricing documentation is properly prepared and submitted within the statutory deadline. At the same time, taxpayers should ensure that documentation efforts and costs are proportionate to the tax impact and significance of the transaction.
Rules for specific transaction types
The Ordinance introduces dedicated compliance criteria across specific business activities:
- Intra-group services: Requires proof of direct or expected economic benefit, verification of non-duplication, exclusion of shareholder activities, reliable cost allocation data, and specific provisions for subscription services.
- Intangibles: Fully harmonised with current OECD standards, including specific rules for hard-to-value intangibles (HTVI).
- Financial transactions: Transposes Chapter X of the OECD Guidelines, codifying rules for reclassifying interest-bearing debt into equity and setting criteria for evaluating debtor creditworthiness.
Tax authorities are expected to apply these updated standards during upcoming audits of transfer pricing documentation due by 30 June 2026.
