The recently published Bulgarian Law amending and supplementing the Tax and Social Security Act includes some modifications and explanations of the rules for Controlled Foreign Companies (CFC), which were introduced with effect from 1 January 2019, in order to comply with the EU’s Tax Avoidance Directive correspond (ATAD). The modifications entered into force on 13 August 2019.
Under the modifications, for the determination of a CFC to include that the CFC rules will not apply to:
According to the amendments, when determining a CFC, the rules do not apply to:
- a taxable person who is taxed under the alternative tax instead of corporate tax; and
- a CFC that is subject to alternative forms of taxation for its activities in the country where it is resident for tax purposes.
Further, the amendment corrects the flawed language of the original provision, according to which the rules do not apply to a CFC that is not subject to corporation tax in the country where it is resident for tax purposes.
A change is also being made to clarify the treatment of CFC tax losses. This implies that the tax loss of a CFC until exhaustion over the next five years can be deducted from the profits of the same CFC or another CFC in the same foreign country where the loss was incurred. The requirement that such losses may not be deducted in the current or subsequent years from profits made in Bulgaria or other countries remains unchanged.
