Bulgaria publishes new mandatory TP documentation requirements

16 August, 2019

On 13 August 2019, amendments to the Tax and Social Security Procedure Code (TSSPC) were published in the State Gazette. The law introduced the mandatory new transfer pricing (TP) documentation requirements in Bulgaria.

Documentation thresholds:

Under the law, transfer pricing documentation will be mandatory for large companies only. All taxpayers engaged in related-party cross-border TP transactions will be obliged to prepare a local TP file if they have аn annual net revenue exceeding BGN 76,000,000 and either:

Assets with a balance-sheet value exceeding BGN 38,000,000 as of December 31 of the previous tax year; or
A workforce of more than 250 employees on average for the respective tax period.

Taxpayers are exempt from having to prepare a local file if they are not subject to corporate income tax, subject only to alternative taxes, or meet the above criteria but are only engaged in domestic related-party transactions.

Covered transactions:

The local file must be prepared for transactions that exceed the following annual monetary thresholds:

Sale of goods – BGN 400,000;
Loans – Principal of over BGN 1 million or interest and other revenues and expenses related to the loan of over BGN 50,000; and
All other transactions – BGN 200,000.

The listed thresholds are calculated separately for each controlled transaction. Entities that are obligated to prepare a local file and that are part of multinational entity (MNE) groups also must have a master file for the respective year, prepared by the ultimate parent entity (UPE) or another group entity.

Documentation Timing:

Under the new law, the local file needs to be prepared by March 31 of the following tax year. Taxpayers who are part of multinational corporate groups must also have the group master file at their disposal, and be ready to present it upon request. The master file will be available no later than 12 months after the deadline for preparing the local file. The first tax year for preparing these files will be 2020.

While the master file and the local file need to be updated each year, the Code allows that applicable benchmarks are updated every 3 years.

Penalties:

The law also provides for administrative sanctions in cases of non-compliance with the newly adopted rules. Accordingly, failure to submit the local file may trigger penalties up to 0.5% of the volume of the related-party transactions that should have been documented. Failure to submit the master file may trigger penalties ranging from BGN5,000 to BGN10,000. If the TP documentation contains false information, is incomplete or is not compliant with the new legal requirements, the taxpayer could receive a fixed penalty of between BGN 1,500 and BGN 5,000.

Tax dispute resolution:

The new amendments also introduce rules on tax dispute resolution between Bulgaria and other EU Member States, and are based on the principles set out in the EU arbitration convention. The rules will be applied to tax disputes related to the interpretation and application of both:

Income tax treaties for the avoidance of double taxation; and
The EU arbitration convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.

Bulgaria