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Bulgaria: Mandatory transfer pricing documentation; new rules for Master and Local files

Bulgaria: Mandatory transfer pricing documentation

Rules requiring transfer pricing documentation were approved by the national assembly in late July 2019.


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The first year for which the mandatory transfer pricing documentation—consisting of a Master file and a Local file—will be required is 2020. The transfer pricing rules also introduced mechanisms for resolving tax disputes with more comprehensive and effective procedures.

New rules for mandatory transfer pricing documentation

Local file

Under the transfer pricing documentation rules, Bulgarian taxpayers which, as of 31 December of the previous year, do not exceed the following thresholds will not be required to prepare a Local file:

  • Net book value of assets not exceeding BGN 38 million (approximately €19 million) and net sales revenue not exceeding BGN 76 million (approximately €39 million), or
  • Average number of personnel (workers) for the reporting period not exceeding 250 individuals

Entities that are not subject to corporate income tax or that are subject to “alternative taxes” as well as entities engaged in related-party transactions only within Bulgaria will also be exempt from the obligation to prepare a Local file.

The Local file will be required to be prepared each year for related-party transactions exceeding the following annual thresholds:

  • BGN 400,000 for sales of goods
  • BGN 200,000 for other transactions
  • BGN 1 million loan principal, or
  • BGN 50,000 interest and other amounts related to loan revenue or expenses

Master file

Taxpayers that are part of a multinational group of companies and that are required to prepare a Local file must also have available a Master file prepared by the ultimate parent company or another member of the group.

Due dates, other procedures

The due date for preparation of the Local file is aligned with the deadline for filing the annual corporate income tax return for the respective year. The due date for the Master file is within 12 months after this period.

For example, the Local file for 2020 will need to be prepared by 31 March 2021 (with a possible extension until 30 September 2021 in the event of an amending corporate income tax return), while the Master file for 2020 will need to be available by 31 March 2022.

The Local file and the Master file will need to be updated on an annual basis. Benchmark studies can be updated, as a rule, every three years at a minimum, but the data on the identified comparable transactions and/or entities must be updated annually.

Transfer pricing documentation will not be submitted by taxpayers to the revenue authorities, but is to be kept by the taxpayers and made available upon request during the course of a tax inspection or a tax audit. There are penalty provisions for a failure to present the transfer pricing documentation upon request and/or for presenting false or incomplete data.

New rules for tax dispute resolution

The legislative 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. In general, these rules aim to improve the existing mechanisms for tax dispute resolution through more comprehensive and effective procedures.

The rules will be applied to tax disputes related to the interpretation and application of both: (1) income tax treaties for the avoidance of double taxation, and (2) the EU arbitration convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.

KPMG observation

While the new transfer pricing documentation rules require the preparation of documentation by certain qualifying entities, the rules also provide an indication what the revenue authorities would expect from other taxpayers. Based on the existing tax law, all taxpayers have a general obligation to prove the arm's length nature of their transactions (which is accomplished through the preparation of transfer pricing documentation).

In recent years, the Bulgarian revenue authorities have been building an administrative and technical capacity and practice in the area of transfer pricing. It has been noted that there have been tax inspections that focus on transfer pricing, followed by material tax assessments from these transfer pricing audits. With transfer pricing identified as a top priority by the Bulgarian revenue authorities, even more increased scrutiny may be expected in the near future.

The preparation of transfer pricing documentation requires taxpayers to articulate convincing, consistent, and coherent transfer pricing positions that will be subject to a detailed functional and economic analysis—taking into consideration a number of factors such as the overall position of the entity within the taxpayer group's value chain, the business value drivers and business cycle, the market, and the existing comparable data. The preparation of contemporaneous transfer pricing documentation is intended to confirm the integrity of the taxpayer's position, and would demonstrate that the taxpayer has already analyzed the arm's length nature of its related-party transactions and, thus, the position it reports in its annual corporate income tax return.

As far as the tax dispute resolution rules are concerned, the new provisions include setting out clear mechanisms for the taxpayer's access to the tax dispute resolution procedure, the duration of the procedure, and the mandatory binding resolution of the dispute. This would allow for more effective resolution of disputes leading to double taxation.

Read an August 2019 report [PDF 56 KB] prepared by the KPMG member firm in Bulgaria

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