Page 17 - Central and Eastern European Transfer Pricing Review

Bulgaria | 17

Bulgaria

KPMG's Views on Transfer Pricing in Bulgaria

Bulgarian taxpayers increasingly seek to prepare transfer pricing documentation
or localize their group-level masterfles in order to mitigate the tax risk associated
with related party transactions.
Tax authorities are showing increased interest in the topic and in recent years
KPMG in Bulgaria has observed several material tax audit assessments related
to transfer pricing.

The Bulgarian tax authorities currently do not have access to the Amadeus database
and their transfer pricing efforts are mainly focused on:

scrutinizing available transfer pricing documentation
exploring potential internal comparables

obtaining comparable data from competitors of the taxpayer.
The preparation of transfer pricing documentation therefore provides the taxpayer with
a relatively strong defense for the price levels of its related party transactions.

Basic information corporate income tax and, in limited Effective date of transfer pricing
cases, for VAT purposes. As a result rules
Tax authority name of these adjustments, an additional Detailed transfer pricing rules were frst
The tax authority in Bulgaria is the 10 percent corporate income tax and in introduced through Ordinance N-9 of
National Revenue Agency at the Ministry certain cases, a negative VAT effect of 14 August 2006.
of Finance. The National Revenue 20 percent may apply.
Agency reviews transfer pricing issues in What is the relationship threshold
the course of ordinary tax audits. Further, the difference between related for transfer pricing rules to apply
party transaction prices and market levels between parties?
Citation for transfer pricing rules may be classifed as hidden distribution The TSSPC sets a threshold of direct
The transfer pricing legislation in Bulgaria of profts. In such cases, a 20 percent ownership of 5 percent of the capital of a
is contained in: administrative penalty and 5 percent
withholding tax may be applied. company. Other criteria for related parties
Article 15 of the Corporate also apply, including common directors,
Income Tax Act Taxpayers are liable to prove to the ability to exersise control, etc.
authorities that their transactions are
Article 27, paragraph 3 of the VAT Act performed under market conditions. What is the statute of limitations
If they are unable to do so, the tax on assessment of transfer pricing
Article 116 of the Tax and Social
Security Procedure Code (TSSPC) authorities are allowed to establish a adjustments?
respective market price and adjust the The general statute of limitations for
Ordinance N-9 of 14.08.2006 on taxable base to it. tax liabilities is 5 years from 1 January
the application of transfer pricing of the year following the year when the
methods. In 2010 a transfer pricing Manual tax was payable (i.e. when the corporate
was published by the tax authorities,
Under the rules set out in the legislation, containing guidance on transfer pricing tax return was fled). For example, the
if related parties perform transactions issues. The Manual is generally based statute of limitations for 2007 expires at
at prices different from market levels, on the 2009 OECD Guidelines and the the end of 2013.
the taxable base may be adjusted EU Transfer Pricing Code of Conduct.
to market prices. This applies for

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