Bulgaria proposes its first transfer pricing documentation rules

by Ivan Dimitrov

The Bulgarian government has presented for public discussion a draft law requiring multinationals to prepare transfer pricing documentation.

The new draft, introduced 5 November, amends Bulgaria’s Tax and Insurance Procedure Code, aiming to reduce the tax avoidance and reflecting international transfer pricing standards.

Prior to the issuance of the draft guidance, Bulgaria did not have detailed rules on what information must be gathered and presented by taxpayers to establish market prices for related party transactions.

Using action 13 of the OECD/G30 base erosion and profit shifting (BEPS) action plan outcomes and  European Union Transfer Pricing Documentation (EUTPD) rules as a milestones, the Bulgarian draft law requires companies and permanent establishments to prepare transfer pricing documentation if net sales income exceeds BGN 16 million (apx. USD 9.3 million) or if asset value exceeds BGN 8 million (approx. USD 4.7 million).

In short, the text foresees that transfer pricing documentation should consist of a local report showing business information, related party transactions, and the methods used to determine market prices. If participating in a multinational group, a summarized report should also be obtained containing information about the organizational structure of the group and its activity, group functions, and applicable transfer pricing policy.

According to the draft, the first transfer pricing report should be drafted and adopted for 2019 and the transfer pricing report should be updated each year. However, to reduce administrative burdens and the costs, the tax authorities permit the study of comparable independent transactions and/or individuals to be renewed every 3 years as long as there are no significant changes to the factors influencing market pricing,

Public discussion is expected to be finalized in one month and the expectation is that the new rules will be adopted in December, entering into force 1 January 2019.

– Ivan Dimitrov is in-house legal counsel at an international payroll and accounting company based in Bulgaria.  

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