Worldwide transfer pricing reference guide 2014

Bulgaria
Taxing authority and tax law
Taxing authority: National Revenue Agency (NRA).
Tax laws, rules and regulations:
• Corporate Income Tax Act (CITA), promulgated in the State Gazette (SG) issue 105/22 December 2006
• Tax and Social Insurance Procedure Code (TSIPC), promulgated in SG issue 105/29 December 2005
• Ordinance N 9/14 August 2006 (Ordinance N 9) on the methods for determining market prices, promulgated in
SG issue 70/29 August 2006)
• Double taxation treaties enacted by Bulgaria
Relevant regulations and rulings
Bulgarian tax legislation does not explicitly contain an articulation of the arm’s length principle. According to Article 15 of CITA, where
related parties enter into transactions whose commercial and financial terms differ from those of unrelated party transactions, resulting
in a different taxable base than the taxable base that would have been achieved as a result of unrelated party transactions, the tax
authorities will adjust the taxable base accordingly.
Furthermore, under Article 16 of CITA, where one or more transactions, including between unrelated parties, have been concluded
under terms in which the fulfillment leads to lower or no taxation, the taxable base will be determined taking no notice of these
transactions, certain terms or their legal form. Instead, the taxable amount that would be obtained upon effectuating a transaction, in a
market customary way of the relevant type at market prices, and that is intended to achieve the same economic result, but which does
not lead to lower or no tax, will be considered.
The methods applied for determining the arm’s length prices have been introduced by TSIPC and Ordinance N 9.
The NRA released a Manual on Transfer Pricing Audits (the Manual) in 2008. By introducing a chapter on Transfer Pricing Documentation
(documentation) requirements in the Manual early in 2010, the NRA approved the documents that transfer pricing auditors would
require during their investigations.
The Manual is binding on tax auditors. However, it is not technically a part of the law. Nevertheless, it is in the taxpayers’ interest to
comply with the Manual, since it defines what the NRA usually requires during a transfer pricing audit. Compliance with the Manual is
expected to significantly narrow the scope of disputes over transfer pricing matters during tax audits.
OECD Guidelines treatment
In general, the Bulgarian transfer pricing requirements follow the OECD Guidelines. However, the 2010 version of the OECD Guidelines,
in which the hierarchy of methods is abolished, has not yet been introduced in the local transfer pricing legislation.
Furthermore, Bulgarian transfer pricing rules do not explicitly deal with business restructuring.
Priorities/pricing methods
Under Bulgarian transfer pricing legislation, one of the following methods should be applied in order to determine the market price:
• CUP
• Resale Price or Cost Plus
• Profit Split or TNMM
Unlike most other OECD members, Bulgarian transfer pricing rules provide for a hierarchy of methods. Ordinance N 9 regulates the order
of consideration: the application of traditional transfer pricing methods is preferred. Moreover, the CUP method is considered to be the
most direct and reliable measure of an arm’s length price for controlled transactions. TNMM and Profit Split methods are used only in
cases where the result of applying the traditional methods is not satisfactory.
Worldwide transfer pricing reference guide
50