Worldwide transfer pricing reference guide 2014

Bulgaria (continued)
Documentation requirements (continued)
• Analysis of associated transactions:
• Presentation of the selected economic model: an explanation of the specific strategy of the enterprise (for example, the penetration
policy to gain a share of a particular market)
• Presentation of the associated transactions: objects of transactions, distribution, services, financial transactions, contracts, countries
involved, special terms and conditions
• Functional analysis:
• Who plays what role in an associated transaction; analysis of functions, risks and assets of each party in the transaction
• Analysis of methods: presentation of the transfer pricing method used
• Economic and financial analysis of the transaction: profits, analysis of the market, nature of the financial terms and conditions
The Manual recommends that taxpayers should have the transfer pricing Masterfile at their disposal, and that contain information on a
group level, as well as a country-specific file prepared in Bulgarian for each tax year and updated annually.
Documentation deadlines
Under the Bulgarian transfer pricing rules, taxpayers involved in controlled transactions are not obligated to file their transfer pricing
documentation with the NRA. Transfer pricing documentation is submitted to the tax authorities only upon request (e.g., during a tax
audit or tax documentation review when a tax refund or tax relief under a Double Tax Convention is claimed). In the course of a transfer
pricing audit, the tax authorities could request documents and information within a certain limited period of time. The information
requested usually concerns the group’s structure, the audited company and its activities, analysis of transactions involving related
parties, the functions performed in relation to those controlled transactions, proof and written explanation with regard to the transfer
pricing methods applied, among others. It is time consuming to prepare and present the required documentation according to the
NRA requirements. Therefore, the time limit set by the NRA (i.e., usually 14 days) is likely to be insufficient. For that reason, taxpayers
are encouraged to have their transfer pricing documentation prepared and made available in compliance with the NRA’s guidelines
before request.
Statute of limitations on transfer pricing assessments
In Bulgaria, documentation may be required for any open tax year, as well as for tax obligations not covered by the statute of limitation
period.
As a general rule, the statute of limitation period for CIT is five years from the year following the year of expiry of the statutory term
granted for filing CIT returns. 1
Return disclosures/related party disclosures
Related party transactions falling within the scope of Article 15 of CITA could be disclosed in the annual tax return.
Furthermore, taxpayers are required by the National Accounting Standards (as well as by the International Accounting Standards) to
disclose in their financial statements relationships between related parties regardless of whether there have been transactions between
them, as well as the related party transactions.
Bulgarian tax legislation provides for a quite broad definition of “related parties.” For instance, for accounting purposes, related parties
should be parties where one of which exercises control over the other; whereas for tax purposes, parties will be related not only in case
of control, but also in the case where one of the parties holds 5% of the voting shares of the other party.
Under Bulgarian legislation “related parties” are:
• Spouses
• Certain type of relatives
• Employer and employee
1 The Bulgarian statutory term for both filing the annual CIT return and remittance of the amount due is 31 March of the following year. Thus, for example, FY08 is open for tax
audits until the end of FY14, since the CIT return for FY08 should have been filed by 31 March 2009.
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