August 14 2019

Introduction of mandatory transfer pricing documentation and bill to implement EU Tax Dispute Directive – amendments to Tax and Social Security Procedure Code gazetted

Source: IBFD Tax Research Platform News

On 13 August 2019, amendments to the Tax and Social Security Procedure Code were published in the State Gazette. They concern the following topics:


The following persons will be obliged to prepare transfer pricing documentation:

  • Bulgarian legal entities;
  • foreign legal entities carrying on economic activities in Bulgaria through a permanent establishment; and
  • sole traders carrying on significant activities.

An exemption from the obligation to prepare transfer pricing documentation applies if one or more of the following conditions are met:

  • companies with net sales revenue under BGN 76 million (approximately EUR 38 million) and with a net book value of assets of up to BGN 38 million (approximately EUR 19 million), or with an average number of staff not exceeding 250 persons during the reporting period;
  • entities that are not subject to corporate income tax;
  • entities that are subject to alternative tax under the Corporate Income Tax Act;
  • entities conducting transactions with individuals who are not sole traders even if they are related parties;
  • entities that perform controlled transactions only in Bulgaria; and
  • the amounts (excluding VAT and excise duties) involved for each separate transaction with a related party for the relevant year are below the following thresholds:
    • for sales of goods: BGN 400,000 (approximately EUR 205,000);
    • for other transactions: BGN 200,000 (approximately EUR 100,000); and
    • with respect to loans taken out or granted: the amount is above BGN 1 million (approximately EUR 500,000), or the accrued interest and other income/expense related to the loan are above BGN 50,000 (approximately EUR 26,000).

Two or more transactions under similar conditions (or connected) with a related party will be grouped for the purposes of calculation of the above thresholds. A local transfer file must be prepared only for the group's transactions for which the aforementioned relevant threshold has been reached.

The transfer pricing documentation must include a local file. In addition, a master file will be required only if the entity is part of a multinational group of companies.

The local file must be prepared by 31 March after the end of the relevant tax year. The persons obliged to prepare a master file must do so not later than 1 year after the deadline for preparing the local file for the relevant year. Since the first tax year for which the transfer pricing documentation must be prepared is 2020, the deadline for this first period therefore is 31 March 2021 for both the local and the master files.

The transfer pricing documentation must be kept by taxable persons and provided to tax authorities only at their request during tax checks and tax audits. Both the local and master files must be prepared annually. If no significant changes are made to the factors that impact the determination of the arm's length prices, the benchmark study must be updated at least every 3 years. However, the financial information on comparable transactions or persons must be updated annually.

The sanctions for non-compliance with transfer pricing documentation requirements are as follows:

  • for failing to provide the local file to the tax authorities before the deadline provided by them, the penalty will be up to 0.5% of the total amount of the transactions for which the transfer pricing documentation should have been prepared;
  • if a company does not prepare a master file although such an obligation exists, the penalty will be between BGN 5,000 and BGN 10,000 (approximately EUR 2,500 to EUR 5,100); and
  • if a company includes incorrect or insufficient information in its transfer pricing documentation, the penalty will be between BGN 1,500 and BNG 5,000 (approximately EUR 770 to EUR 2,600).