Bulgaria – Transfer Pricing: Start-Up Expenses for New Projects Must Be Included in Profit Margin Calculations, Says Supreme Administrative Court
The Bulgarian Supreme Administrative Court issued its decision on a transfer pricing dispute and held that start-up expenses for new projects cannot be excluded when calculating profit margins. The decision was issued in case of a dispute between the National Revenue Agency and Yazaki Bulgaria EOOD (Yazaki), a company engaged in the production of automotive products.
(a) Facts. Yazaki argued that losses from new projects should be excluded from total expenses to adjust its margins, calculating adjusted margins that fell within the comparables' interquartile range. However, the tax authorities rejected these adjustments and recalculated Yazaki's margins to the lower quartile of the comparables' range, resulting in additional tax liabilities.
(b) Issue. Тhe Supreme Administrative Court reviewed a tax audit concerning transfer pricing practices for automotive products. The audit had used the transactional net margin method (TNMM) and determined that Yazaki's reported net cost plus margins did not align with those of comparable companies, which led to additional tax assessments.
(c) Decision. The Supreme Administrative Court upheld the tax authorities' calculations, finding that Yazaki's adjustments were not justified under the TNMM principles and that the reported losses were not proven to be exceptional or temporary. The court annulled the previous decision of Administrative Court - Yambol, dismissed Yazaki's appeal, and affirmed the additional tax and interest claims.
Source: IBFD Tax Research Platform News