December 2019 / Bulgaria

On 6 December 2019, amendments to various tax acts were published in the State Gazette. Amendments to the Tax and Social Security Procedures Code concerning the thresholds for preparation of mandatory transfer pricing documentation are set out below. More specifically, the obligation for preparation of such documentation will not be applicable for persons that, as at 31 December of the previous year, did not exceed at least two of the following thresholds:

• net book value of assets: BGN 38 million (approximately EUR 19 million);
• net sales revenue: BGN 76 million (approximately EUR 39 million); and
• average number of personnel for the reporting period: 250 persons.

The other rules and thresholds regarding the mandatory transfer pricing documentation remain unchanged. The above rules will apply from 1 January 2020.

On 6 December 2019, amendments to various tax acts were published in the State Gazette. Amendments to the Value Added Tax Act (the VAT Act) are set out below. For other amendments, The main changes relate to implementation of "quick fixes" for intra-Community trade within the European Union as provided in Council Directive (EU) 2018/1910 of 4 December 2018 amending Directive 2006/112/EC as regards the harmonization and simplification of certain rules in the value added tax system for the taxation of trade between Member States. An overview of implemented rules that will apply from 1 January 2020 is set out below. In addition, other amendments to the VAT Act were also published in the State Gazette Changes to the required evidence for application of the 0% VAT rate for intra-Community supplies As from 1 January 2020, suppliers must obtain a document (e.g. invoice, protocol, etc.) for intra-Community supplies, as well as documents evidencing dispatching/transporting the goods to other EU Member States (as provided in article 45a of Implementing Regulation (EU) 282/2011) in order to apply a 0% VAT rate to an intra-Community supply. Other mandatory conditions for applying the 0% VAT rate to intra-Community supplies are as follows:

• the recipient must provide to the supplier its VAT number issued by an EU Member State (different from Bulgaria); and
• the intra-Community supply must be reported correctly in the VIES return (EC Sales List) of the supplier.

Introduction of call-off stock simplification rules and new reporting requirements in this respect Currently, the call-off stock simplification is possible. Therefore, it is considered that an intra-Community supply and acquisition are taking place when the goods arrive at the warehouse of the recipient. As from 1 January 2020, the new EU call-off stock simplification rules will be applied. As a result, an intra-Community supply/acquisition will be deemed to take place when the goods are removed from the warehouse by the recipient. Specific rules are introduced for cases of changing the recipient or when the goods are stored in the warehouse of the recipient for more than 12 months. New reporting requirements are introduced for persons involved in a call-off stock simplification, as well as penalties for non-compliance with these requirements. New rules for successive supplies (chain transactions) between EU Member States Changes are introduced for successive supplies (chain transactions) within the European Union in order to establish rules for determining the transaction which should be considered as intra-Community supply subject to 0% VAT rate in the cases where an intermediary operator dispatches or transports the goods either himself or through a third party acting on his behalf.

On 6 December 2019, amendments to various tax acts were published in the State Gazette. Amendments to the Corporate Income Tax Act (the Act) are set out below. Implementation of EU exit taxation and anti-hybrid mismatch legislation The exit taxation rules contained in European Union Anti-Tax Avoidance Directive 2016/1164 (2016) (ATAD 1) and the anti-hybrid mismatches rules contained in Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (ATAD 2) were implemented into national legislation. Recognition of expenses for technical infrastructure Expenses for construction, improvement and repairs of public technical infrastructure owned by the state or a municipality incurred by a taxable person and relating to the person's economic activity (even if the infrastructure is also available for use by other persons) will be recognized for corporate income tax purposes (either directly or through depreciation). In addition, and under certain conditions, expenses incurred in the period 1 January 2015 to 31 December 2019 may also be recognized. Amendments to thin capitalization rules The list of expenses not considered interest expense for the application of the thin capitalization rules is extended to include the lease and/or loan which is guaranteed and/or secured both by the lessee and/or borrower and its related part. In that case, the part of the interest expense calculated by multiplying the total interest expense by the market price of the security provided by the lessee and/or borrower (determined at the date when the security is provided) and the amount of the lease and/or loan should not be included in the interest expense. If the coefficient is higher than 1, it will be considered to be 1 for the purposes of this provision. Amendments to controlled foreign company (CFC) rules The criteria for determining the persons for which CFC rules apply is clarified. Currently, the Act provides that the CFC rules are not applicable for a CFC which is not subject to corporate income tax in the country in which it is a tax resident. According to the amendment, CFC rules will not be applicable for a CFC which:

• is subject to alternative forms of taxation of its activities in the country in which it is a tax resident or in another country; or
• has a permanent establishment in another country which is subject to alternative forms of taxation of its activities.

Amendments to rules on application of tax reliefs An amendment is introduced regarding the application of the tax relief allowing companies to retain the full or partial amount of the corporate income tax due, provided that it is used for specific investments referred to in the Corporate Income Tax Act. More specifically, to avoid different interpretations in situations where the requirements for applying the tax relief are not met, it is explicitly stated that the full amount of tax is due, not just the part related to the amount not invested.

On 6 December 2019, a proposal for amendments (the proposal) to the VAT Act was submitted to the parliament by some of its members. The proposal addresses documents required for evidencing intra-Community supplies. The previous amendment, gazetted on 6 December 2019 provided that, as from 1 January 2020, suppliers must obtain a document (invoice, protocol, etc.) for intra-Community supplies, as well as documents evidencing dispatching/transporting the goods to other EU Member States (as provided in article 45a of Implementing Regulation (EU) 282/2011) in order to apply a 0% VAT rate to an intra-Community supply. Other mandatory conditions for applying the 0% VAT rate to intra-Community supplies are as follows:

• the recipient must provide the supplier with its VAT number issued by another EU Member State; and
• the intra-Community supply must be reported correctly in the VIES return (EC Sales List) of the supplier.

On 13 December 2019, the National Revenue Agency announced a new service allowing taxpayers to verify the assignment of, and receive updates on the status of, ongoing tax checks or tax inspections. A taxpayer under investigation will be able to confirm the date, scope, the tax auditing team and audit deadline. The audit may, among other things, include requests for information and checks. A taxpayer may use the new service in person at every territorial directorate of the National Revenue Agency (NRA), or do so electronically using the NRA's e-portal. Obtaining access to the service requires a unique identification number of the tax check or tax inspection. The new proposed amendments of 6 December 2019 introduce an alternative option allowing taxpayers to also use the documents evidencing the transportation/dispatch as provided in the regulations for the application of the VAT Act. As a next step, the proposal must be voted on by the parliament.

On 18 December 2019, the bill implementing the provisions of Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU (DAC6) as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements was adopted by the parliament. The bill, introduced to the parliament by the government, is available here.