June 2019 / Bulgaria

On 5 June 2019, the parliament voted at first reading amendments to the Tax and Social Security Procedure Code, as follows:

• the introduction of mandatory transfer pricing documentation requirements; and
• implementation of the EU Tax Dispute Resolution Directive (2017/1852) of 10 October 2017 on tax dispute resolution mechanisms in the European Union.

As regards the introduction of mandatory transfer pricing documentation requirements, the following changes were made to the initial proposal of the Ministry of Finance of 5 November 2018:

• the threshold for preparing mandatory transfer pricing documentation on loan transactions has been lowered to amounts of BGN 1 million (BGN 2 million in the initial proposal) or interest payments exceeding BGN 50,000 (BGN 100,000 suggested initially);
• the thresholds for a number of different transactions (e.g. goods, services, intangibles, loans) will be determined for each controlled transaction; only in specific cases, the transactions will be bundled (the initial proposal suggested that thresholds be calculated for each category of transaction with all related parties); and
• the first period for which transfer pricing documentation must be prepared will be 2020 (the initial proposal suggested that the first period be 2019).

As a next step, the proposal must be voted by parliament at second reading. Further developments will be reported when they occur.

On 5 June 2019, the parliament submitted a proposal for the introduction of new reduced VAT rates, as follows:

• a 9% VAT rate for medicinal products included in the list of medicinal products covered under the National Health Insurance Fund, and for dietary foods for special medical purposes; and
• a 5% VAT rate for meat, milk, eggs, flour and flour-based food products.

Currently, the only reduced VAT rate in Bulgaria is 9%, which applies to accommodation services provided in hotels and similar establishments. In addition, the threshold for general mandatory VAT registration is proposed to be increased from BGN 50,000 to BGN 100,000. The above amendments should apply as from 1 January 2020. As a next step, the proposal will be voted on at two readings by the parliament. Further developments will be reported once they occur.

Report from our correspondent Lubka Tzenova, Lawyer and Professor at Bulgarian University of Finance, Business and Entrepreneurship

On 5 June 2019, the Bulgarian parliament voted at first reading on amendments to the Tax and Social Security Procedure Code that include the following main topics:

• introduction of mandatory transfer pricing documentation requirements; and
• implementation of the EU Tax Dispute Resolution Directive (2017/1852) of 10 October 2017 on tax dispute resolution mechanisms in the European Union.

Tax disputes

Tax disputes will be resolved in accordance with the double taxation treaties to which the Republic of Bulgaria is a party, the EU Arbitration Convention and the new tax dispute resolution procedure. The procedure will be initiated by submitting a complaint to the Minister of Finance who has been designated as the competent authority for the resolution of such disputes in Bulgaria. A specialized department within the Tax Administration's head office will support the Minister of Finance in the decision-making process. Persons not satisfied with the decisions issued by the Minister of Finance may seek remedy with the relevant administrative court.

Transfer pricing documentation

The amendments introduce requirements for drafting special transfer pricing documentation which will consist of a local file and a summary file. The preparation of such documentation will be mandatory for local legal entities, foreign legal entities operating in Bulgaria through their place of business, and sole traders with a significant volume of business. The obligation will be waived for:

• persons whose net sales revenue is below BGN 16 million and whose assets have a balance sheet value of less than BGN 8 million;
• persons not subject to corporate taxation;
• persons subject to alternative taxation; and
• related parties based on 25% shareholding.

The deadline for submission of the documentation to the National Revenues Agency is 31 March of the following year. Failure to comply with this requirement will be subject to fines.

On 14 June 2019, members of parliament submitted a proposal for amendments to the Personal Income Tax Act regarding the tax deduction for dependent (minor) children. Currently, a tax deduction is available for up to three children in which case the annual taxable income of one of the parents is decreased by BGN 200 for one child, by BGN 400 for two children and by BGN 600 for three children. Under the proposal, the annual deduction would be increased to BGN 6,000 per child without the current limitation of up to three children. As a next step, the proposal will be voted on at two readings by the parliament. Further developments will be reported as they occur.