Bulgaria: introduction of mandatory transfer pricing documentation requirments
On 13 August 2019, the new mandatory transfer pricing documentation requirements were published in State Gazette Below is a summary of th new rules which, for convenience of the readers, is provided in Questions & Answers format.
Which companies will be obliged to prepare transfer pricing documentation?
The following persons will be obliged to prepare transfer pricing documentation:
Bulgarian legal entities
Foreign legal entities that perform economic activity in Bulgaria through a permanent establishment
Sole traders that perform significant activities
Are there any exempt persons?
The following persons will be exempt from the obligation to prepare transfer pricing documentation if one or more of the below conditions are met:
Persons with net sales revenue under BGN 76 mln (approximately EUR 38 mln), and net book value of assets up to BGN 38 mln. (approximately EUR 19 mln), or average number of personnel during the reporting period – 250 persons;
Persons that are not subject to corporate income taxation;
Persons that are subject to alternative tax under the Corporate Income Tax Act;
Persons performing transactions with individuals that are not sole traders even if they are related parties;
Persons that perform controlled transactions only in Bulgaria;
The amounts (excluding VAT and excise duties) per separate transaction with a related party for the respective year are below the following thresholds:
Sales of goods – BGN 400k (approximately EUR 205k);
Other transactions – BGN 200k (approximately EUR 100k);
The amount of a received/provided loan is above BGN 1 mln (approximately EUR 500k) or the accrued interest and other income/expense related to the loan is above BGN 50k (approximately EUR 26k).
It is envisaged two or more transactions under similar conditions (or connected) with a related party to be grouped for the purposes of calculation of the above thresholds. A local transfer file should be prepared only for the group/s of transactions for which the respective threshold mentioned above has been reached.
What should be included in the transfer pricing documentation?
The transfer pricing documentation should 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 texts provides a detailed description on what information should be included in the transfer pricing documentation. Below is an overview only of the general sections proposed to be included in the local file and the master file.
The local file should include information about the following:
the performed activity;
the controlled transactions (related party transactions);
the applied methods for determining arm’s length prices;
The master file should contain information on the following:
organizational structure and activity of the multinational enterprise group;
the controlled transactions;
the functions of the persons in the group;
the applied transfer pricing policy.
What are the deadlines for preparation of transfer pricing documentation?
The local file should be prepared by 31 March after the end of the year. The persons obliged to have master file should prepare it not later than one year after the deadline for preparation of the local file for the respective year.
It is provided that the first tax year for which the transfer pricing documentation should be prepared is 2020 and therefore, the deadlines for this first period would be 31 March 2021 for local files and 31 March 2022 for master files.
When the transfer pricing documentation should be provided to tax authorities?
The transfer pricing documentation should be kept by taxable persons and provided to tax authorities only on their request during tax checks and tax audits.
How often the transfer pricing documentation should be updated?
The local and master files should be prepared annually. If there are not significant changes in the factors that impact the determining of the arm’s length prices, the benchmark study can be updated at least every 3 years. However, the financial information of the comparable transactions or persons, should be updated annually.
What sanctions are envisaged for non-compliance with the TP documentation rules?
The following sanctions for non-compliance with transfer pricing documentation requirements are proposed:
For failing to provide the local file to tax authorities within a deadline provided by them the suggested penalty would be up to 0,5% of the total amount of the transactions for which the transfer pricing documentation should have been provided.
If a person does not have a master file when such obligation exists, the penalty would be in the range BGN 5,000 – 10,000 (approximately EUR 2,500 - 5,100)
If a person includes incorrect or insufficient information in its transfer pricing documentation, the penalty is in the range BGN 1,500 – 5,000 (approximately EUR 770 - 2,600).
What to do now?
The companies can initiate transfer procing documentation checks, adaptation and amendments of the their existing transfer pricing documentation in order to have the full TP package meeting the proposed mandatory requirements of the Bulgarian legislation. For companies that does not have local and/or master file (when such is required), it is recommended to start with their preparation. Dr. Svetlin Krastanov can help you with the following services related to transfer pricing documentation.
Transfer pricing documentation check
Multinational companies with Bulgarian subsidiaries and local companies that already have transfer pricing documentation could initiate a preliminary Bulgarian TP documentation check in order to analyze whether their master files and local files meet the requirements and contain all information and details which are envisaged in the legislation. The result of such TP documentation check could range from fully compliant files to files that will need additional information to be included and/or recommendations for amendments to the file.
Preparation of local tranfer pricing file and adaptation of the master file
If your group already has a master TP file but the Bulgarian subsidiary still does not have a local TP file, Dr. Svetlin Krastanov can help you with adpatation of the master file in order to meet the mandatory requirements of the Bulgarian legislation as well as with preparation of the local file in compliance with the applicable requirements.
Advice on transfer pricing documentation
If your company is preparing the transfer pricing documentation in-house but your team needs advice on the Bulgarian transfer pricing documentation requirements, Dr. Svetlin Krastanov will be glad to help.
Dislcaimer: The above publication provides a general overview of the discussed topic and is not a tax advice. The author and Tax Academy Ltd. cannot be held responsible for damages or missed opportunities resulting from taking or not taking actions based on the above article.