Bulgaria

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

The transfer pricing guidelines drafted by the Bulgarian tax authorities recommend that taxpayers prepare and maintain transfer pricing documentation contemporaneously with the controlled transaction or by the date of filing the tax return at the latest. However, taxpayers are not obliged by law to create and maintain transfer pricing documentation before or at the time of the controlled transaction. In case of a tax audit the taxpayers have to be able to evidence conformity with market principles with sufficient data and documents.

Furthermore, tax authorities may require any documents and information evidencing conformity with the arm’s length principle.

For “small” and “micro” enterprises the Bulgarian transfer pricing guidelines recommend that the authorities do not require complete transfer pricing documentation.

Nevertheless, the obligations for provision of information and evidencing that controlled transactions are conducted at arm’s length apply to all taxpayers regardless of their size, turnover, etc.

2. What is the content of the documentation that must be prepared?

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

According to the recommendations of the Bulgarian transfer pricing guidelines, taxpayers should not be required to create and maintain full and complete transfer pricing documentation for transactions which do not exceed certain thresholds. Such thresholds are for example approximately EUR 100,000 for sale of goods and approximately EUR 200,000 for the sale financing.

b) What is the definition of “associated enterprises” for the purposes of this requirement?

The definition of “associated enterprises” generally complies with the definition contained in article 9 of the OECD Model Convention.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

The content of the documentation discussed in the Bulgarian transfer pricing guidelines is similar to that of the EUTPD.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

Taxpayers not established within the territory of Bulgaria are not required to commit to provide information to the tax authorities.

Local taxpayers are generally obliged to provide any information or document, even if located abroad, which is necessary for the taxpayer’s tax liability to be determined and for tax to be levied.

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

There are no restrictions in this respect but generally local comparables would be preferable.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

The official language is Bulgarian and all documents must be in Bulgarian. Foreign documents and data may be used but must be translated in the Bulgarian language.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

Corporate taxpayers must disclose information about their controlled transactions and all dealings with associated enterprises in their annual financial statements.

The information disclosed therein, or the lack of such information, may serve as a ground for the tax authorities to request additional data and conduct an audit.

In the event of a tax audit the tax authorities may demand the submission/production of certain documents and information. The period for the submission of such documents is fixed by the authorities and is usually around two weeks. Taxpayers may request an extension for a period of up to three months. The extension may be granted only once.

4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.

There are no documentation-related penalties.

If there is no documentation or the documentation is incomplete, the tax authorities may conduct a transfer pricing reassessment.

Tax authorities may impose co-operation-related penalties. A taxpayer may be fined up to EUR 250 for a first offence and EUR 500 for a second offence if the taxpayer fails to furnish information and documentation requested by the tax authorities. Such failure to furnish information is considered to be uncooperative behaviour obstructing the tax authorities in determining and charging the correct taxes.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

The burden of proof is reversed in the event of absence or incompleteness of the transfer pricing documentation.

6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?

Not applicable.