Bulgaria

  1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
  2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
  3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
  4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
  5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 2 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
  6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
  7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
  8. Is tax collection suspended during the procedure?
  9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
  10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?
  11. Any other interesting aspect not addressed above?

Double taxation elimination further to a transfer pricing reassessment in Bulgaria may be achieved under:

  • The procedure as provided under the applicable double treaty – currently Bulgaria is party to 69 double tax treaties, all providing a mutual agreement procedure;
  • The European Arbitration Convention – under the European Union (hereinafter “EU”) accession Agreement between Bulgaria and the EU, Bulgaria enters as a party to the Arbitration Convention as of 1 July 2008.

The Bulgarian domestic legislation does not explicitly provide for alternative instruments for the elimination of double taxation further to a transfer pricing adjustment, apart for the above mentioned options. The Transfer Pricing Guidelines issued by the Bulgarian revenue authorities refer to these procedures only.

2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?

Currently, no double tax treaty signed by Bulgaria provides for an arbitration procedure.

3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?

There are no explicit rules in the domestic legislation about such procedures, neither there is an established practice of the Bulgarian revenue authorities. There have been very limited number of cases in practice and the timeframe to complete the procedure varies depending on the complexity of the cases.

4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?

The starting point for measuring the three-year term to initiate the procedure, which always applies, starts accruing as of the handling of the tax assessment report 1 The tax assessment report is a preliminary act in the course of the tax audit in Bulgaria which contains only a preliminary proposal for the actual assessment, to be set in the tax assessment act that finalizes the tax audit process. in a tax audit.

It should be advisable to first start the discussions with the revenue authorities immediately after the delivery of the tax assessment report and to start the actual procedure along with an appeal process.

5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 2 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)

According to the applicable procedure, the Bulgarian revenue authorities must receive the application for the international procedure to eliminate double taxation.

6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?

There are no explicit documents required to initiate the procedure, the taxpayer should however substantiate the applicability of the procedure before the competent authority.

In Bulgaria the competent authority to address a claim for the initiation of a procedure is the National Revenue Agency, Sofia Directorate having its address at 21 Aksakov Str, 1000 Sofia.

7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?

There are no explicit definitions of “transfer pricing dispute” or “serious penalties” in Bulgarian domestic legislation specifically concerning such cases. However, under the general rules a “serious penalty” with respect to taxation matters under Bulgarian practice would be a penalty levied on an violation of tax laws relating to a tax assessment exceeding a total amount of 140 minimum monthly salaries (currently approx. EUR 27,000).

As already said above, there are only restricted cases related to transfer pricing matters, especially with regard to the elimination of the double taxation. Currently, there are no specific cases, where the tax administration refused to apply the international procedure to eliminate double taxation.

8. Is tax collection suspended during the procedure?

The procedure for the tax collection would not be automatically suspended under the procedure. In fact, the appeal of an assessment act does not suspend the collection of the sums assessed as being due to the treasury, but such suspension may be achieved further to an explicit request and provision of a guarantee.

9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?

In Bulgaria the adjustments shall be performed over the years concerned.

Interest will be due to the local taxpayer only in cases where a preceding tax assessment imposed by the local tax authorities was decreased/revoked further to the application of a procedure for elimination of double taxation. If the decrease of the tax due results in tax loss for the year, such tax loss may be carried forward under the general rules as of the year of the occurrence (not the year of assessment).

A transfer pricing adjustment of a local company where the amounts paid to a non-resident are considered excessive, usually results in the re-classification of these amounts as hidden profits distribution which renders them as:

  • non-deductible for the local company;
  • deemed dividend distribution subject to withholding tax; and;
  • may also result in an additional penalty.

Withholding tax on deemed distribution is levied according to the applicable double tax treaty. However, the specific treaty may explicitly prohibit withholding tax relief on hidden profit distribution 3 Recently updated double tax treaties, such as the treaties between Bulgaria and Norway, Switzerland, the UK, Romania respectively contain specific anti-avoidance rules that will not allow dividend tax relief on hidden profit distributions. .

10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

It should be possible in Bulgaria before courts. Such procedure should suspend the court appeal process. The court appeal process is a two instance procedure – a first instance stage held before the relevant Administrative court and the cassation procedure before the Bulgarian Supreme Administrative Court.

11. Any other interesting aspect not addressed above?

The practice in Bulgaria on such cases is very limited and is yet to develop.

Authors

Alexander Rangelov
Alexander Rangelov
Head of Tax