In the area of corporate income tax, the transfer of assets or activities to another part of an enterprise located abroad is now regulated. Specific rules are also envisaged for the tax financial result determination of hybrid inconsistencies and inconsistencies with a taxable person who is a tax resident of more than one jurisdiction. The tax treatment of the construction costs or improvement elements of technical infrastructure that are publicly owned or municipal-owned will be specific too. More than twenty new definitions accompany the new provisions.
- The provision for transfers related to a permanent establishment is repealed.
- Tax temporary differences
Tax temporary differences will arise in the transfer of assets / activities under the new Chapter 20. For the purpose of determination the tax financial result, when the tax temporary difference related to an asset is formed in accordance with Chapter Twenty, the accounting financial result will beincreased or decreased in various new hypotheses in the year the asset is written off.
- Establishment of a regulation of Expenses for repair of elements of technical infrastructure – public state or public municipal property
The costs above that are related to the activity of the taxable person are recognized for tax purposes, including where the technical infrastructure components are accessible for use by other subjects.
Changes have been made to the regulation of the specific rules for determination of the tax financial result in the cases of a controlled foreign company.
A completely new regulation is created for specific rules for determination of the tax financial result in cases of hybrid and non-compliance with a taxable person who is a resident for tax purposes of more than one jurisdiction.
- New in Tax depreciable assets
Tax depreciable assets will also be the costs of construction or improvement of technical infrastructure elements, which by law are public state or public municipal property under Art. 69a, para. 3.
In Chapter Ten, Art. 69a is adopted:
Specific tax treatment of costs for the construction or improvement of technical infrastructure elements – public state or public municipal property
- Substantial changes in Asset / Activity transfers to another part of the enterprise located abroad
The principle of Article 155 , para. 1 is that the obliged person applies Art. 155a – 155e and Art. 157 in cases where the Republic of Bulgaria loses, in whole or partially, the right to tax the result of the subsequent disposal of the transferred assets / activities in different hypotheses of these disposals.
In cases of assets transfer under Art. 155, for determination of the tax financial result, the accounting financial result shall be converted (increased or decreased) in the ways specified explicitly in the law.
The law defines how to determine „value for tax purposes” of а transferred asset, depending on whether it is an depreciable asset or not.
Value for tax purposes of a transferred asset is the value determined in accordance with Art. 155a, para. 2.
- Transfer of activity
The cases of transfer of activity under Art. 155, for determination of the tax financial result, the accounting financial result shall also be transformed in the ways specified in the law.
- Temporary transfer of assets
Article 155 shall not apply when the transfer of assets is for a period not exceeding 12 months and provided that the transfer:
- is associated with financing transactions in securities, or,
- relates to assets provided as collateral, or
- is carried out for the purpose of meeting prudential capital requirements or managing liquidity.
In case the assets are not transferred back to the Republic of Bulgaria within 12 months from the transfer moment, the provisions of Art. 155 and Chapter twelve shall apply respectively.
- Payment of part of the corporate tax relating to the transfer of assets to a Member State of the European Union or to another country party to the Agreement on the European Economic Area
The taxable person may defer payment of part of the corporate tax due as a result of a transfer with an incidental or irregular nature of assets/activities under Art. 155, but no more than the corporate tax due for the relevant tax period and subject to compliance with conditions specified by law.
- New rules for transfer of assets and activities from another part of the enterprise located abroad to the country are adopted
The rules determine the tax depreciable amount at which an asset is entered in the tax depreciation plan, being its market price at the time of transfer. The rules vary for transfers of tax depreciable assets and for non-tax depreciable assets in order to comply with the implementation of Council Directive 2016/1164 from 12th July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market and the fact whether those transfers of those assets have been taxed in another Member State. There are explicit rules for determination of the tax financial result of transfers of services to the country from parts of the enterprise abroad.
- The regulation of the last tax period is amended, related to the change of the regulation for a place of business.
- Amendments are being made to the regulation for the withholding tax on non-residents.
- New are administrative penal provisions related to the implementation of the newly introduced rules for the taxation of transfers of goods and services.