For 2013 companies will have to complete a new Enclosure № 4 to the annual tax return (“ATR”) pursuant to art. 92 of the Corporate Income Tax Act (“CITA”) and individuals will have to fill in Enclosure № 2 to the annual tax returns pursuant to art. 50 of the Income Taxes on Natural Persons Act (“ITNPA”).
According to the model approved, legal entities have to declare transactions with related parties and/or with entities from jurisdictions with a preferential tax regime on annual basis.
The Ministry of Finances issued an instruction № 3/10.03.2014 (“The Instruction”) to clarify questions regarding the completion of Reference 1 from Enclosure 4 to the ATR pursuant to art. 92 of the CITA, as well as for Reference 7 from Enclosure 2 of the ATR pursuant to art. 50 of the ITNPA.
Pursuant to the Instruction, the value of the transactions executed during 2013, regardless of the type, form and the execution moment of the transaction and regardless, whether the transaction payment has been made (except in cases where special rules for the providing/receiving of a loan are applicable) has to be declared in Reference 1 from Enclosure 4. When the transaction is partially executed in 2013, the amount of the executed part during 2013 has to be indicated.
Significant for the declaration of transactions with related parties is that they should be related as at the moment of the execution of the respective transaction.
Regarding the declaration of the principals on received/provided loans it is clarified, that under code 4 of the reference, the total amount of the received/provided principal during the respective year should be indicated. Installments paid during the year, as well as the remaining amounts should not be indicated in the reference. It is clarified that an entity which provides a loan should fill in column “Providing” for the principal (code 4), as well as for interest revenue (code 6) and the increase of the accounting financial result (code 7), if necessary.
Specific examples of transactions/relations which fall in the scope of Enclosure 4, code 6 are provided in the Instruction, namely:
1. Additional monetary payments, executed pursuant to art. 134 of the Commerce Act (“CA”) – since they cannot be considered as loans;
2. Execution of default payments, penalty interests and other payment of analogical character;
3. Transfer of a commercial enterprise to/from a related party or to/from an entity from a jurisdiction with preferential tax regime, pursuant to the meaning of art. 15 of the CA;4. Remunerations on management and control agreements;
5. Investments in related enterprises or in entities from jurisdictions with preferential tax regime when establishing a company through an in-kind contribution, as well as a capital increase in the same form. The in-kind contribution of a receivable from a company, which capital is being increased is also considered as an in-kind contribution;
6. Non-monetary participation in capital companies (joint stock company to be distinguished from a limited liability companies, for example);
7. Transfer of receivables through assignment agreements, when as at the transfer moment the transferor and the transferee are related parties or one of the parties is an entity from a jurisdiction with preferential tax regime – with view to the fact that the receivables represent assets, the sale/purchase price should be indicated under code 1 and not under code 6. the discount should not be declared;The Instruction specifies the cases, in which information shall not be declared in Reference 1, as follows:
1. Information regarding the distribution of dividends and liquidation proceeds;
2. Monetary transfers, which do not have loan characteristics, like advance payments, accounts regarding re-invoicing of electricity, water, heating;
3. Transfers between a permanent establishment in the country of one enterprise and another part of the same enterprise, because of the fact that they are being made within one and the same entity;
4. Reserves and accruals to related parties and entities in jurisdictions with preferential tax regime;
5. Capitalization of the interest assets’ value by applying the International accounting standard 23 “Loan Expenses”;6. Transformation of commercial companies, pursuant to the CA and CITA;
7. Monetary contributions to the capital of a commercial company (including during the establishment) or monetary participation in a capital company;
8. Information about labour relations, for instance relations regarding management and control agreements etc. The exemption is also applicable for personal labour on services provisions relations between natural persons and companies – related parties, when tax and insurance information for these relations is being provided by/about the natural person;
9. Transactions/relations, performed in execution of an obligation deriving from a legislative act;
Legal entities, which are not registered, pursuant to the Value Added Tax Act (“VATA”), should inscribe the value of the transactions with an accrued indirect tax. Legal entities which are registered pursuant to VATA, should indicate the transactions which are without VAT. Dividends received from an offshore company do not have to be declared.
The current article is purely informational, its purpose is to point out some specifics when filing tax declarations for 2014.
The current is not a juridical advice. For a complete comprehension of the discussed questions and before undertaking related actions, we recommend you to seek counsel with the attorneys from BWSP Ilieva, Voucheva & Co..