New mandatory rules for documentation of the transfer pricing, have been established.
This is a brief resume of these rules without pretending to be exhaustive.
- Enteringinto force of the new rules for mandatory transfer pricing documentation
The companies and sole traders, which fell within the scope of the regulations to prepare transfer pricing documentation, should be compliant with the new rules as of 01.01.2020 for transactions with related parties, executed after that date.
- Parties, which fall within the scope of the new rules for transfer pricing documentation
The new rules are mandatory for the companies, who are obliged to pay corporate tax and for the sole traders, who form taxable income under the rules of the Corporate Income Tax Act (“CITA”) and who have transactions with related parties (“controlled transactions”) during the tax year concerned, unless:
- as of 31st of December of the previous year the taxpayer did not exceed the following indicators:
- book value of the assets – BGN 38,000,000, and
- net sales revenue – BGN 76,000,000, or
- average number of personnel for the reporting period – 250 people;
- the taxpayer is conducting controlled transactions only in the country.
For the purposes of the new rules, the non-for profit organizations are equated to legal entities and also should comply with this obligation.
The rules do not apply to collective investment schemes, national investment funds and other alternative investment funds, companies that are special purpose vehicles and the Bulgarian Red Cross, individuals, which perform an activity, subject to alternative tax, as well as the non-traders.
- Content of the documentation and range of transactions
There are two types of filing as per the type of the company, according to TSIPC:
- Local file, which should contain analysis’ of the controlled transactions, concluded during the year, which exceed:
- BGN 400 thousand from sale of goods;
- BGN 200 thousand for all other transactions, except loans;
- BGN 1 million for loan granted or BGN 50 thousand for interest accrued and other revenues or costs, related to the loan.
Thresholds should be calculated separately for each transaction. Under certain conditions – if there are two or more transactions with one or more related parties, concluded under comparable conditions, the thresholds should be calculated for the total amount of the transactions.
- Master file – each obliged entity in a multinational group, should also have master file for the group.
The transfers between a permanent establishment and other parts of the foreign entity`s enterprise, located outside the country also fall within the scope of the controlled transactions.
TSIPC establishes the minimum information, which should be included in both local and master files.
- Terms for preparation of the documentation
The local file should be ready within the term for submission of the annual tax return, i.e. until the 31st of March of the year, following the financial year subject to reporting, and the master file – up to 12 months after the term for drawing up the local file.
The files should be ready to be presented upon request of tax authorities and are not subject to submission thereto.
- Sanctions for non-compliance with the rules
- for failure to prepare or to submitthe local file upon request of the revenue authorities – up to 0.5% of the total amount of the transactions, for which documentation had to be prepared;
- for taxpayers, which are obliged, but do not have master file within the statutory term – between BGN 5 thousand and BGN 10 thousand;
- for the indication of incorrect or incomplete information in the documentation – between BGN 1.5 thousand and BGN 5 thousand.
In case of repeated violation, the penalties shall be double.
According to PITA and the CITA, when performing transactions with related parties, each participant in such a transaction must be able to prove that it is executed at an arm’s length. Otherwise, even though the person does not fall within the scope of the new documentation rules, the revenue authorities are entitled to adjust the price of the transaction for tax purposes according to the market conditions at the time of its conclusion