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New mandatory rules for documentation of the transfer pricing

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.

  1. 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.

  1.   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:

or

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.

  1. Content of the documentation and range of transactions

There are two types of filing as per the type of the company, according to TSIPC:

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.

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.

  1. 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.

  1. Sanctions for non-compliance with the rules

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