Proposal for amendments to the Corporate Income Tax Act
On 10th December 2021 a bill amending and supplementing the Corporate Income Tax Act (CITA) was submitted to the National Assembly. The amendments relate to the application of Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices and amendments to Directive (EU) 2017/952 on hybrid non-conformities. If the proposal is accepted, the following changes in CITA will enter into force on 1st January 2022:
Tax treatment of inverse discrepancies in hybrid entities
It is proposed to equate to taxpayers certain hybrid entities established or located in the country, which are outside the scope of taxpayers specified in the current CITA, subject to the following conditions:
- one or more related foreign entities to hold, directly or indirectly, 50 per cent or more of the voting rights, share capital or the right to share in the profits of the hybrid entity.
- the jurisdictions in which these foreign entities are located to treat the hybrid entity as a taxable person in the Republic of Bulgaria.
These rules will not apply to a collective investment scheme, which is an investment fund or a scheme that simultaneously meets the conditions to have multiple owners, to have a diversified portfolio of securities and to be subject to investor protection regulations.
Tax treatment of leaseback contracts classified as operating leases in accordance with International Accounting Standards for lessees
It is anticipated that the accrued expenses, income, gains and losses on sale and leaseback contracts classified as operating leases in accordance with International Accounting Standards will not be recognized for tax purposes by lessees. For tax purposes in these cases, expenses, income, gains and losses determined in accordance with the rules of Accounting Standard 17 “Leases” for sale and leaseback contracts classified as operating leases will be recognized.
Changes in the field of controlled foreign companies
It is proposed to repeal the provision of Art. 47c, para. 4 of CITA, which exempts from the application of the regime of controlled foreign companies those taxable persons whose controlled foreign companies in their jurisdiction of incorporation or establishment are taxed with alternative forms of taxation to corporate tax. Thus, practically all taxpayers in the Republic of Bulgaria who are subject to corporate tax and have controlled foreign companies, regardless of the form of taxation of these controlled foreign companies, will fall within the scope of specific rules for determining the tax financial result in the case of a controlled foreign company.
Amendments to the Personal Income Tax Act
The Transitional and Final Provisions of the draft act also propose amendments to the Personal Income Tax Act (PITA).
It is envisaged that the reports submitted under the PITA for the income paid during the year and for the tax and compulsory social security contributions withheld during the year may be submitted by the heirs at law or by will, as well as by the testators or their legal representatives to sole traders or self-employed persons who died during the tax year who were employers or payers of income.
It is envisaged that the change can also be applied to reports for which the obligation to submit arises after 31st December 2021.