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13.4.3. Documentation Requirements

Standard Documentation

Effective 1 January 2020, transfer pricing documentation requirements have been introduced by the Bulgarian tax authorities, which are in line with OECD transfer pricing documentation guidelines.

The transfer pricing documentation should include the following:

  • A master file that provides details of the multinational group, including legal, functional, financial and management organization;
  • A country-specific file providing details of:
    • The related party transactions involving the Bulgarian entity;
    • The functions and risks in the supply chain; and
    • The transfer pricing methodology and reasons for selection.
  • A local file and a summary file providing details of:
    • general information about the activities of the entities and details on shareholders of the entity, along with data on controlled transaction including the methods used for determining market prices and financial information of the entity in the local file; and
    • information on organizational structure and activities of multinational enterprise group, the controlled transactions, the functions of the persons in the group, and applied transfer pricing policy in the summary file.

Master File

A legal entity being a member of the MNE group and subject to local file requirement is also required to prepare/obtain a master file.

Local file

Domestic and foreign entities carrying out business through a place of business in Bulgaria meeting certain thresholds are required to prepare a Local file for controlled transactions, subject to certain exemptions. Entities that do not satisfy the following thresholds as of 31 December of the previous year are exempted from the requirement:

  • book value of assets exceeding BGN 38 million;
  • net income from sales exceeding BGN 76 million; and
  • average number of staff for the reporting period exceeding 250
  • A local file is required to be prepared if the value of controlled transactions exceeds the following thresholds:
  • for sale of goods if the value exceeds BGN 400,000; and
  • for all other transactions if the value exceeds BGN 200,000.

Local file documentation is required to be prepared regardless of meeting the above thresholds, where the total amount of loan received or granted exceeds BGN 1 million or the total amount of accrued interest, and other related receipts and expenses exceed BGN 50,000.

Transaction thresholds are calculated separately for each controlled transaction. However, in certain cases, transaction thresholds may be calculated on an aggregate basis.

For documentation requirements, related party holding percentage is set at 25% of voting rights or shares.

Documentation should be kept for a period of at least 5 years.

Country-by-Country Reporting

On 4 August 2017, Bulgaria published Amendment Law for the automatic exchange of tax rulings and country by country reports (CbC) by adopting the amendments made in EU Directive on administrative cooperation.

On 1 November 2017, the Bulgarian National Revenue Agency announced the publication of the Order of 31 October 2017, which sets out the submission requirements of CbC reports, notifications, and its required contents. CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for resident parents and 1 January 2017 for non-resident parents. The first CbC reports and notifications are due by 31 December 2017.

The CbC reporting requirements are applicable to Multinational Enterprises (MNE’s) with consolidated revenue of EUR 750 million or more. Under the transitional provisions, CbC report need not be filed for 2019 for an ultimate parent company of an MNE group which is resident in Bulgaria, if the groups consolidated revenue exceeds BGN 100 million.

Secondary local filing requirements also apply for fiscal years beginning on or after 1 January 2017, whereby a local constituent entity is required to file a CbC report if:

  • The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
  • The ultimate parent's jurisdiction has not entered into an agreement for the exchange of CbC reports with Bulgaria by the deadline for the report; or
  • There is a systemic failure for exchange by the ultimate parent's jurisdiction, and this failure has been notified to the local entity.

When required in Bulgaria, the CbC report must be submitted electronically within 12 months of the close of the fiscal year concerned in the prescribed format.  In addition, group entities and non – reporting entities, resident in Bulgaria are required to provide notification to the tax authority on their identity, jurisdiction, etc. by the end of the reporting fiscal year.

  

Language of Documentation

The documentation should also be kept in Bulgarian. When in another language, certified translations may be required, or the tax authorities may have the documentation translated at the taxpayers' expense.

Penalties

The due date for filing the local file is 31 March of the year following the year to which it relates. The summary file for the ultimate parent undertaking of the multinational enterprise group is to be filed not later than 12 months post the submission of the local file.

A Master file is required to be prepared/ obtained within 12 months post the deadline for the local file.

Both the local and master file must be prepared annually. Even if there are no significant changes, the comparability study must be updated at least every 3 years (although financial data is required to be updated annually).

Failure to comply with the documentation requirements results in increased risk for adjustments and  penalties, which are as follows:

  • a penalty equal to 0.5% of the total value of the controlled transactions if a local file is not prepared (i.e., not submitted upon request);
  • fine of BGN 5,000 to BGN 10,000 if a master file is not available;
  • fine of BGN 1,500 to 5,000 where the transfer pricing documentation contains incorrect or incomplete information.

Failure to comply with the CbC reporting and notification requirements will attract the following penalties:

  • BGN 100,000 to 200,000 for failure to submit a CbC report;
  • BGN 50,000 to 150,000 for submitting an incomplete report or incorrect information; and
  • BGN 100,000 to 200,000 for failure to submit required notifications.

Each of the above penalties may be increased for repeated violations.