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13.4.1. Main Rules

Definition of Related Parties

For the purpose of transfer pricing, related parties can generally be defined as one entity with direct ownership of 5% or more of another entity's capital. Other situations may also be considered related parties, such as both entities being controlled by a third party, both entities sharing common directors, owners of each entity being relatives, etc.

Transfer Pricing Methods

The transfer pricing methods required by the Bulgarian tax authorities are in line with OECD guidelines, and include the following:

  • Traditional Methods:
    • Comparable uncontrolled price (CUP) method
    • Resale price method
    • Cost-plus method
  • Transactional Profits Methods:
    • Profit split method
    • Transactional net margin method

The CUP method is the preferred method, and if cannot be used, one of the other traditional methods should be used. The transactional profit methods should only be used when none of the traditional methods are applicable.

When a traditional method is used by a taxpayer, the tax authorities are obliged to use the same method. However, if a transactional method is used, the tax authorities have no obligation to use the same.

Use and Availability of Comparables

When conducting a benchmarking study, it is required that the study begin with local comparables. When local comparables are not sufficient, regional's comparables can be used. Comparable information can be used from various databases, including Amadeus, ORBIS and National Statistics Institute databases.