What is Transfer Pricing?
Transfer pricing (“TP”) refers to the establishment of prices for transactions carried out between companies that are under common ownership or control ("controlled transactions"). The prices of the controlled transactions are called "transfer prices". Tax laws require these prices to correspond to the market level of prices established between unrelated parties (the arm’s length principle).The principle applies to both domestic and cross-border transactions.
Every taxpayer should strive to determine their transfer prices in accordance with the arm’s length principle, based on the information available at the time of their determination.
There are specific tax rules and an internationally established methodology for proving this compliance through the preparation of supporting documentation. The main objectives of the TP documentation are to:
- ensure that the taxpayers determine their tax base in accordance with the arm’s length principle; and
- provide tax administrations with the information necessary to carry out an informed and reliable assessment of the tax risks associated with transfer pricing.
Rules for preparation of TP documentation in Bulgaria
All local and foreign legal entities carrying out economic activity in Bulgaria, which conduct cross-border transactions with related parties, have the obligation to prepare a local file. The local file must also include an analysis of domestic controlled transactions. Entities part of multinational groups (“MG”) and eligible to prepare a local file should also have a master file available.
Taxpayers who meet certain quantitative criteria such as enterprise and volume of controlled transactions are required to prepare TP documentation annually by a certain date.
All taxpayers have an obligation to prove the arm’s length nature of their related party transactions at the request of the NRA during a tax audit, regardless of whether they meet the criteria for mandatory annual documentation.
A country-by-country report should be prepared and submitted electronically within 12 months of the end of the MG’s financial year. A notification related to the country-by-country report must be drawn up and submitted electronically by the end of the MG‘s financial year.
More details on the relevant content, criteria, deadlines and sanctions related to the preparation of TC documentation and country-by-country reports (and/or notifications) can be found in our brochure "TP Framework - Bulgaria".
Deloitte Bulgaria's services in the field of TP
The tax authorities in Bulgaria and around the world are paying increasing attention to transfer pricing during tax control. Deloitte Bulgaria has a specialized team with extensive practical experience to meet the growing need for high quality tax services in this area.
We have developed various options for cooperation in this regard and can offer flexible solutions according to the specific needs of the client, such as:
- Preparation of transfer pricing documentation - local file, master file, country-by-country reports and notifications;
- Carrying out a comparability analysis through specialized databases or information provided by the taxpayer;
- Planning and preparation of TP policy and consultations on TP issues;
- Review of available TP documentation, as well as an overview of the business from TP point of view and perspectives;
- Assistance in tax control, communication with the revenue authorities;
- Appeal, preparation of a defense strategy and representation in court;
- Preparation of written inquiries to the administration on specific matters.