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Bulgaria – Transfer Pricing (2025)

The arm’s length principle is incorporated into Bulgarian law through the Corporate Income Tax Act (CITA), Chapter 4, Art. 15. The domestic definition of related parties is provided by reference to the Tax and Social Security Procedures Code (TSSPC) supplementary provisions (§1, p.13; TSSPC supplementary provisions §1, p.3 and p.4). The Bulgarian rules list a range of related-person relationships including spouses and relatives up to third degree in the collateral line and second degree by marriage; employer-employee relationships; partners; persons where one participates in the management of the other or of its subsidiary; persons in whom the same corporate body or individual participates in management or control; shareholding thresholds (more than 5 % for general purposes with a 25 % voting share threshold specifically relevant for Master/Local file obligations); control by ownership, appointment rights or the ability to exercise decisive influence; persons whose activity is controlled by a third party; joint control; trade representation; donations; and other situations of direct or indirect participation in management, control or capital that may lead to non-arm’s length conditions. The law also extends the related-party concept to relationships with entities registered in jurisdictions where effective taxation is at least 60 % lower, or where information exchange is refused or unavailable, and treats permanent establishments and non-resident natural persons with Bulgarian-sourced revenue as resident for the purpose of these rules.

Entities subject to documentation obligations include Bulgarian resident companies, non-resident entities with Bulgarian permanent establishments, and certain individuals (as defined under domestic rules), provided specified thresholds are met. Exemptions apply to corporate income tax exempt companies, companies subject solely to alternative taxes under the CITA and to Bulgarian taxpayers engaging only in domestic inter-company transactions.

Arm’s length principle and the role of the OECD Guidelines

Although Bulgarian transfer pricing legislation does not explicitly reference the OECD Transfer Pricing Guidelines (TPG), domestic law and administrative practice generally follow the OECD’s principles. Notable deviations exist, particularly the legally established hierarchy of methods contained in Ordinance № H-9 of 14.08.2006 on the Order and Manner of Applying Transfer Pricing Methods (Arts. 7 and 9). Under this hierarchy, taxpayers and authorities must first test the applicability of the Comparable Uncontrolled Price (CUP) method; if CUP is inappropriate, Resale Price and Cost Plus must be tested; only if none of the three traditional methods are appropriate may transactional methods such as TNMM or Profit Split be used. National Revenue Agency (NRA) guidelines and Ordinance H-9 largely reflect the OECD’s comparability analysis (Chapter III of the TPG), the acceptance of arm’s length ranges and statistical measures, and the need for comparability adjustments when significant differences exist.

The TSSPC supplementary provisions define related parties comprehensively. Ownership and control tests include direct or indirect ownership of more than half of voting rights, the ability to appoint more than half of the management body, contractual or statutory capacity to manage another person’s activities, control by vote through transactions among shareholders, and the exercise of decisive influence. The legislation explicitly identifies family relationships, employment and partnership ties, agency, donations and other facts that may result in conditions different from those prevailing in the market. For documentation purposes, the participation threshold in letter “f” is 25 percent of voting shares or shares issued with right to vote; more general ownership references a threshold of more than 5 percent. Permanent establishments of non-residents operating in Bulgaria are included in the scope of related-party considerations when they generate Bulgarian-source revenue.

Methods and application criteria (hierarchy if any)

Bulgarian law recognises the CUP, Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split methods (TSSPC supplementary provisions §1, p.10). Ordinance № H-9 (Arts. 7 and 9) prescribes a hierarchy for method selection: first test CUP; if inappropriate, test Resale Price and Cost Plus; only if all three traditional methods are inappropriate, use transactional methods such as TNMM or Profit Split. For intra-group services the legislation states that CUP or Cost Plus should be used to test arm’s length remuneration and other methods may be used only if these two are unreliable. In subscription service situations a multiyear review is required.

Comparability and ranges (preference for comparables, adjustments)

Bulgaria follows the comparability framework of Chapter III of the OECD TPG. Ordinance № H-9 requires consideration of five comparability factors, including the economic environment, and allows for the use of arm’s length ranges and statistical measures such as the interquartile range and the median. Domestic comparables are generally preferred because the local economic environment is considered more reliable; foreign comparables may be used when there are insufficient local comparables. Comparability adjustments must be made when significant differences exist and such adjustments can be performed in a reliable manner to achieve sufficient comparability.

Benchmarking studies should be updated at least every three years in the absence of significant changes in comparability factors, but financial data of identified comparable entities must be refreshed annually.

Documentation and reporting (Master, Local, CbC — thresholds, language, timing, forms)

The TSSPC (Chapter 8ª; Chapter 16, Section VI) requires transfer pricing documentation. Taxpayers must be prepared to demonstrate that related-party transactions meet the arm’s length standard. The documentation framework incorporates a Local file consistent with Annex II of the BEPS Action 13 Final Report, a Master file consistent with Annex I and Country-by-Country (CbC) reporting consistent with Annex III.

The Local file must be prepared by 30 June of the year following the fiscal year to which it relates. If a corrective corporate tax return is submitted under Art. 75, para. 3 of the CITA that changes Local file data, the Local file must be updated within 14 days of the corrective filing, but no later than 30 September. The Local file follows Annex II and additionally must include a description of allocation keys used for intra-group service cost allocation and an explanation of profit/loss splitting factors when a transactional profit split method is applied. The Local file is annual; benchmarking is updated at least every three years unless significant comparability changes occur. Documents must be produced in Bulgarian or, at the request of tax authorities, accompanied by a certified Bulgarian translation.

A taxpayer required to prepare a Local file who is also a Constituent Entity of a Multinational Enterprise (MNE) group must have a Master file. An MNE Group is defined as including two or more enterprises resident in different jurisdictions or an enterprise resident in one jurisdiction that is subject to tax with respect to a permanent establishment in another jurisdiction. Groups composed only of resident entities are not required to prepare a Master file. The Master file must be available for the tax year of the Ultimate Parent Entity beginning on or after January 1 of the year for which the Local file is prepared, and must be prepared no later than 12 months after the Local file deadline. In addition to Annex I content, the Master file must explicitly include items from the EU Code of Conduct annex: general description of controlled transactions including tangible and intangible flows, invoice flows and transaction amounts; the group’s intercompany transfer pricing policy or system description; and a general description of the business and strategy including changes versus prior year.

CbC reports must be filed within 12 months of the end of the MNE’s tax year. The filing threshold is consolidated group revenues of EUR 750 million or more (or near equivalent in domestic currency as of January 2015) in the fiscal year immediately preceding the reporting year. Each Constituent Entity must file an annual notification online in a standardised form indicating whether a CbC report will be filed. CbC reports and notifications may be prepared in Bulgarian or English.

Where taxpayers are not obligated to prepare Master or Local files, they are nonetheless required by the TSSPC to demonstrate arm’s length outcomes upon request, and the NRA Guidelines recommend the content and structure of such documentation, generally following the 1995 TPG and the EU Code of Conduct on TP documentation.

Safe harbours / exemptions / materiality

Bulgaria does not have generalised statutory safe harbours for transfer pricing. Exemptions from documentation include corporate income tax exempt entities, entities subject only to alternative tax regimes under the CITA and taxpayers whose related-party transactions are exclusively domestic. Mandatory Local file thresholds require that, as at 31 December of the previous year, a taxpayer meets at least two of the following: balance sheet asset value exceeding BGN 38,000,000 (approx. EUR 19,000,000), net sales exceeding BGN 76,000,000 (approx. EUR 39,000,000) and average number of employees exceeding 250. Local file transaction-level thresholds (standalone, excluding VAT and excise) are BGN 400,000 (approx. EUR 205,000) for sale of goods; BGN 200,000 (approx. EUR 102,000) for other transactions such as royalties and services; BGN 1,000,000 (approx. EUR 510,000) for loans (principal amount) or BGN 50,000 (approx. EUR 26,000) for loan-related interest and other loan-related income/expenses. Transactions may be aggregated for threshold testing under certain conditions.

The NRA Guidelines suggest that micro-enterprises may not prepare full TP documentation and that simplified documentation may be acceptable where transaction values are below BGN 200,000 for supplies/services or BGN 400,000 for intangibles/financing (with the financing threshold applied to interest amounts). However, simplified approaches are not recommended where an entity’s operating profit is more than 20 % below the sector average over the prior three years and the deviation cannot be justified as unrelated to related-party transactions, or where the related party is in a low-tax jurisdiction (tax at least 60 % lower) or in a jurisdiction that refuses to exchange information.

APAs and MAP; procedures and timing

Bulgaria does not maintain a formal Advance Pricing Agreement (APA) programme as indicated in the source profile. Taxpayers can, however, request a non-binding opinion from the Revenue Authority on a case-by-case basis, which may protect the taxpayer from interest and/or penalties under certain conditions (National Revenue Agency Act, Art. 10; TSSPC Cap. 4, Art. 17; Cap. 16, Section II “a”).

Mutual Agreement Procedures (MAP) are available under Bulgaria’s double tax treaties; the country has 70 Double Tax Conventions in force which include MAP clauses. Bulgaria is party to the Arbitration Convention and has implemented Council Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the EU in the TSSPC (Chapter 16, Section II “a”); these mechanisms apply to tax periods beginning on or after 01.01.2018. Guidance on MAP and the application of the Arbitration Convention is published by the NRA and further details are available in Bulgaria’s MAP profile on the OECD website.

Penalties and other considerations (secondary adjustments, recharacterisation, year-end adjustments, PEs)

Bulgaria has a structured penalty regime for TP documentation and CbC compliance. Under the TSSPC (Chapter 5, Art. 22; Chapter 28, Art. 278a) and Ordinance № H-9 (Art. 62 and 63), failure by a Reporting Entity to file a CbC report within the deadline is punishable by fines of BGN 100,000 to BGN 200,000 (approx. EUR 51,000 to EUR 102,000). Filing a CbC report with omitted, false or incomplete data, or where incompleteness is due to the UPE’s refusal to provide data, attracts fines of BGN 50,000 to BGN 150,000 (approx. EUR 26,000 to EUR 77,000). A Constituent Entity obliged to file that fails to notify the Bulgarian tax authorities when the UPE refuses to provide required information faces a fine of BGN 10,000 (approx. EUR 5,100). A Constituent Entity that fails to notify whether it, or another group entity, will file the CbC report is subject to fines from BGN 50,000 to BGN 150,000. A taxpayer obliged to prepare a Local file but failing to do so is subject to a fine up to 0.5 % of the total value of transactions requiring TP documentation; for loans the relevant transaction value is the loan principal. Failure to prepare a Master file when required leads to fines of BGN 5,000 to BGN 10,000 (approx. EUR 2,600 to EUR 5,100). Providing incorrect or incomplete information in TP documentation under Chapter 8ª of the TSSPC leads to fines of BGN 1,500 to BGN 5,000 (approx. EUR 767 to EUR 2,600). Increased fines apply in cases of repeated offences.

The law allows year‑end (compensating) adjustments where reported transfer prices deviate from arm’s length prices (CITA, Chapter 4, Art. 15). Secondary adjustments are also provided for: when a transfer price is reported higher than the arm’s length price the legislation contemplates a secondary transaction in the form of a constructive profit distribution, pursuant to the supplementary provisions of the CITA (§1, p.4 and p.5). Other general anti-avoidance rules, GAARs, thin cap rules and interest limitation rules in the CITA (Chapter 3, Art. 16; Chapter 8, Arts. 43 and 43a; and supplementary provisions §1, p.20 and p.86) can affect the tax treatment of certain intra-group transactions.

Regarding the attribution of profits to permanent establishments, Bulgaria does not adopt the Authorised OECD Approach (AOA). For all 70 Double Tax Conventions in force, Bulgaria follows the approach set out in Article 7 of the OECD Model Tax Convention as it read prior to 22 July 2010 and the related Commentaries.

Conclusion

Bulgaria has developed a comprehensive domestic framework for transfer pricing combining CITA, the TSSPC and Ordinance № H-9 together with NRA guidance. The jurisdiction aligns broadly with OECD principles but enshrines a statutory hierarchy of methods, establishes clear documentation requirements (Local file, Master file and CbC) with specific thresholds and substantial penalties for non-compliance, and provides MAP and arbitration mechanisms for dispute resolution. There is no formal APA programme, and taxpayers should carefully consider local requirements on language, timing and the specific transaction-level thresholds that trigger documentation obligations.

References

For further information, consult the OECD country profiles page: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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