Transfer Pricing in Bulgaria

The legal framework

Bulgaria's transfer pricing architecture rests on two provisions of the Corporate Income Tax Act (ZKPO) in force since 1 January 2007: Article 15, requiring related-party dealings to be priced as they would be between independent parties, and Article 16, a general anti-avoidance rule permitting recharacterisation of transactions — including between unrelated parties — structured to avoid tax, with interest-free loans and off-market interest rates expressly deemed avoidance. Procedure and definitions sit in the Tax and Social Security Procedure Code (DOPK), which has carried mandatory documentation rules in Chapter 8a (Articles 71a–71e) since 1 January 2020. Related parties are caught broadly: a 5% voting-equity holding suffices under the DOPK supplementary provisions (25% for master and local file purposes), alongside control tests, management participation, family ties and dealings with non-EU jurisdictions taxing income at least 60% below Bulgarian levels while refusing information exchange.

The structural event is Ordinance No. H-3 of 7 November 2025 (State Gazette No. 96/11.11.2025), in force from 1 January 2026, which repealed the 2006 market-price ordinance and rewrote the methodology rulebook. Its supplementary provisions (§2) direct that the rules be interpreted and applied in line with the most recent edition of the OECD Transfer Pricing Guidelines — the first express statutory anchor for the TPG in Bulgarian law, converting what had been administrative and judicial practice into binding interpretive law. Two housekeeping points frame everything else: Bulgaria adopted the euro on 1 January 2026 at the fixed rate of BGN 1.95583, so legacy lev thresholds now apply at euro equivalents; and the substantive rules reach domestic as well as cross-border dealings, though the documentation obligations attach only to cross-border controlled transactions.

Methods, comparables and benchmarking

All five OECD methods are legislated, with 'other' methods admitted only under cumulative conditions: none of the five fits the facts, the alternative is more reliable, it reflects pricing practice among independents in the sector, and it rests on reliable data and verifiable documentation (Arts. 1(3), 14(8)–(9) of Ordinance H-3). Selection follows the most-appropriate-method standard, but the ordinance adds an ordering the OECD profile's headline answer understates: CUP is preferred where equally reliable, and traditional transaction methods rank ahead of profit methods (Art. 14(2)–(5)). The tested party is the one for which the most reliable information exists (Art. 14(6)). Secret comparables are prohibited — no method may rest on information that no party could have known despite reasonable efforts (Art. 17(1)(1)) — and hindsight is barred outside the HTVI regime (Art. 17(1)(2)).

The arm's-length range is now statutory. Under Articles 20–21 only high-confidence comparables enter the range; residual unquantifiable differences justify narrowing to the interquartile range; and a result outside the range is adjusted to the point best reflecting the transaction's economics, failing that to the median where the IQR was used, otherwise the arithmetic mean. This codifies what was previously only NRA and court practice. There is no domestic-comparables requirement: benchmarking is typically run in pan-European Amadeus/Orbis sets, often starting from Bulgarian data and widening regionally. In Sofia Med (SAC decision No. 2048 of January 2025) the Supreme Administrative Court confronted an NRA set restricted to the EEA plus Switzerland with additional product and volume filters — and rather than accepting it, set aside the lower-court ruling and remanded with instructions to appoint an expert to test whether the added criteria were relevant. Authority-imposed screens face genuine judicial scrutiny, but taxpayers should be ready to contest them with evidence rather than assume they fail. Commodities have no dedicated regime, but quoted exchange or reference prices are usable under CUP subject to five strict conditions (Art. 22(3)).

Documentation: what the NRA expects

Bulgaria operates the full BEPS Action 13 architecture — local file, master file and CbC report — with no TP-specific return, but a catch-all: Article 116 DOPK obliges every taxpayer, including those below the file thresholds, to evidence arm's-length conditions on request, in a form the law does not prescribe. The local file bites where, at 31 December of the prior year, an entity exceeds at least two of: BGN 38 million in assets (≈EUR 19.4m), BGN 76 million in net sales (≈EUR 38.9m), or 250 average headcount — though the April 2026 OECD profile states rounded EUR 20m/40m figures, suggesting a euro restatement that should be verified against the consolidated DOPK. Even for obliged entities, only transactions above annual thresholds need documenting: goods sales over BGN 400,000, other transactions over BGN 200,000, and loans over BGN 1,000,000 principal or BGN 50,000 of interest and related flows, all net of VAT and excise.

The local file must be ready by 30 June of the following year — now aligned with the CIT return deadline, extendable to 30 September where an amending return is filed (older sources still show the original 31 March). Content follows Annex II plus two Bulgarian additions: the rationale for cost-allocation keys on intra-group services, and profit-split factors with their weighting. Nothing is filed; documentation is produced on request, in practice within 14 days, and is deemed not prepared if not submitted within the authority's deadline (minimum 7 days). Benchmarking studies may be refreshed every three years, but comparables' financial data must be updated annually. Documents are in Bulgarian or certified translation; CbC filings may be in English. The master file is due within 12 months of the local-file deadline and adds EU TPD items — transaction and invoice flows, the group's TP policy, and year-on-year strategy changes. CbC reporting applies at EUR 750 million consolidated revenue (BGN 100 million for Bulgarian-parented groups), filed electronically within 12 months of year-end, with the reporting-entity notification due by the last day of the fiscal year. Finally, the Article 92 ZKPO annual return carries dedicated related-party disclosures in Part VI and hidden-distribution disclosures in Part VII — self-declaring a hidden distribution there waives the 20% sanction.

Audits, penalties and the enforcement climate

The penalty design is asymmetric and worth internalising. A missing local file costs up to 0.5% of the total value of the transactions that should have been documented — and for loans the base is the loan amount, not the interest, making intra-group financing the single largest documentation exposure. A missing master file draws BGN 5,000–10,000; incorrect or incomplete data BGN 1,500–5,000; CbC failures run from BGN 10,000 (failing to notify a UPE refusal) to BGN 200,000 (late filing), with repeat offences doubled. There is no formal documentation-based penalty protection, but Article 55 of Ordinance H-3 obliges the revenue authority in control proceedings to take account of the taxpayer's arm's-length conclusions — provided they are presented timely and substantiated across method selection, comparables, adjustments and key assumptions. That is a genuine incentive to keep the file audit-ready, not merely compliant.

An adjustment triggers 10% CIT on the uplift plus statutory late-payment interest. Assessment is precluded five years from the end of the year in which the return was filed or was due (DOPK Art. 109, suspended while criminal tax proceedings run), and collection prescribes five years from 1 January after the year the liability fell due, subject to a ten-year absolute cap that is itself disapplied while criminal proceedings are pending (Art. 171). Bulgaria's secondary-adjustment mechanism is the hidden profit distribution: non-arm's-length benefits to shareholders or related persons are recharacterised as deemed dividends, attracting 5% withholding, the 20% Article 267 sanction (unless self-declared) and non-deductibility under Article 26(11) ZKPO. The enforcement climate is mixed but evidence-driven: in its 2024–2026 run the Supreme Administrative Court sustained well-documented NRA adjustments in Sofia Med (Cyprus intermediary fees and substance) and Lukoil Bulgaria (trading and loans), yet ruled for the taxpayer in Steel Industry (2024), overturning an aggregated TNMM repricing for lack of evidence, and annulled and remanded Cargill (2026, cost plus versus TNMM on commodity sales) for inadequate reasoning. The phased SAF-T rollout from 2026 will sharpen the NRA's data-driven case selection further.

Dispute resolution and advance certainty

Bulgaria offers no APA of any kind — unilateral, bilateral or multilateral — and the competent authority has no power to conclude one. The only advance instrument is a non-binding written opinion of the NRA or Minister of Finance, which shields against late-payment interest and penalties but not against the adjustment itself. Certainty in Bulgaria is therefore built through documentation quality and, after the fact, through MAP: 70 treaties covering 71 jurisdictions, 61 with TP-capable MAP clauses; of the nine lacking an Article 9 equivalent, eight are EU states covered by the Arbitration Convention, and Directive (EU) 2017/1852 is transposed into the DOPK. Requests go to the SIDDO Directorate at NRA headquarters in Sofia, with English guidance updated in April 2026.

Two features soften the absence of an APA programme. Article 15 ZKPO itself provides a basis for unilateral corresponding adjustments — upward and downward, domestic or cross-border — where a foreign primary adjustment correctly reflects arm's-length profit; and year-end compensating adjustments are permitted (not required), with practice following TPG Chapter III and the EU JTPF's 2013 report. Domestically, a TP assessment arrives as a revision act: mandatory administrative appeal within 14 days to the Appeals and Tax and Social Insurance Practice Directorate — court review is barred for any part of the act not appealed administratively first — then the administrative court, then cassation before the Supreme Administrative Court, each on a 14-day clock.

Pillar Two and what changes in 2026

Ordinance H-3 is more than a TPG-conformity clause. It imports the modern OECD substance apparatus wholesale: two-stage comparability analysis built on accurate delineation, risk allocation conditional on control over risk plus financial capacity, DEMPE-based intangibles rules, and an HTVI regime (Art. 52) allowing ex-post results to test pricing unless the taxpayer documents its forecasts and assumptions, the deviation stays within 20%, or five years pass without a 20% gap. Financial transactions get their own chapter — debt characterisation, borrower credit rating with 19 comparability factors, conditional use of the group rating — and intra-group services face a codified benefit test with shareholder-cost, duplication and passive-association exclusions. The low value-adding services simplification operates through the Art. 18(4) proportionality rule; CCAs follow TPG Chapter VIII.

Around the TP core, 2024–2026 has been transformative. Pillar Two arrived on 1 January 2024 via the ZKPO — an income inclusion rule and domestic top-up tax (intended as QDMTT) from FY2024, UTPR from 2025 — while the 10% nominal CIT rate survives; March 2025 amendments apply retroactively. Public CbCR applies from FY2025 for groups above EUR 750 million, with first publication due by end-2026. Amount B has not been adopted domestically, but Bulgaria will respect the simplified approach applied by covered treaty partners. On PE attribution, 69 of 70 treaties contain pre-2010 Article 7; Bulgaria follows the 2008 AOA report to the extent compatible with the pre-2010 Commentary, and domestic law offers no PE-attribution guidance.

How practitioners should respond

Treat 2026 as a re-papering year. Policies drafted under the old ordinance should be re-tested against H-3's accurate-delineation, risk-control and DEMPE standards — the NRA now has statutory language, not just OECD soft law, behind substance challenges. Prioritise intra-group financing: the 0.5%-of-loan-amount documentation penalty, the codified credit-rating rules and the SAC's Lukoil ruling make loans the highest-risk file, and the thin capitalisation (Art. 43) and 30%-of-EBITDA interest limitation (Art. 43a, EUR 3 million de minimis) regimes operate alongside the arm's-length test. Keep benchmarks on the three-year refresh cycle with annual financial updates, present arm's-length conclusions early in any audit to engage the Article 55 incentive, and self-declare any hidden distribution in the Article 92 return to kill the 20% sanction. With no APA available, build MAP readiness into planning from the outset — and verify the euro-restated thresholds and the local-file deadline against the consolidated DOPK before relying on either.