Related parties, including companies belonging to the same corporate group, are required for tax purposes to carry out transactions with one another by complying with the arm’s length principle, i.e. in open market conditions. Transfer pricing is the process of setting terms and conditions of related party transactions, while transfer prices are the prices of such transactions.

If required by the revenue authorities in the course of a tax audit or examination, an enterprise needs to demonstrate its compliance with the arm’s length principle.

Specific analysis and studies are required, which shall be set out in writing in transfer pricing documentation, in order to determine and evidence that transfer prices are arm’s length.

Without the said documentation, an enterprise may not support its compliance with the legal requirement to transact with related enterprises at arm’s length. Thus, it faces a higher risk of disputes with the revenue authorities and of being assessed with additional tax liabilities and penalties.

The above requirement is especially topical following the adoption of the final reports under BEPS Action Plan of the Organisation for Economic Cooperation and Development (OECD) and the G-20 states in October 2015, as well as in the context of the parallel European Union initiatives and measures for fighting tax fraud and curbing tax avoidance, particularly the Anti Tax Avoidance Package.

AFA has the expertise and experience in carrying out the required analyses and studies, and in drafting transfer pricing documentation. TP files we prepare for our clients in Bulgaria comply with Bulgarian legislation requirements and the standards of OECD and EU.