The Bulgarian Ministry of Finances is preparing a law on the reporting of related parties’ activities. It is to be tabled for discussion in the National Assembly by the middle of the year and is expected to come into force by 2016. That was announced at a conference, organized by the American Chamber of Commerce, which viewed the tightened tax legislative measures, entering into force this year across the Organisation for Economic Co-operation and Development (OECD).

Bulgaria is not member of the organisation, but nevertheless tax authorities use the new moments which provide an exchange of information between the administrations of different countries in relation with revisions of cross-national companies.

One can find now the legislative texts, regulating the accounting of related parties thrown around 5 different laws. That causes many cases of confusion and creates obstacles to foreign companies. Sometimes the latter get unpleasantly surprised by discrepancies between the European and Bulgarian tax legislation. According to Ivaylo Angelov from PricewaterhouseCoopers /PWC/ our tax legislation base appears to be stricter than the European one, contradictory to the widespread opinion. Besides that there are frequent claims in public space on foreign investors taking out our national wealth. Here is what the tax expert from the consultant company says:

“Our legislation is quite restrictive, compared to the one of many European countries. I wouldn’t say there are major legislative opportunities for money siphoning from a legislative point of view. The fact that certain incomes might be transferred at a higher level is not a strictly Bulgarian issue – one can see that the OECD and G-20 obviously have the same problems.”

Despite all this it is not a secret that major international companies and chain stores manage to decrease the results of their activities here. It is a common practice for a company with significant profit in Bulgaria /due to effective employees and low salaries/ to try to transfuse money to a branch, registering losses into another country. An invoice is issued for the purpose, claiming that they are paying the loser branch some expensive services.

The Bulgarian tax administration often avoids the release of explaining letters in advance, concerning serious turnovers, say people who have information. The lack of an idea and sometimes – of will leave it all to an eventual revision. We looked for the comment of the National Revenue Agency and they stated they were doing their job, responding to companies’ requests.

“I hope that the changes will be towards a more structured legislation, bearing in mind what is happening across Europe”, Ivaylo Angelov further comments. “I guess we can expect a more harmonized legislation, taking into consideration many of the now acting definitions that are in accordance with the international principles – that is the trend across the other EU member-states. Clearer messages to tax payers are expected by the tax administration and tax payers are expected to have a clear vision on what they have to do under certain circumstances.”

The topic of related companies, the deals between those and the gaps in the work of the controlling authorities has become a subject of serious public discussion recently after info voiced to media on the bankrupted Corporate Commercial Bank having given loans to companies, related to the major stakeholder. Chair of the Financial Supervision Commission Stoyan Mavrodiev demanded more power not so long ago, in relation with the retirement funds’ profitability and the proclaimed investigation for market manipulations. The expert also underlined the necessity of a new law.

English version: Zhivko Stanchev