BULGARIA Law and Practice Contributed by: Todor Banchev Todorov and Victoriya Grishina, Banchev and Grishina Law Firm
1. Sources and Principles 1.1 Domestic Sources of International Tax Law The main international tax law sources in Bulgaria are the Double Tax Treaties (DTTs) and other international treaties, EU law, OECD rules and domestic tax legisla - tion. Under the Constitution, ratified international trea - ties prevail over conflicting domestic law. EU law plays a significant role, particularly through anti-avoidance, transparency and minimum tax directives, as well as through the directives in the field of VAT and other directives such as The EU Interest and Royalties Direc - tive (Council Directive 2003/49/EC) of 3 June 2003 on a common system of taxation applicable to inter - est and royalty payments made between associated companies of different Member States and Parent- Subsidiary Directive (Council Directive 2011/96/EU) of 30 November 2011 on the common system of taxa - tion applicable in the case of parent companies and subsidiaries of different Member States, which have been transposed into Bulgarian legislation. Domestic tax rules are primarily set out in the Corporate Income Tax Act, the Personal Income Tax Act and the Value Added Tax Act, with procedural matters governed by the Tax and Social Security Procedure Code. Administrative practice of the National Revenue Agency in the form of Rulings provides interpretative guidance that, while not legally binding, is influential in practice. Bulgaria has an extensive DTT network of over 70 double tax treaties, based on the OECD Model Tax Convention, covering all EU Member States and key global trading partners. Bulgaria is a party to the OECD Multilateral Instrument (MLI), which has modi - fied part of its treaty network to incorporate BEPS minimum standards. Bulgaria also follows the OECD Guidelines in the field of transfer pricing, reflected in Special Ordinances – acts formally placed below the laws in the hierarchy of State acts but with significant practical effect. 1.2 Hierarchy of Sources Under the Bulgarian Constitution, ratified and promul - gated international treaties take precedence over con -
flicting domestic legislation, which ensures the direct applicability of double tax treaties in the domestic legal order. Anyway, in practice, the double tax treaties are usually applied when there is a conflict between the legislations of the contracting parties – for example, both countries are taxing the same income or both countries are treating the same person as resident. The EU Regulations have supremacy over national law within their scope of application with direct effect. The Bulgarian tax legislation is also influenced by the transposed directives. In practice, Bulgarian tax authorities and courts are interpreting domestic legislation in conformity with Bulgaria’s international and EU commitments. The Bulgarian Constitution has supremacy over all other acts, including those at the international and EU levels, but its provisions are quite general and it is unlikely to conflict with any international tax rules. 1.3 OECD Model/United Nations Influence on Treaty Practice Bulgarian double tax treaties are based on the OECD Model Tax Convention. The OECD Model is generally followed in respect of the allocation of taxing rights, permanent establishment rules and the treatment of business profits. The OECD Model, although not a for - mal legislative act, is widely used for the interpretation of disputable aspects, based on the practice of the Supreme Administrative Court treating it as a source used in the course of negotiation of an international agreement. More recent treaties and treaty updates have incorporated BEPS-related provisions, including principal purpose test clauses, either through bilateral renegotiation or via the OECD Multilateral Instrument (MLI). 1.4 Multilateral Instrument Bulgaria is a signatory to the OECD Multilateral Instru - ment (MLI) and has ratified it, with the MLI in force for Bulgaria since 1st July 2023. The MLI modifies a sig - nificant portion of Bulgaria’s double tax treaty network by introducing BEPS minimum standards, including treaty anti-abuse rules and improved dispute resolu - tion mechanisms.
75 CHAMBERS.COM
Powered by FlippingBook