BULGARIA Law and Practice Contributed by: Todor Banchev Todorov and Victoriya Grishina, Banchev and Grishina Law Firm
5. Anti-Avoidance and Anti-Evasion Measures 5.1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes Bulgarian law clearly distinguishes between tax fraud, tax evasion and tax avoidance, each subject to dif - ferent legal consequences. Tax fraud and tax evasion involve intentional acts or omissions aimed at unlaw - fully reducing or eliminating tax liabilities, such as: • the use of false documentation; • concealment of income; or • participation in fraudulent VAT schemes. Those are subject to administrative penalties and criminal liability. Tax avoidance, by contrast, refers to arrangements that formally comply with the law but are designed to obtain an undue tax advantage. Bulgarian tax law incorporates a general anti-avoidance rule (GAAR), allowing the tax authorities to disregard artificial or non-genuine arrangements lacking valid commercial substance, particularly in cross-border contexts. Indi - cators of abusive arrangements include the absence of economic rationale, circular transactions, dispro - portionate tax benefits and structures that do not reflect economic reality, in line with EU and OECD principles. 5.2 Anti-Avoidance Mechanisms Bulgaria has implemented a multi-layered framework to combat tax fraud, tax evasion and tax avoidance, combining substantive tax rules, procedural powers and enhanced reporting obligations. Key mechanisms include a general anti-avoidance rule (GAAR), spe - cific anti-avoidance provisions under the Corporate Income Tax Act, and extensive transfer pricing docu - mentation requirements aligned with OECD standards. Apart from that, the Criminal Code provides criminal liability for significant breaches of the tax and finan - cial systems, including submitting false declarations, inaccurate financial results and others. Criminal sanc - tions also apply in cases of serious tax fraud, particu - larly in relation to VAT carousel and organised fraud schemes, while administrative penalties and interest
apply in cases of non-compliance, hidden distribution of profit or abusive tax planning. The National Revenue Agency and the courts are also practising denial of VAT credit on the basis of a state - ment for participation in a tax avoidance scheme, following the case law of the Court of Justice of the European Union. On the enforcement side, the National Revenue Agen - cy has broad audit and investigation powers at its dis - posal, including: • real-time access to accounting data; • fiscal control measures for high-risk goods; and • enhanced information-gathering tools. Bulgaria has also implemented EU and OECD trans - parency regimes, including: • the DAC framework; • automatic exchange of information; and • mandatory disclosure rules for cross-border arrangements. 5.3 Blacklists and Non-Cooperative Jurisdictions Bulgaria maintains a domestic list of non-cooperative jurisdictions for tax purposes, which largely mirrors the EU list and is updated periodically. The list is used as a reference point for applying enhanced anti-avoid - ance and anti-evasion measures. Transactions involv - ing entities located in listed jurisdictions are subject to stricter tax treatment, including: • limitations on tax deductibility of expenses; • heightened transfer pricing scrutiny; and • increased withholding tax exposure. In addition, such transactions may trigger enhanced reporting and documentation requirements, as well as a higher likelihood of tax audits by the Bulgarian tax authorities. 5.4 Reporting Obligations and Disclosure Regimes Bulgaria has implemented a range of reporting and transparency obligations to detect and prevent tax
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