APPLICATION OF NEW REQUIREMENTS FOR STANDARDIZED TRANSFER PRICING DOCUMENTATION IN THE REPUBLIC OF BULGARIA – ADVANTAGES AND BENEFITS FOR TAX AUTHORITIES AND TAXPAYERS

Abstract

Transfer pricing raises a number of issues and challenges for companies operating transfer operations and for the tax administrations of the countries in which they operate. Along with the increasing role of international transfer pricing on a global scale, increasing attention is paid to possible improvements in the control in this area and improving the regulatory measures in the individual countries aimed at limiting and countering the attempts at manipulation by companies in order to reduce paid profit taxes, customs duties, etc. through the transfer pricing. In modern conditions of continuously increasing globalization, more and more perceivable is the need for application of uniform, internationally recognized requirements and rules to documentation and control of transfer prices. The main purpose of this scientific paper is to examine the major rules and requirements related to the preparation of standardized transfer pricing documentation in the Republic of Bulgaria in the contemporary conditions. It discusses the increasing role and significance of international transfer pricing in the context of globalization and the necessity for application of uniform international guidelines on transfer pricing. A special attention is paid to the systematization of significant advantages and benefits of the application of standardized, globally recognized requirements in the field of transfer pricing in the Republic of Bulgaria both for companies -taxpayers and for tax administrations. The methodology of research of the issues in the paper involves the application of the historical-logical and systematic approaches and the methods of observation, comparison, analogy, analysis and synthesis, induction and deduction, etc. In accordance with the systematic approach, the information for transfer pricing of the different constituent entities of the multinational groups is considered as an integral part of the information for transfer pricing of the group as a whole. As a result of the research made, it is concluded that the implementation of the standardized rules for documentation that multinational groups must prepare in order to justify the methodology for determining transfer prices used in their international intra-group transactions provides valuable advantages and benefits both for the tax administrations of the relevant countries and for the taxpayers. From the perspective of tax authorities, the adoption of standardized requirements achieves improvement of the methodology of transfer pricing and tax audit in this area, higher degree of reliability, comparability and transparency of information provided by taxpayers for control over transactions between related parties. Through these requirements are achieved also better results in the tax discipline, the prevention of tax evasion and effective tools for avoidance and resolution of transfer pricing disputes. From the position of the taxpayers it is of utmost importance that through the uniform, internationally recognized requirements for documentation and tax audit of transfer prices the burden and costs in preparing the documentation on pricing in international transactions between related parties are significantly reduced. The introduction of these rules creates clarity and predictability with regard to information required to prove that their transactions with related parties satisfy the arm’s length principle. The standardized documentation enables taxpayers to defend their tax position, provides guarantees for the tax treatment of the transactions between related parties, possibilities for advance compliance with the requirements and hence for avoidance of penalties and transfer pricing disputes with tax administrations.