On 1 January 2026, Bulgaria adopted new Transfer Pricing Ordinance that completely replaced the previous longstanding TP Ordinance (effective as of 2006 till the end of 2025). The regulatory framework amendments aim to synchronize the local TP regulations, aligning them with the latest edition of the OECD TP Guidelines. Additionally, the local lawmakers have incorporated case law of the Bulgarian Supreme Administrative Court and best practices established in the transfer pricing area.
Important definitions
A key change in the new Ordinance is the introduction of a new definition – „transaction“. The term covers any establishment, execution, modification, or termination of commercial or financial relations between two (or more) parties, where at least one of the participants receives economic benefit against appropriate (market) compensation. Apart from “classical” transactions the change aimed to cover so called business restructurings under Chapter IX of the OECD TP Guidelines. Future interpretations, however, may potentially raise disputes whether other relationships between related parties might also fall within its scope.
Аn evolution has been observed in the new regulation with respect to the arm’s length principle. While the former Ordinance was focused on achieving an arm’s length result, the main emphasis in the new regulatory framework is on the price of the controlled transaction as primary criterion for assessing compliance with the arm’s length principle. This does not necessarily mean that only prices should be compared, and not results. Rather, the direct comparison of prices under CUP method, where applicable, would still be preferred.
New approach for TP methods
Another important amendment is related to the hierarchy of TP methods. Тhe strict preference of traditional transfer pricing methods has been replaced by the „most appropriate method“ approach endorsed by OECD. Тhe selection of TP method shall be supplemented by detailed rationale taking into account the specifics of all TP methods, the functional analysis of the parties involved, the comparability level as well as the reliability of the data used for the purposes of such selection.
It should also be noted that the historical TP legislation permitted only application of one of the five TP methods for the purposes of TP analyses. On the contrary, the new Ordinance introduced the possibility for applying a different method in case none of the standard methods is applicable given the specific facts and circumstances related to the analysed transaction.
Stricter rules for controlled transactions
An explicit requirement for an accurate description of the transaction between related parties and changes in the rules for economic analysis have been implemented. This set of amendments includes new rules for making adjustments to ensure the comparability, mandatory application of the interquartile range (regardless the TP method selected) and amendments to multiple years of data usage.
The new regulatory framework also prescribes special rules for analyzing certain types of controlled transactions such as provision of services, transactions with intangible assets and financial transactions. For instance, provision of services could be considered as arm’s-length only in case it brings economic benefit (expected or actual) to the service recipient and at the same time the price of the service shall correspond to the price applied between non-related parties. The benefit test shall also be performed for transaction with intangible assets.
Expanded rights for tax authorities
The expanded rights of the Bulgarian tax authorities under the new TP ordinance may become a major challenge for the taxpayers. For example, the transactions in the TP report shall be documented in a way that allows subsequent verification, otherwise the whole analysis may be challenged and even rejected. Additionally, the conclusions regarding the arm’s length nature of the controlled transactions could be binding for the local authorities only if they are presented in a timely manner and are substantiated in a manner and by means that fully reflect the economically significant characteristics of the controlled transaction, considerations regarding the determination of the time frame for the comparability analysis, the most appropriate method applied, comparable transactions selection, financial data and its sources etc.
Reference to OECD TP Guidelines
Up to now the OECD TP Guidelines were perceived by Bulgarian courts only as indicative guidance without binding force for the local tax administration. The new Ordinance overwhelmed this via implementation of explicit reference to the latest version of OECD TP Guidelines.
In conclusion, the recent update of the Bulgarian TP regulation aligning local legislation with OECD TP Guidelines lates edition is expected to have a positive impact on transfer pricing related matters. At the same time, taxpayers may face challenges from the perspective of future interpretations of the regulatory framework and its proper application, especially in the light of the expanded rights of local tax authorities.
