Businesses struggle to find tax efficient ways to contribute to bottom line and cash flow, while responding to the challenges of the environment posed by ever increasing regulatory complexity and need for tax revenues, focus on governance, risk and compliance, and the pressure to cut costs and do more with less resource.
The domestic direct tax legislation imposes a number of specific rules and requirements to businesses, resulting in reputational and financial risk of non-compliance, increasing the administrative burden and diverting limited internal resources from higher-value activities. The domestic rules and requirements undergo changes, tax returns require more and more additional information demanding adjustments to the business processes and systems in order to capture it.
At the same time, the tax authorities are becoming increasingly strict and demanding when scrutinising the tax position of the businesses. This is especially valid with regard to related party transactions, levying of withholding tax (WHT) on Bulgarian source income of non-residents and application of double tax treaties (DTTs).
Taxpayers in Bulgaria cannot rely on binding tax rulings and this often creates uncertainty on the tax position to be taken. It is also not uncommon for the revenue authorities and the administrative courts to hold controversial views on a particular tax position. In other cases, relevant court or administrative practice may be missing overall, leaving room for interpretations and discretion of the authorities during tax audits.
