The BEPS Action Plan finalised. What is in there for you?

The BEPS Action Plan finalised.

The Base Erosion and Profit Shifting (BEPS) Action Plan was designed by the Organization for Economic Cooperation and Development (OECD) to efficiently limit shifting of profits from high-tax to low-tax countries.

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The Base Erosion and Profit Shifting (BEPS) Action Plan was designed by the Organization for Economic Cooperation and Development (OECD) to efficiently limit shifting of profits from high-tax to low-tax countries.

The strategic documents of the BEPS Action Plan were finalized in October 2015. They offer tighter transfer pricing rules, stricter control over tax treaty benefits and cost deductibility, higher permanent establishment detection. 

The first BEPS Action Plan measure that will affect Bulgarian taxpayers is the country-by-country reporting. Based on it, as early as 2016 many Bulgarian companies may have to report to their foreign headquarters certain tax and financial information in a specific new format. The country-by-country report would be filed by the group parent company to the local tax authority and would offer a comprehensive view of the group entities’ profits and paid taxes. Once filed by the group parent company, the report may be provided to the Bulgarian tax authorities under an information exchange agreement. 

What can be expected next is a re-examination of transfer pricing documentation, including putting more emphasis on the analysis of functions and risks based on which transfer prices are set. The purpose of the BEPS Action Plan is that decision-making functions and risk-bearing capacity should matter most in allocating profits to different group entities. 

Bulgaria has not currently introduced a uniform BEPS-related legislative act at the local level. However, currently proposed BEPS-related European Union Directives are expected to affect Bulgaria in 2016. Further, recent changes in local tax legislation and re-negotiation of taxpayer-beneficial double tax treaties show Bulgaria’s determination to follow the BEPS Action Plan measures. 

Thus, the application of BEPS Action Plan measures would lead to an overall higher level of reporting obligations and transparency requirements in related party transactions. This is likely to create an increased intra-group compliance burden for Bulgarian companies and more complex relations with tax authorities. 

In view of this, Bulgarian taxpayers may use the opportunity to prepare early by re-examining the tax risk of their international and related party transactions. 

The topic was discussed at the 2016 KPMG Business Seminar for clients.

© 2017 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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