AmCham Bulgaria Position on Corporate Income Tax Amendments 

  1. Transposing of Directive (EU) 2022/2523 introducing minimal level of tax obligation of 15%
  1. Lack of application of 1. Non-application of substantial business activity relief in relation to national surtax

The Directive introduces a substantial business activity relief which provides to exclude for the purposes of the calculation of additional tax a fixed percentage related to the value of tangible fixed assets and allowable wage costs.

For FY 2024, the intended allowances under the Directive are 10% on eligible payroll expenses and 8% on the book value of eligible tangible fixed assets (average book value at the beginning and end of the year), with a gradual and phased reduction in the percentages over the next 10 years, up to 5%.

The current Bill envisages the introduction of substantial business activity relief only to the application of primary and secondary surtax. The same exemption shall not be available for national surtax, and no concrete argument is provided for this, except that the explanatory memorandum to the Bill states that this is permissible under OECD administrative guidelines.

We consider this approach to be unsound given the considerations set out below:

  • Lack of coherence in tax policy
  • Deterioration of the investment climate

The introduction of the rules of the Directive, guaranteeing a minimum effective taxation of 15%, will increase the corporate tax payable by as much as 50% for the Bulgarian taxpayers covered by them. The exclusion of this relief in introducing the national additional tax will put Bulgarian businesses at a disadvantage compared to their competitors from other countries who will benefit from a similar relief under their legislation transposing the Directive.

Only Bulgaria does not implement the relief

Several EU Member States have prepared draft laws which are at the public consultation stage. As far as we are aware, all of them include the relief for substantial business activity also in the context of the national surtax. In this sense, the concerns set out in the preceding paragraphs are confirmed by the actions of other Member States.

Furthermore, the 15% minimum tax rules are new for all states worldwide and the impact they would have has not yet been fully proven. In this regard, we do not consider it appropriate for Bulgaria to introduce norms that differ from those generally accepted and agreed at the OECD and EU level, as this could lead to unexpected negative consequences for the investment climate and the economy in the country, which may not have been foreseen or intended by the Bulgarian legislator.

Significant pecuniary penalties have been introduced in case of incorrect tax assessment

The Bill sets out significant penalties ranging from BGN 50,000 to BGN 150,000 for misdeclarations leading to an understatement of additional tax due or an unjustified reduction or exemption.

Considering the complexity of the proposed rules and the difficulties expected for taxpayers even in the mere collection of information for filing returns (as no small part of it is not directly accessible from accounting data without appropriate processing), we find the number of penalties to be disproportionate.

Envisaged changes related to the taxation regime for financial institutions

The Bill proposes to abolish Articles 96 and 97 of the Corporate Income Tax Act, which provide for the current recognition for tax purposes by financial institutions of recognized income and expenses from the subsequent measurement of financial assets and liabilities (including where such income or expenses are recognized in equity), which differs from the applicable rules for other taxable persons.

The objective sought, as set out in the explanatory memorandum to the Bill, is to align the tax regime for revaluations and impairments of financial assets and liabilities between financial institutions and non-financial corporations, but it is not clear what necessitates such alignment.

We consider the proposal in question in the Bill to be unfortunate.

In addition, contrary to non-financial corporations, financial institutions are highly regulated and the revaluation of financial assets and liabilities is carried out according to extremely strict rules, with specific periodic reporting to the BNB. In this sense, it does not seem justified to put financial institutions on the same level as non-financial corporations in relation to the quality of their revaluations of financial assets.

Further, we acknowledge that there are no arguments set forth in the Bill’s explanatory memorandum as to what necessitated a change in state policy regarding tax regulation of financial institutions. There has also been no assessment of the potential impact that the proposed repeal of the regulations, discussed by the Ministry of Finance could have, which we recognize as a significant omission. We call for such an analysis to be carried out, involving industry organizations and active bilateral chambers of commerce in the discussion so that the impact of the proposed measure can be evaluated.