Bulgaria vs Rubbertek Bulgaria EOOD, April 2022, Supreme Administrative Court, Case No 3453

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By judgment of 22 May 2020, the Administrative Court upheld the complaint filed by “Rubbertek Bulgaria” and set aside an assessment for FY 2015-2016 issued by the tax authorities on the determination of the arm’s length income resulting from related party transactions. According to the Administrative court, the tax assessment was unfounded and unsubstantiated.

An appeal was filed by the tax authorities with the Supreme Administrative Court in which the authorities stated that the decision of the Administrative Court was incorrect. The court erred in finding that the decision of the tax authorities referred to other comparable companies than those in Rubbertek Bulgaria’s documentation. Furthermore, the court uncritically accepted Rubbertek Bulgaria’s claim that the reason for the deviation of the declared income from the median for 2015 and 2016 was a relocation of assets from the German company to the Bulgarian company.

Judgement of the Supreme Administrative Court

The Supreme Administrative Court decided in favour of the tax authorities and set aside the decision of the Administrative Court.

“”The Court of First Instance erred in holding that the auditing authorities failed to analyse/examine specific transactions, one or more of which were found to have been entered into under conditions the performance of which led to tax avoidance.”

“The Court of First Instance also erred in finding that the tax authorities had not proved in the course of the audit proceedings that the profit level indicator, net cost plus surcharge, fell below the lower quartile as a result of the relocation process from the Rubbertek group of companies.”

“In view of the foregoing, the financial results of the audited entity for 2015 and 2016 were lawfully restated in an upward direction by the audit act on the basis of Article 78, in conjunction with Article 16(1)(a) of the Tax Code. 1 of the Income Tax Act, as a result of which the due corporate tax and interest were established. In accordance with the positive tax results for 2015 and 2016, the transformation of the financial result for 2017 is also lawful. (1) of the Code of Civil Procedure, to rule on the merits, by which the company’s appeal against the revision act should be dismissed as unfounded.”

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