In 2004, a Management Services Agreement was concluded between Telecom Bulgaria (BTC EAD) and BTC Holding Limited, UK (the Operator), whereby the Operator was entrusted with supporting the overall management activities of the company, including the development and implementation of a general company performance policy, organisational structure, annual budgets, Strategic Plan and Business Plan. According to the contract it is agreed that for the services received Telecom Bulgaria shall pay to the operator a remuneration in the amount of 2.25% of the gross revenues. Furthermore, according to the agreement a fee of 1.25% would be paid by Telecom Bulgaria for technology – the provision or licensing of proprietary software and systems, material intellectual property rights, specialized technical research and consulting services, hardware and equipment, trade names and any other proprietary information will be provided by the Operator only pursuant to separate agreements. A Technical and Consultancy Services Contract between Telecom Bulgaria and BTC UK Limited (the contractor) was entered into on 11 June 2004 for the provision of these services. For the audited year 2010 expenses in connection with the above-mentioned contracts were recorded by Bulgaria Telecom in the total amount of BGN 21 596 152, 53. The tax authorities, using the transaction net profit method (TNMM), determined a maximum and minimum arm’s length price for the services under the contracts and on that basis they concluded that the services rendered under the contracts had not been determined at arm’s length. The taxabel income of Telecom Bulgaria for 2010 was increased by an amount of BGN 14 634 733, 31. Judgement of the Supreme Administrative Court The Supreme Administrative Court decided in favour of the tax authorities. Excerpts “In case the conclusion of the tax authorities regarding the adjustment of the financial result of the contracting company is accepted, without the corresponding adjustment of the result of the contracting company, it would lead to double taxation with corporate tax of the same amounts, once for the contractor of the services and a second time for the contracting company, i.e. to incomparability of the conditions under which both parties to the transactions are taxed with corporate tax, which is inadmissible. In the present case, the corresponding amount by which the financial result is adjusted on the ground of tax avoidance is already included in the financial result of the other party to the transaction and the corresponding tax thus confirmed to be payable by the recipient of the payments under the contracts does not lead to the conclusion of tax avoidance. By taking a different approach, the revenue authorities infringed the principle of legal certainty and the principle of the protection of legitimate expectations. In this sense is also the established practice of the Supreme Administrative Court with decisions rendered in: administrative case No 1846/2011, administrative case No 5629/2011, administrative case No 14708/2011, administrative case No 2996/2016 and administrative case No 3318/2018. It is also necessary to take into account the decision No. 5275/23.04.2018 rendered in administrative case No. 3318/2018 of the First Division of the Supreme Administrative Court in an identical case between the same parties, for the same services, under the same contracts, but rendered for the previous tax period 2007-2009, inclusive. By the above-mentioned final decision of the Supreme Administrative Court, Revision Act No. R-29-1300410-091-001 of 05.06.2015 of the revenue authorities at the Regional Directorate of the National Revenue Agency of the Republic of Bulgaria and Romania (R-29-1300410-091-001) was annulled. Sofia, confirmed by Decision No. 1314/24.08.2015 of the Director of the Directorate “ODOP”, Sofia. Sofia, in the part whereby additional corporate tax liabilities of “BTC “EAD for the period 2007 – 2009 in the total amount of BGN 6 297 549,30 and interest in the amount of BGN 3 772 918,88 were established. The Trial Chamber of the Supreme Administrative Court held that none of the three expert reports had been able to identify and analyse transactions having identical or similar services to the services performed for the benefit of the audited company. In the light of the foregoing, none of the transactions examined appears to be comparable to the transactions at issue and, therefore, the finding in the audit certificate that the agreed remuneration for the services contracted by BTC EAD was in excess of the market prices for that type of services is unjustified. The appellant’s main objection, relating to the alleged absence of a hypothesis under Article 16(1)(a) of Directive 89/104/EEC, is accepted. 1 of the Administrative Procedure Code in this case and the evidence collected in this respect – the audit reports and audit acts drawn up for Nef Telecom Bulgaria Ltd. after the audits of the company – contractor, under the CCC for 2007, 2008 and 2009, in which the acts issued by the revenue authority established that the financial result for the said periods was compiled in accordance with the requirements of the CCPO and no adjustments were made to the revenues realized by Nef Telecom Bulgaria Ltd. from the fees for the services under the two contracts concluded with BTC EAD.” Click here for English Translation Click here for other translation ...