On April 15, 2025, the Supreme Administrative Court of Bulgaria issued its ruling in the case of Bulgaria vs Vitana 21 (Case No. 4022/925/2025), upholding the tax assessment that considered the prices charged by Vitana 21 in sales to related parties to be below arm’s length value. The dispute revolves around sales made by Vitana 21—a company registered for VAT purposes—to related companies that then resell the goods to end customers who are not registered for VAT. The authorities alleged that this chain allowed for an undue reduction of the tax base and tax avoidance.
This ruling is particularly relevant in the international context of transfer pricing, as it reinforces the use of the Comparable Uncontrolled Price (CUP) method to determine whether transactions between related parties comply with market standards, and emphasizes the need for companies to document their pricing structure and comparables and make appropriate comparable adjustments under applicable local regulations.
Factual background
Vitana 21 sold products to related parties registered for VAT; those parties, in turn, resold to unregistered end customers. The Bulgarian tax authorities claimed that Vitana 21’s prices to related parties were below market price and that this difference affected both the tax base and VAT obligations. In the first instance, a special tax audit was conducted that recalculated the tax base using the CUP method. Vitana 21 appealed to the Administrative Court, but the court largely upheld the original assessment. The Supreme Court then rejected Vitana 21’s appeal, confirming that the authority had acted correctly in terms of procedure and market value analysis, and that the company had not provided sufficient evidence to justify its pricing structure or demonstrate material differences that would invalidate the comparison.
Arguments of the tax and judicial authorities
The tax authority applied the CUP method to identify independent transactions comparable to Vitana 21’s controlled sales. It relied on local regulations (Regulation No. H-9 of August 14, 2006), which require adjustments to be made when there are differences between controlled and independent transactions, in line with transfer pricing standards.
An important part of the argument was to demonstrate that there was no prolonged lapse between the controlled and independent transactions that would justify adjustments for significant economic changes (Article 14(1) of the aforementioned regulation), and that the price should be determined on the date of the taxable event, i.e., at the time when ownership of the goods changes. Vitana 21 attempted to argue that its sales to related parties were wholesale, which would justify lower prices, and that the comparisons used were for retail products, which would supposedly imply different conditions. However, the Court noted that no documented evidence of volume discounts, reliable data on wholesale/retail distinctions, or other economic logic of the distribution structure had been provided to support this difference.
Relationship to OECD Guidelines and transfer pricing principles
This case illustrates several practical dimensions of the OECD Transfer Pricing Guidelines 2022:
- It reaffirms the principle that the CUP method is particularly reliable when comparable independent transactions, very similar products or goods can be identified, without substantial differences that cannot be corrected through adjustments. Vitana 21 failed to demonstrate such differences with sufficient data.
- The case highlights the importance of comparability adjustments: to eliminate the effects of economic differences between controlled and independent transactions, type of customer, sales channel (wholesale vs. retail), size, volume, quantity discount, date of the taxable event, etc.
- The burden of proof is also evident: it is up to the taxpayer to demonstrate that their transactions are in line with market value when the authorities present evidence that prices are not. Vitana 21 did not do so satisfactorily.
Practical implications for multinational groups
Several key conclusions for companies operating with related-party transactions can be drawn from this ruling:
- Supply chain, distribution, or resale structures (e.g., transactions where a related entity intervenes before the end customer) must be documented in detail, including margins, discounts, wholesale/retail commercial practices, volumes, and market conditions.
- Comparisons must be supported by internal or external data that is truly comparable. If independent comparables are used, equivalencies in product, volume, contractual terms, and date must be demonstrated.
- It is not enough to allege differences if there is no concrete evidence: distinguish your sales structure, volume, quantity discounts, etc.
- The market price must be determined on the date of the taxable event, without relying on assumptions of unjustified economic changes.
In addition, the company must be prepared for special audit procedures, as the authority has the legal power to impose adjustments if the comparison used is insufficient or flawed.
Conclusion
The Bulgaria vs. Vitana 21 ruling strengthens international transfer pricing case law by confirming that tax authorities have legal grounds to recalculate tax bases when prices between related parties are clearly below arm’s length value, provided that the CUP method is properly applied and reasonable adjustments are made. The decision shows that the ability to present solid technical evidence is crucial for companies in this context.
For multinationals, this case reinforces the urgency of reviewing their transfer pricing policies, ensuring that documentation is up to date, and that their comparables are as accurate as possible. Ultimately, it demonstrates that arm’s length is not just a theoretical idea, but a legal standard rigorously applied by the courts when taxpayers fail to meet their verification and transparency obligations.
At TPC Group, we support your company in Latin America, the United States, and Spain to ensure international tax compliance and the correct application of transfer pricing, identifying risks and aligning your operations with the OECD Guidelines.
Contact us today to ensure that your operations are fully compliant with current regulations and to minimize tax risks in your global operations.
Source: TPCases