The agreement, promulgated in SG, issue 55 of July 2, 2021, is in line with the priorities of the two countries, the current Bulgarian and Dutch tax legislation and the modern principles of international taxation, reflected in the current Model Agreement of the Organization for Economic Cooperation and Development and the global project to counter tax cuts and transfer of profits (BEPS Project).
The new Double Tax Treaty will be applied for:
- taxes withheld at source, for amounts paid or accrued on or after 1 January 2022;
- other taxes, for tax years beginning on or after 1 January 2022. An exception is provided for pension income and other similar payments to which, in certain circumstances, the previous DTT may continue to apply.
Provisions of the BEPS Plan Measures that are not part of the minimum standard involve:
- dividend income (Article 10 of the DTT). Unlike the previous DTT, the new DTT provides hypotheses under which dividend income may be exempt from taxation in the source country.
- profits from the transfer of shares or stakes or participations in entities that acquire their value mainly from real estate (Article 13, paragraph 4 of the DTT);
- rule against abuse in relation to places of business located in third jurisdictions (Article 23, paragraph 4 of the DTT);
- provisions under Measure 2 “Neutralization of the effects of hybrid discrepancies” of the BEPS Plan concerning transparent formations; persons (not individuals) who are residents for tax purposes in both Contracting States; application of double taxation methods;
- provisions under Measure 7 “Artificial avoidance of permanent establishment status” and supplemented under Measure 14 “Improving the effectiveness of dispute settlement mechanisms” of the BEPS Plan
Other changes compared to the previous DTT include:
- definition of a local natural person of Bulgaria according to the new DTT:
- detailed provision for “disconnection” applicable in case the individual is a tax resident in both Contracting States under their domestic law;
- new hypothesis of permanent establishment (Article 5, paragraph 4 of the DTT);
- provision on relevant adjustments for transfer pricing (Article 9, paragraph 2 of the DTT);
- right, according to the new DTT (Art. 11, para. 2), of the source state to tax the income from interest and royalties with a tax not exceeding 5% of the gross amount of the income, except in explicitly provided hypotheses.
For further information and/or assistance please do not hesitate to contact Ms. Vesela Valcheva, Senior Accountant in Eurofast Bulgaria, at firstname.lastname@example.org