Bulgaria
This report analyses the implementation of the AEOI Standard in Bulgaria with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Bulgaria’s legal framework implementing the AEOI Standard is in place and is consistent with the requirements of the AEOI Terms of Reference. This includes Bulgaria’s domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) and its international legal framework to exchange the information with all of Bulgaria’s Interested Appropriate Partners (CR2).
Effectiveness of AEOI in practice
Bulgaria’s implementation of the AEOI Standard is on track with respect to the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). Bulgaria is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
Overall rating in relation to the effectiveness in practice: On Track
General context
Bulgaria commenced exchanges under the AEOI Standard in 2017.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Bulgaria:
enacted Art. 142a to Art. 142y of the Tax and Social Security Procedure Code (TSSPC), §1a of the Additional Provisions of the TSSPC;
enacted Order ZCU-1576/18.12.2015 of the Executive Director of the National Revenue Agency as amended by Order № ZCU-720/22.05.2018 of the Executive Director of the National Revenue Agency;
introduced § 55 - § 66 of the Transitional and Concluding Provisions; and
made reference to §2 of the Supplementary Provisions of the Measures Against Money Laundering Act implementing the FATF Recommendations for the purposes of the identification of Controlling Persons under the AEOI Standard.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.
Following the initial Global Forum peer review, Bulgaria amended its legislative framework to address an issue identified, effective from 22 May 2018.
With respect to the exchange of information under the AEOI Standard, Bulgaria:
is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017;
has in place European Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation as amended by Directive 2014/107/EU; and
has in place European Union agreements with five European third countries.1
Table 1 sets out the number of Financial Institutions in Bulgaria that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially, because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Bulgaria requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Bulgaria’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Bulgaria in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Bulgaria’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Bulgaria:
the National Revenue Agency (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Bulgaria’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by the National Revenue Agency which developed an e-service on its website for this purpose; and
the Common Transmission System (CTS), and in the European Union (EU) the Common Communication Network (CCN), are used for the exchange of information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Bulgaria’s legal frameworks implementing the AEOI Standard concluded with the determination that Bulgaria’s domestic and international legal frameworks are In Place. This has been taken into account when reviewing the effectiveness of Bulgaria’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Bulgaria are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Bulgaria’s domestic legislative framework is in place and contains all of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (SRs 1.1 – 1.3). It also provides for a framework to enforce the requirements (SR 1.4).
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Bulgaria has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Bulgaria has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Bulgaria has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Bulgaria has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Bulgaria’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Bulgaria’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Bulgaria and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Bulgaria has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Bulgaria put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Bulgaria’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Bulgaria are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Bulgaria’s implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). Bulgaria should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Bulgaria implemented most of the requirements in accordance with expectations. However, an issue was identified. The key findings were as follows:
Bulgaria implemented an overarching strategy after conducting a risk assessment that took into account relevant information sources, such as analysing the AEOI returns submitted by the Financial Institutions as well as the results of desk-based reviews. Bulgaria’s Competent Authority has adopted a three-year compliance operational plan, based on its risk assessment, which is updated regularly and includes the activities that should be performed, the terms and the responsible officers. Bulgaria’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. Bulgaria intends to keep its compliance strategy under review to ensure its effectiveness on an ongoing basis.
Bulgaria has worked effectively to understand its population of Financial Institutions, including relevant non-regulated entities, utilising various relevant information sources, such as lists of regulated entities, the Foreign Financial Institutions list for FATCA purposes, information from the CRS compliance questionnaire and information from Reporting Financial Instructions on entities that have self-certified to them that they are Financial Institutions. Bulgaria is taking action to ensure Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. Bulgaria intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing Bulgaria’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, Bulgaria has assigned the equivalent of 1.2 full time staff to monitor and ensure compliance by Reporting Financial Institutions.
Bulgaria has started to enforce the requirements, including through the inspection of records of Reporting Financial Institutions. The activities include a series of bilateral meetings with Reporting Financial Institutions on key compliance areas, such as the interaction between the AML framework, the AEOI Standard and the required due diligence procedures. Bulgaria has also started to carry out onsite audits and appears to have taken effective action to ensure self-certifications are obtained as required and to follow up on undocumented accounts. Bulgaria appears ready to take effective action to address circumvention of the requirements if such circumvention is detected.
Bulgaria will keep its jurisdiction-specific lists of Non-Reporting Financial Institutions and Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by Bulgaria, the presence of the key data points of the Tax Identification Numbers and dates of birth appeared to be in line with most other jurisdictions, as did the level of undocumented accounts. These are key data points for exchange partners to effectively utilise the information.
Four exchange partners highlighted issues with respect to the information received, such as high numbers of invalid Tax Identification Numbers and high variances in the information exchanged each year. More generally, Bulgaria’s exchange partners indicated that compared to what they generally experience in relation to the information received from all of their exchange partners, they achieved a relatively low level of success when seeking to match information received from Bulgaria with their taxpayer database. Follow-up discussions confirmed that Bulgaria is aware of these issues and is seeking to improve the situation.
Based on these findings it was concluded that, overall, Bulgaria is meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. It was also noted that there is room for improvement with respect to further implementing and expanding its activities to verify and ensure that Reporting Financial Institutions are correctly conducting their due diligence and reporting obligations and addressing the issues raised by its exchange partners. Bulgaria should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Bulgaria should continue to implement and expand its activities to verify and ensure that Reporting Financial Institutions are correctly conducting their due diligence and reporting obligations.
Bulgaria should continue to address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, it appears that Bulgaria implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. In particular, Bulgaria received notifications from one partner and successfully processed it in a timely manner, resolving the issues raised. It also appears that Bulgaria will notify its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that Bulgaria is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. Bulgaria is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Bulgaria’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). Bulgaria has shown improvement over time and is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Three exchange partners highlighted particular issues with respect to preparation and format of the information sent by Bulgaria (representing 4% of its partners). These generally related to formatting issues. More generally, six (or 8%) of Bulgaria’s exchange partners reported rejecting more than 25% of the files received, although not more than 50%, due to the technical requirements not being met. This is a relatively high amount when compared to other jurisdictions. It was noted that Bulgaria has already successfully addressed all of the issues
Based on these findings it was concluded that, overall, Bulgaria is meeting expectations in relation to sorting, preparing and validating the information. It was also noted that there is room for improvement with respect to properly preparing and formatting the information. Bulgaria is therefore encouraged to continue its implementation process accordingly, including in relation to the area highlighted.
Bulgaria should review its systems and procedures for sorting, preparing and validating the information to send to its exchange partners, to ensure they meet the requirements of the AEOI Standard.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Bulgaria linked to the CTS and the CCN, which is used for exchanges within the EU.
Based on these findings it was concluded that Bulgaria is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Bulgaria is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from Bulgaria’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by Bulgaria and therefore with respect to Bulgaria’s implementation of this requirement.
Based on these findings it was concluded that Bulgaria is fully meeting expectations in relation to exchanging the information in a timely manner. Bulgaria is encouraged to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Bulgaria’s exchange partners did not raise any concerns with Bulgaria’s use of the agreed transmission methods and therefore with Bulgaria’s implementation of this requirement.
Based on these findings it was concluded that Bulgaria is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Bulgaria is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Feedback from Bulgaria’s exchange partners did not raise any concerns with respect to Bulgaria’s receipt of the information and therefore with Bulgaria’s implementation of these requirements.
Based on these findings it was concluded that Bulgaria is fully meeting expectations in relation to the receipt of the information. Bulgaria is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
Bulgaria appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by Bulgaria’s exchange partners and therefore with respect to Bulgaria’s implementation of these requirements.
Based on these findings it was concluded that Bulgaria appears to be fully meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Bulgaria is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Note
← 1. Andorra, Liechtenstein, Monaco, San Marino and Switzerland.