Assessee is Cargill Bulgaria EOOD
Cargill Bulgaria EOOD is engaged in the trade and export of agricultural commodities - wheat, corn, barley, sunflower and rapeseed. During the period (FY 2016–2018), it conducted controlled transactions by selling agricultural goods to related parties - Cargill International S.A. (Switzerland), Cargill N.V., Cargill B.V. and Cargill Agricultura SRL.
Following a tax audit, the Bulgarian Revenue Authority increased Cargill Bulgaria's taxable income by BGN 6,286,944 (2016), BGN 4,226,549 (2017) and BGN 2,556,103 (2018), resulting in additional corporate tax of BGN 1,061,753 plus interest of BGN 629,516. The authority rejected the Company's Cost Plus method and instead applied TNMM with Return on Sales (EBIT/Revenue) as the profit level indicator, benchmarked against five comparables with an interquartile range of 1.21% – 1.79%, adjusting results to the lower quartile of 1.21%. The Administrative Court of first instance annulled the assessment, favouring Cost Plus as the most appropriate method. The tax authority appealed to the Supreme Administrative Court.
Assessee's Contentions | Revenue's Contentions | Supreme Court's Judgment |
|---|---|---|
The Cost Plus method was the most appropriate method for the controlled transactions and was correctly applied using selected uncontrolled transactions as comparables. The first instance court rightly found that TNMM was incorrectly applied by the tax authority. | Cost Plus is unsuitable here as the transactions involve sale of goods, not production and subsequent sale of produce or services. TNMM was the most appropriate method, correctly applied using a EBIT/revenue PLI with an IQR of 1.21% – 1.79%, with adjustment to the lower quartile. | The first instance court merely reproduced the assessee's arguments without providing independent reasoning or engaging with the opposing evidence. Key issues including whether Cost Plus is applicable for sale-of-goods transactions and whether a proper comparability analysis conducted were left unresolved. |
There was no sufficient basis to reject the Cost Plus comparables selected by the company. The absence of contracts from the evidentiary record should not have been used to undermine the Company's position, as the burden of proof lies with the tax authority. | The first instance court wrongly allocated the burden of proof, accepted Cost Plus without a proper comparability analysis and failed to address the absence of relevant contracts in the evidentiary material submitted by the taxpayer. | The Supreme Administrative Court annulled the first instance judgment in full and remanded the case to a new panel. It directed the court to reallocate the burden of proof explicitly between both parties, engage with all evidence and if necessary appoint an expert witness before ruling on the substantive legality of the tax assessment. |
The Bulgaria Supreme Administrative Court annulled the first instance decision and remanded the case for fresh consideration. It held that the lower court failed to provide independent reasoning on the competing method positions (Cost Plus vs. TNMM), did not address whether Cost Plus is appropriate for sale-of-goods transactions and incorrectly allocated the burden of proof. On remand, the court must explicitly assign evidentiary burdens, analyse all factual material with expert assistance if needed and rule on the merits of the tax assessment.
