INTERNATIONAL INITIATIVES IN THE FIELD OF TAXATION AND EUROPEAN LAW

Several different initiatives have been developed and implemented in the course of the last few years which modify the elements of familiar taxation systems and principles. They are provoked by business globalization, the common European market and trends in the business environment. The present article aims to provide an overview of the G20/OECD’s Base Erosion and Profit Shifting (BEPS) Project, the second major post-financial crisis effort at global cooperation relating to taxation. Another prominent initiative is the global automatic information exchange system, created mainly for the needs of the USA (Foreign Account Tax Compliance Act, i.e. FATCA), as well as the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The article also discusses current measures of the OECD and the European Union and their transposition in the Bulgarian national legislation.


Introduction
The last few years have seen the development and implementation of various initiatives which are changing the elements of well-known taxation systems and principles, driven by business globalization, the common European market and business environment trends, and not least, by digital economy (Petruzzi, Buriak, 2017). These challenges should naturally be addressed by law in its role of social regulator in the respective country, in our case -the Republic of Bulgaria. Bulgaria is not an OECD member but actively cooperates with the organisation, especially after the changes of 1989 (the result of political and economic shifts in the country) and participates in the sessions of the organi-sation's special bodies. A significant portion of the treaties for the avoidance of double taxation concluded by Bulgaria follow the OECD Model Tax Convention. On 30 July 1963, the Council of the OECD adopted a recommendation concerning the avoidance of double taxation and called on the governments of the member countries, when concluding or revising bilateral conventions, to conform to a 'model convention for the avoidance of double taxation with respect to taxes on income and capital' that had been drawn up by the OECD Fiscal Committee and was annexed to that recommendation ('the OECD Model Tax Convention'). That model tax convention is re-examined and amended regularly. It is the subject of commentaries approved by the OECD Council.
The EU membership of Bulgaria must be highlighted as one of the most significant achievements in the country's development following the changes and transformations after 1989. Given that the EU is a G20 member, the initiatives of the latter reach national legislation via EU acquis. The country's EU membership has a significant economic impact and social dimensions; when analysing its effect on national tax legislation, we need to underline the process of tax harmonization within the EU, whereby in building their taxation systems, the different states are required to comply with the principles of acquis. Bulgaria takes part in the OECD initiatives in the field of taxation and administrative cooperation. The country has also signed and ratified the Convention on Mutual Administrative Assistance in Tax Matters (ratification act adopted by the National Assembly and promulgated in State Gazette No 14/2016) and the Multilateral Competent Authority Agreement for the Automatic Exchange of Financial Account Information (ratification act adopted by the National Assembly and promulgated in State Gazette No 14/2016), in force as of 01.07.2016. In 2015, Bulgaria joined the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes. This will allow the country to receive information -both automatically and on request -from a large number of jurisdictions across the world. In 2016, Bulgaria joined the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), by means of Resolution No 23 of 8.06.2016 of the Council of Ministers. This step provides an opportunity for the country to participate in activities related to the implementation of standards in the field of tax conventions and transfer pricing, as well as in monitoring the implementation of the four minimum standards and other elements of the BEPS package. By joining the Inclusive Framework, Bulgaria has undertaken to introduce the minimum standards countering base erosion and profit shifting, i.e. to introduce EU legislation into national tax legislation. In this respect, the Ministry of Finance has prepared a draft amending and supplementing the Tax and Social Security Procedure Code (TSSPC) which introduces the legal framework for country-by-country reporting. The draft also lays the legal grounds for the creation of a framework of by-laws to regulate spontaneous exchange of tax rulings in accordance with OECD rules. The draft was adopted by the Council of Ministers by means of Resolution No 876 of 18.10.2016 and was submitted to the National Assembly for review. The proposed amendments introduce two directives amending Directive 2011/16/ЕU as regards mandatory automatic exchange of information in the field of taxation (Directive (EU) 2015/2376 of the Council of 8.12.2015, and Directive (EU) 2016/881 of the Council of 25.05.2016), as well as rules linking the provisions of international conventions to which the Republic of Bulgaria is a party (including the Convention on Mutual Administrative Assistance in Tax Matters) with proceedings under the TSSPC.

Current trends
An important initiative, as mentioned above, is the G20/OECD project against base erosion and profit shifting (BEPS) 1 . The Inclusive Framework on BEPS was created by the OECD at the request of G20 leaders with view of fast and efficient project implementation 2 . Bulgaria participated in the first meeting of Inclusive Framework member countries held between 30 June and 1 July 2016 in Kioto, Japan 3 . The project proposes measures at global and European level in the field of direct taxation 4 . The project is the second attempt at global cooperation in the field of taxation after the financial crisis. The first project, which was predominantly intergovernmental, concerned transparency 5 . The new project covers 15 measures.
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the continuation of a forum created in 2000, in the context of the OECD's work to address the risks to tax compliance posed by non-cooperative jurisdictions. The Global Forum was restructured in September 2009 in response to the G20 call to strengthen implementation of these standards and is the premier international body for ensuring the implementation of the internationally agreed standards of transparency and exchange of information in the tax area. As for the Convention on Mutual Assistance in Tax Matters, it was developed jointly by the OECD and the Council of Europe in 1988, and amended through Protocol in 2010. The Convention is the most comprehensive multilateral instrument available for all forms of tax co-operation to tackle tax evasion and avoidance. It was signed by the Republic of Bulgaria on 26.10.2015 and ratified by means of an act of law 6 . On this basis, the National Revenue Agency will be able to obtain tax information from almost all jurisdictions applying preferential tax regimes, as well as from many other countries with which Bulgaria has not concluded double taxation agreements or another form of information exchange agreement. The main features of the Convention are as follows: multilateral; wide scope allowing extensive cooperation on all taxes; uniform application; flexible, with reservation possible on certain issues.
Another such initiative is the global system for automatic information exchange, mainly for the purposes of the USA (Foreign Account Tax Compliance Act -FATCA), respectively the multilateral convention on administrative assistance. This includes the standard for automatic exchange of tax and bank information (Common Reporting Standard -CRS). The CRS is the new global standard on automatic exchange of financial information. It was developed at the G20 request and approved by the OECD Council on 15.07.2014, and it is based on Model 1 FATCA. Its role is to allow jurisdictions to collect detailed account information from their financial institutions and share this information with other jurisdictions automatically on an annual basis.
How are BEPS measures and other initiatives translated into EU acquis? With regards to the conceptual framework, from a theoretical point of view and with view of developing international tax coordination in the context of the BEPS project, we need to clarify the terms tax evasion, tax avoidance and aggressive tax planning. From a theoretical perspective, the developments regarding international tax coordination within the framework of the BEPS project have proved that states are now determined to going beyond simply countering tax evasion and tax avoidance to actually responding to aggressive tax planning. Professor Pistone differentiates between these two fundamental notions: "The difference between tax evasion and avoidance is generally clear. While tax evasion is an open violation of tax law (which can evolve into its more serious form, generally called tax fraud, in the presence of manoeuvres aimed at hiding the violation), tax avoidance arises in connection with the exploitation of the friction between form and substance for the purpose of circumventing the scope of a tax provision. Aggressive tax planning consists of the exploitation of crossborder tax disparities to the advantage of taxpayers, which shift profits out of the country of value creation, often towards low-tax jurisdictions by making use of loopholes and technicalities in the international tax rules and mismatches between the different tax systems. Anti-avoidance rules are often scarcely effective to counter this phenomenon, especially since aggressive tax planning achieves an undue tax advantage across two different tax jurisdictions. Until the BEPS project, a prohibition of aggressive tax planning could not be found in the national tax systems or under European Union law. The dramatic change connected with the BEPS project has strengthened interna tional tax coordination with a view to also countering aggressive tax planning. In the presence of structural similarities to the other phenomena (i.e. fraudulent and abusive practices) that are not eligible for the protection of EU law, coordination in the exercise of tax sovereignty in order to counter aggressive tax planning leads us to conclude that this phenomenon should be treated similarly." (Lang, Pistone, Schuch, Staringer, 2018: 53-54).
Which are the applicable directives in the field? These are: As for the rules on controlled foreign corporations or CFC, these have been known for some time and are used by many countries as a means to limit the artificial deferral of tax on taxable income by using offshore companies with low or no imposition of tax. Often such deferral is unlimited in time, due to which the practice is regarded an unacceptable form of aggressive tax planning. This is one of the reasons for CFC rules to be included in Council Directive (EU) 2016/1164 of 12 July 2016, laying down rules against tax avoidance practices that directly affect the functioning of the internal market, also known as the Anti-Tax Avoidance Directive (ATAD). Although this concept is new and unfamiliar for Bulgaria, many countries, such as the USA (since 1962), the United Kingdom, Germany, Japan, Australia, New Zealand, Brazil, Russia, Sweden, etc., have adopted and effectively apply CFC rules.
On 01.11.2018 the National Assembly, on second reading, adopted an Act amending and supplementing the Corporate Income Tax Act, in which Directive (EU) 2016/1164 is partially transposed.
The BEPS project will set in motion significant reforms in the field of double taxation agreements. Project implementation will have worldwide consequences, affecting more than 2,000 tax treaties. The multilateral instrument (MLI) -the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting -is an extension of BEPS Measure 15. Many of the measures envisaged in the project are impossible to apply without changes to existing treaties, but their renegotiation would be a long and arduous process. It must be noted that, over the last few years, transfer pricing has been the focus of international and Bulgarian tax community. Transfer pricing is part of the issue of information exchange at different levels and dimensions, and remains a source of significant controversy in the field of international taxation of multinational undertakings. Due to its profound impact, tax experts and tax jurisdictions need to find their way around in the topic which is covered by a labyrinth of literature. Several international organisations are active in the field: the OECD, the UN, the EU, the World Customs Organisation, the World Bank, the International Monetary Fund, and others.
Topics of significance for the tax environment will be increasingly discussed in Bulgaria, such as: transfer pricing methods; traditional transaction methods; transactional profit methods; administrative approaches to avoiding and resolving transfer pricing disputes; transfer pricing documentation: master file, local file and country-by-country reports. A recent resolution of the Supreme Administrative Court 13 has attracted attention. The resolution analyses and compares the Guidelines issued by the OECD and the NRA's Transfer Pricing Manual to Define Market Prices between Related Parties with view of proper implementation of Article 16, para. 1 CITA and the establishment of 'market prices'. Bulgaria is a member of the European Transfer Pricing Forum. In October 2018, the Joint Transfer Pricing Forum agreed to report on a coordinated approach to transfer pricing controls within the EU. The report establishes best practices by issuing various recommendations for both taxpayers and tax administrations, and encourages closer cooperation in the field of transfer pricing controls 14 . The report's motto is 'Think international -Act international -Audit international'. 14 Information on the report is available on the website of the Joint Transfer Pricing Forum, which supports and advises the European Commission on tax issues related to transfer pricing: https://ec.europa.eu/taxation_customs/business/company-tax/transfer-pricingeu-context/joint-transfer-pricing-forum_en, retrieved 6.03.2019.
The report notes that multinational enterprises 15 primarily engage in cross-border activities and invest internationally while the competences of national tax jurisdictions remain limited to the national territory as a matter of principle. 16 To face up to the challenges of globalisation and address the business models that have been developed to match the new economic realities, tax administrations need to strengthen their cooperation and be open to experiment with new forms of collaboration that deepen the exchange of information. In this context, a coordinated approach to transfer pricing controls would contribute to a better functioning of the internal market on two fronts: it would offer tax administrations a transparent and efficient tool to facilitate the allocation of taxing rights and also prevent the occurrence of double taxation.
As already mentioned, the EU legal order contains a framework that provides Members States' tax administrations with the tools for cross-border/administrative cooperation. It is important to use all available tools for administrative cooperation in the best possible way, including bi-and multilateral transfer pricing controls and to consider their improvement where necessary. In the Report on Transfer Pricing Risk Management of the Joint Transfer Pricing Forum, it is recommended to take simultaneous controls or joint audits into consideration in appropriate cases while it is recognized that, especially at the beginning of this practice, the capacity and experience of one or both tax administrations involved may be limited. The near future will see an increase in such audits and controls.
With regards to transfer pricing and the BEPS project, the measures covering aspects of this issue are Measures 1, 2, 4, 6 and 13. We must note that legal regulation of transfer pricing in Bulgarian legislation is based on the arm's length principle.
On 31 July 2019, the National Assembly, on a second reading, adopted a draft act amending and supplementing the Tax and Social Security Procedure Code. 17 The 15 § 1, item 35 of the Additional Provisions of TSSCP: "Multinational Enterprise Group" (MNE Group) within the meaning of Part Two, Chapter Sixteen, Section VI is a group which: a) includes two or more undertakings resident for tax purposes of different Member States or other jurisdictions, or b) includes an undertaking which is a resident for tax purposes of a Member State or another jurisdiction but is subject to taxation in respect of economic activities carried out through a permanent establishment in another Member State or jurisdiction.
16 National tax legislation generally provides a legal definition of the geographic territory on which the Republic of Bulgaria exercises its state sovereignity. For example, §1 of the Additional Provisions of CITA: "Bulgaria" or "the country" shall mean the Republic of Bulgaria, and, when used in the geographic sense, shall include the territory in which the Republic of Bulgaria excercises its State sovereignity, as well as the continental shelf and the exclusive economic area within which the Republic of Bulgaria exercises sovereign rights in accordance with international law".
draft introduces the EU Directive on enhancing the mutual agreement procedure as a mechanism for international tax disputes resolution. The introduction of mandatory transfer pricing documentation in Bulgaria is also approved, with view of the requirement for improving tax legislation in this field 18 . The rules on preparation of transfer pricing documentation will apply to transactions effected after 1 January 2020. The motives of the draft indicate as follows (item 2, pp. 2-5 "Introduction of transfer pricing documentation"): "The Draft proposes rules on the preparation of transfer pricing documentation, given the need to improve tax legislation in this respect. The proposals aim to limit opportunities for tax evasion and tax avoidance, and, on the other hand, to bring national rules in conformity with international trends аnd new developments in international tax standards. The new rules will create a more favourable business environment, encouraging investments and fostering development by increasing legal certainty for economic operators and reducing administrative and court disputes between businesses and the revenue administration. In the last few years transfer pricing has become a main priority for countries across the world in an increasingly global market economy. Currently around 60% of global trade in goods and services is carried out within multinational groups. As a result of this concentration of activity in multinational groups, a small deviation in transaction prices may pose a serious threat to the national tax base. From this point of view the fair tax base allocation between the different jurisdictions in which the subdivisions of those groups functions is becoming a key issue. Transfer pricing is one of the main issues of the BEPS Project, with the report under Measure 13 "Transfer Pricing Documentation and Countryby-Country Reporting" being dedicated to the documentation which taxpayers must prepare for the purpose of tax control and risk assessment. In June 2016 the Republic of Bulgaria joined the OECD Inclusive Framework with more than 100 participating countries and jurisdictions. This step marks the country's commitment to pursue BEPS objectives and to implement project measures. The proposed amendments aim to create rules on the basis of which taxpayers will evidence the market nature of their commercial and financial relations with related parties. The arm's length principle has been elevated to an international standard for corporate taxation which has also been adopted by Bulgarian tax legislation..." Given these changes in legislation, the topic of transfer pricing will attract increasing interest and will require further analysis. The topic has acquired even greater significance with view of the issues of information exchange between national revenue administrations. From a more practical point of view, the topic of information exchange must also be highlighted in connection with International Agreements and Frameworks. Within the BEPS context, we need to consider BEPS Action 5 -Exchange of Information on Tax Rulings and BEPS Actions 8-13 -Country-by-Country Reporting (CBCR

In lieu of conclusion
Recently, the issue of interaction between and hierarchy of rules of national law, international law and EU law has become somewhat of a challenge, increasingly significant in the field of taxation and in the context of international initiatives in the field of taxation, European law and the constitutional identity of member states. A main feature of EU tax provisions is that the Council reaches unanimous decisions on the basis of proposals by the Commission, following consultation of Parliament. The provisions adopted in the field of taxation include directives for approximation of national regulations and Council decisions. This is due to the fact that taxation is essential to the functioning of our society and a key instrument of public policy at all levels of governance, being the primary source of revenue for governments, and is central to securing an efficient and stable economy in a fair and inclusive society, as the European Commission notes. This is why measures aimed at coordination, approximation or harmonisation of national legislations in the field of taxation are an important tool for policy at the EU level, within the bounds set by the Treaties and in line with the principle of subsidiarity. It appears, however, that taxation is the last EU policy area where decision-making exclusively relies on unanimity. Will this last bastion be seized? This will soon become evident. Convinced that preserving unanimity for all decisions in the field of taxation would hinder the achievement of the level of tax coordination required by Europe, the European Commission presented proposals for moving from unanimity to qualified majority voting on certain tax matters. This proposal was not greeted with enthusiasm by member states, for a variety of reasons. 19 How will the issue unfold?
We have yet to find out!