Tax Treaty Case Law around the Globe 2025

1. Introduction

Applying the arm’s length principle (ALP) in intra-group financial transactions remains a complex transfer pricing (TP) area. Despite the guidelines issued to provide clarity in this area of TP, there are still numerous disputes stemming from uncertainties or differing administrative practices for which courts are a crucial factor in resolving them. The recent Decision No. 5580/2024 of the Bulgarian Supreme Administrative Court provides a compelling case study on these issues, particularly regarding the allocation of the burden of proof and the appropriate standard for evaluating related-party loan terms.

This decision arose in the context of a refinancing operation between a Bulgarian company and its Dutch parent. The Bulgarian tax authorities challenged the interest payments on the grounds that the terms of the intra-group loan deviated from those of the prior third-party bank loan that was refinanced with the intra-group loan. While the first instance court accepted the tax authority’s argument by mechanically comparing the two financing arrangements (the conditions under the loan that existed with the third-party financial institutions and those under the intra-gr...