Protocol 

At the signing of the Convention concluded today between the Government of the 

United States of America and the Government of the Republic of Bulgaria for the Avoidance of 

Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income 

(hereinafter referred to as the “the Convention”), the undersigned have agreed upon the 

following additional provisions which shall form an integral part of the Convention. 

1. With respect to paragraph 4 of Article 1 (General Scope) 

The term "long-term resident" as used in subparagraph b) shall mean any individual 

who is a lawful permanent resident of the United States in eight or more taxable years during 

the preceding 15 taxable years. In determining whether the threshold in the preceding sentence 

is met, there shall not count any year in which the individual is treated as a resident of Bulgaria 

under this Convention, or as a resident of any country other than the United States under the 

provisions of any other tax treaty of the United States, and, in either case, the individual does 

not waive the benefits of such treaty applicable to residents of the other country. 

2. With respect to paragraph 3 of Article 2 (Taxes Covered) 

The personal income tax and corporate income tax referred to in subparagraph a) i) and 

ii) include the patent tax. 

3. With respect to paragraph 1 of Article 3 (General Definitions) 

The term "any other body of persons" as used in subparagraph d) includes an estate, 

trust, and partnership. 

4. With respect to Article 4 (Resident) 

A company that is or would be a resident of a Contracting State pursuant to that State’s 

domestic law will not be treated as a resident of that State for purposes of the Convention if it is 

treated as a resident of a third state pursuant to an income tax convention between that State 
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and the third state. 

A person who is liable to tax in respect only of profits attributable to a permanent 

establishment in a Contracting State is not liable to tax therein by reason of domicile, residence, 

citizenship, place of management, place of incorporation or a criterion of a similar nature. 

5. With respect to Article 7 (Business Profits) 

For this purpose, the business profits to be attributed to the permanent establishment 

shall include only the business profits derived from the assets used, risks assumed and activities 

performed by the permanent establishment. 

The principles of the OECD Transfer Pricing Guidelines will apply for purposes of 

determining the profits attributable to a permanent establishment, taking into account the 

different economic and legal circumstances of a single entity. Accordingly, any of the methods 

described therein as acceptable methods for determining an arm’s length result may be used to 

determine the income of a permanent establishment so long as those methods are applied in 

accordance with the Guidelines. In determining the amount of business profits attributable to a 

permanent establishment, the permanent establishment shall be treated as having the same 

amount of capital that it would need to support its activities if it were a distinct and separate 

enterprise engaged in the same or similar activities. With respect to financial institutions other 

than insurance companies, a Contracting State may determine the amount of capital to be 

attributed to a permanent establishment by allocating the institution's total equity between its 

various offices on the basis of the proportion of the financial institution's risk-weighted assets 

attributable to each of them. In the case of an insurance company, there shall be attributed to a 

permanent establishment not only premiums earned through the permanent establishment, but 

that portion of the insurance company's overall investment income from reserves and surplus 

that supports the risks assumed by the permanent establishment. 

In applying Article 7, paragraph 4 of Article 6 (Income from Immovable Property (Real 

Property)), paragraph 6 of Article 10 (Dividends), paragraph 5 of Article 11 (Interest), 

paragraph 4 of Article 12 (Royalties), paragraph 3 of Article 13 (Capital Gains) and paragraph 

2 of Article 20 (Other Income), any income or gain attributable to a permanent establishment 
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during its existence is taxable in the Contracting State where such permanent establishment is 

situated even if the payments are deferred until such permanent establishment has ceased to 

exist. 

6. With respect to Article 8 (International Traffic) 

Profits derived by an enterprise from the transport of tangible property or passengers 

within either Contracting State shall be treated as profits from the operation of ships or aircraft 

in international traffic if such transport is undertaken as part of international traffic. 

7. With respect to Articles 11 (Interest) and 12 (Royalties) 

The Convention permits positive rates of taxation on interest and royalties. With 

respect to interest and royalties deemed to arise in Bulgaria where the beneficial owner of the 

income is a resident of the United States under the Convention, the Contracting States agree to 

reconsider the provisions of Articles 11 and 12 at an appropriate time, consistent with the 

conclusion of the transition period applicable to interest and royalties deemed to arise in 

Bulgaria that are beneficially owned by a resident of the European Union pursuant to Council 

Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest 

and royalty payments made between associated companies of different Member States. 

8. With respect to paragraph 3 of Article 11 (Interest) 

The term "back to back loan" as used in subparagraph c) means a loan structured to 

obtain the benefits of subparagraph c) in which the loan is made to a financial institution that in 

turn lends the funds directly to the intended borrower. 

9. With respect to paragraph 2 c) and paragraph 6 of Article 13 (Capital Gains) 

The term “established securities market” means a national securities exchange which is 

officially recognized, sanctioned, or supervised by a governmental authority as well as an over 

the counter market. An over the counter market is any market reflected by the existence of an 

interdealer quotation system. An interdealer quotation system is any system of general 
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circulation to brokers and dealers which regularly disseminates quotations of stocks and 

securities by identified brokers or dealers, other than by quotation sheets which are prepared 

and distributed by a broker or dealer in the regular course of business and which contain only 

quotations of such broker or dealer. 

10. With respect to paragraph 2 of Article 24 (Mutual Agreement Procedure) 

An agreement reached would not affect any court proceedings or any final court 

decisions or final tax assessment acts, unless, in the case of final court decisions or final tax 

assessment acts, the requirements under Bulgarian law for revision or repeal of final acts are 

fulfilled. 

If an examination is completed and closed (and is not a matter pending before a court or 

for which a settlement or court decision has been reached) in a Contracting State, that 

Contracting State’s competent authority may nonetheless accept a request for assistance if an 

adjustment causing double taxation is made in the other Contracting State. 

11. With respect to Article 27 (Entry into Force) 

The provisions of Article 25 (Exchange of Information and Administrative Assistance) 

shall have effect from the date of entry into force of the Convention without regard to the 

taxable period to which the matter relates. 

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their 

respective Governments, have signed this Protocol. 

DONE at Washington in duplicate, in the English and Bulgarian languages, both texts 

being equally authentic, this twenty-third day of February, 2007. 

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF 

THE UNITED STATES OF AMERICA: THE REPUBLIC OF BULGARIA