A double taxation convention based on the OECD Model has been in force between Italy and Bulgaria since 1988.
This convention must be regarded as fully valid and effective and is necessary for entrepreneurs interested in investing abroad in order to avoid mistakes concerning the applicable tax rules.
CONVENTION BETWEEN THE ITALIAN REPUBLIC AND THE PEOPLE'S REPUBLIC OF BULGARIA FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND CAPITAL AND THE PREVENTION OF FISCAL EVASION, WITH PROTOCOL, SOFIA, 21 SEPTEMBER 1988
The Italian Republic and the People’s Republic of Bulgaria, desiring to develop and facilitate their mutual economic relations, have agreed to conclude a Convention for the avoidance of double taxation with respect to taxes on income and capital and the prevention of fiscal evasion:
Article 1 – Persons and residents 1. This Convention shall apply to persons who are residents of one or both of the States
Contracting States. 2. For the purposes of this Convention, the term “resident of a Contracting State” means:
(a) in the case of the Italian Republic, any person who, under Italian legislation, is liable to tax in Italy by reason of domicile, residence, place of management or any other criterion of a similar nature.
b) as regards the People’s Republic of Bulgaria, any individual possessing Bulgarian nationality and any legal entity with its registered office in Bulgaria or registered there;
3. Where, by reason of paragraph 2, an individual is a resident of both Contracting States, their status shall be determined as follows:
(a) the person shall be deemed resident in the State with which their personal and economic relations are closer, the centre of vital interests;
b) If the State in which the person has their centre of vital interests cannot be determined, the competent authorities of the Contracting States shall settle the question by mutual agreement.
4. Where, by reason of the provisions of paragraph 2, a person other than an individual is a resident of both Contracting States, it shall be deemed to be a resident of the State in which its place of effective management is situated.
Article 2 — Taxes covered
1. This Convention shall apply to taxes on income and on capital imposed on behalf of a Contracting State, its political or administrative subdivisions or its local authorities, irrespective of the manner in which they are levied.
1 Ratified by Law No 389 of 29 November 1990 (Official Gazette No 297 of 21 December 1990, Ordinary Supplement). Exchange of instruments of ratification: 10 June 1991. Entry into force: 10 June 1991 (Official Gazette No 205 of 2 September 1991).
1
2. Taxes on income and capital shall mean taxes imposed on total income, total capital or elements of income or capital, including taxes on gains from the disposal of movable or immovable property, taxes on the total amount of wages paid by enterprises and taxes on capital appreciation.
3. The existing taxes to which the Convention applies are, in particular:
(a) in the case of the Italian Republic: 1) personal income tax; 2) corporate income tax; 3) local income tax; even where collected by withholding at source (hereinafter referred to as “Italian tax”);
b) as regards the People's Republic of Bulgaria: 1) the tax on total income; 2) the tax on unmarried persons, widowed persons, divorced persons and childless couples; 3) the tax on profits; 4) the tax on buildings; (hereinafter referred to as ‘Bulgarian tax’).
4. The Convention shall also apply to any identical or substantially similar taxes imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of significant changes made to their respective tax laws.
Article 3 — General definitions. 1. For the purposes of this Convention, unless the context requires a different
Interpretation:
(a) the term “Italy” means the Italian Republic and includes areas beyond Italy's territorial sea which, in accordance with customary international law and Italian laws concerning the exploration and exploitation of natural resources, may be regarded as areas in which Italian sovereign rights over those areas, the seabed and its subsoil, and their natural resources may be exercised;
b) the term “Bulgaria” means the People’s Republic of Bulgaria and, when used geographically, the territory over which Bulgaria exercises its sovereign rights, as well as the continental shelf and the exclusive economic zone over which Bulgaria exercises sovereign rights in accordance with international law;
c) the terms ‘a Contracting State’ and ‘the other Contracting State’ mean, as the context requires, the Italian Republic or the People's Republic of Bulgaria;
(d) the term “person” includes individuals, legal entities, including companies, and any other association of persons;
e) the term “company” means any legal person or any entity treated as a legal person for tax purposes;
2
f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean, respectively, an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;
(g) the term “international traffic” means any transport by ship, aircraft or road vehicle operated by an enterprise whose place of effective management is situated in a Contracting State, except where the ship, aircraft or road vehicle is operated solely between places in the other Contracting State;
h) the term “competent authority” means: 1) in Italy: the Ministry of Finance. 2) in Bulgaria: the Ministry of Finance.
Article 4 — Permanent establishment. 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place
of business through which the enterprise carries on all or part of its business.
2. The term ‘permanent establishment’ includes in particular: a) a place of management; b) a branch; c) an office:
d) a workshop; e) a laboratory; f) a mine, a quarry or any other place of extraction of natural resources; g) a building or assembly site lasting more than twelve months.
3. A “permanent establishment” shall not be deemed to exist where:
(a) facilities are used solely for the storage, display or delivery of goods belonging to the enterprise;
b) goods belonging to the enterprise are stored solely for storage, display or delivery;
(c) goods belonging to the enterprise are stored solely for processing by another enterprise;
d) a fixed place of business is used solely to purchase goods or collect information for the enterprise;
For the application of the Convention by a Contracting State, terms not
3
e) a fixed place of business is used for the enterprise solely for advertising, supplying information, scientific research or similar activities of a preparatory or auxiliary character.
4. An Italian resident's participation in a joint venture established in Bulgaria under Decree No 535 of the State Council of the People's Republic of Bulgaria of 25 March 1980 shall be deemed a “permanent establishment” for the purposes of this Convention.
5. A person acting in a Contracting State on behalf of an enterprise of the other Contracting State, other than an independent agent covered by paragraph 6, shall be deemed a “permanent establishment” in the first State if that person has and habitually exercises there an authority to conclude contracts in the enterprise's name, unless their activities are limited to purchasing goods for the enterprise.
6. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business there through a broker, general commission agent or any other agent of independent status, provided that such persons act in the ordinary course of their business.
7. The fact that a company resident in a Contracting State:
a) holds an interest in a company resident in the other Contracting State (or that company holds an interest in the former),
b) or carries on business in the other Contracting State (whether through a permanent establishment or otherwise), shall not of itself constitute sufficient grounds for treating either of those companies as a permanent establishment of the other.
Article 5 — Income from immovable property. 1. Income derived by a resident of a Contracting State from immovable property (including income from
agricultural or forestry activities) situated in the other Contracting State may be taxed in that other State.
2. The term ‘immovable property’ is defined in accordance with the law of the Contracting State in which the property is situated.
3. Paragraph 1 applies to income derived from direct use, letting or leasing and any other form of use of immovable property.
4. The provisions of paragraphs 1 and 3 shall also apply to income from the immovable property of an enterprise and to income from immovable property used for the performance of independent professional services.
Article 6 — Business profits
1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated there. If it does so, its profits may be taxed in the other State, but only to the extent attributable to that permanent establishment.
2. Subject to paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated there, the profits attributed to that permanent establishment in each Contracting State shall be those which it might be expected to make if it were a distinct and separate enterprise engaged in identical or similar activities under identical or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.
3. In determining the profits of a permanent establishment, expenses incurred for its purposes, including executive and general administrative expenses, shall be deductible, whether incurred in the State in which the permanent establishment is situated or elsewhere.
4. No profits shall be attributed to a permanent establishment merely because it has purchased goods for the enterprise.
5. Where profits include items of income dealt with separately in other Articles of this Convention, the provisions of those Articles shall not be affected by this Article.
Article 7 – International transport
1. Profits from operating ships, aircraft and road vehicles in international traffic shall be taxable only in the Contracting State where the enterprise’s place of effective management is situated.
2. Where the place of effective management of a shipping enterprise is aboard a ship, it shall be deemed situated in the Contracting State in which the ship's home port is located or, if it has no home port, in the Contracting State of which the ship's operator is a resident.
3. Paragraph 1 also applies to profits from participation in a pool, a joint business or an international operating agency.
Article 8 — Dividends 1. Dividends paid by a company resident in a Contracting State to a resident of the other Contracting State
Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and in accordance with that State's laws; but, if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. The competent authorities of the Contracting States shall agree on the manner of applying this limitation. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
3. For the purposes of this Article, the term “dividends” means income from shares, enjoyment shares or enjoyment rights, mining shares, founders’ shares or other profit-participating rights, other than debt claims, as well as income from other corporate rights subject to the same tax treatment as income from shares under the tax law of the State in which the distributing company is resident.
5
4. The provisions of paragraphs 1 and 2 shall not apply where the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein, or performs independent professional services through a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with that establishment or base. In that case, the dividends may be taxed in that other Contracting State in accordance with its domestic law.
5. Where a company resident in a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on dividends paid by the company, except insofar as those dividends are paid to a resident of that other State or the holding giving rise to the dividends is effectively connected with a permanent establishment or fixed base situated in that other State. Nor may it subject the company’s undistributed profits to a tax on undistributed profits, even where the dividends paid or undistributed profits consist wholly or partly of profits or income arising in that other State.
Article 9 — Interest
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State if that resident is its beneficial owner.
2. For the purposes of this Article, the term ‘interest’ means income from government securities, loan bonds whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt claims of every kind, as well as any other income treated as income from money lent under the tax legislation of the State in which the income arises.
3. Paragraph 1 shall not apply where the beneficial owner of the interest, being a resident of a Contracting State, carries on a business in the other Contracting State from which the interest arises through a permanent establishment situated there, or performs independent professional services through a fixed base situated there, and the debt claim in respect of which the interest is paid is effectively connected with that establishment or base. In that case, the interest is taxable in that other Contracting State under its domestic legislation.
Article 10 – Royalties 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State
Are taxable in that other State.
2. However, such royalties may also be taxed in the Contracting State in which they arise and according to that State’s laws, but if the recipient is the beneficial owner of the royalties, the tax charged must not exceed 5% of the gross amount of the royalties. The competent authorities of the Contracting States shall settle by mutual agreement how this limitation is to be applied.
3. For the purposes of this Article, the term “royalties” means payments of any kind received as consideration for the use of, or the right to use, any copyright in literary, artistic or scientific works, including cinematograph films and recordings for radio and television broadcasting, patents, trademarks, designs or models, plans, secret formulae or processes, computer software, and for the use of, or the right to use,
6
industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
4. The provisions of paragraphs 1 and 2 shall not apply where the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State from which the royalties arise through a permanent establishment situated therein, or performs independent professional services through a fixed base situated therein, and the rights and property generating the royalties are effectively connected with that establishment or base. In that case, the royalties may be taxed in that other Contracting State in accordance with its domestic law.
5. Royalties shall be deemed to arise in a State when the payer is that State itself, a political or administrative subdivision, a local authority or a resident of that State. However, where the payer of the royalties, whether or not a resident of either State, has in a State a permanent establishment or fixed base for whose purposes the contract giving rise to the royalty payment was concluded and which bears the expense, the royalties shall be deemed to arise in the State in which that permanent establishment or fixed base is situated.
Article 11 — Capital gains. 1. Gains derived by a resident of a Contracting State from the disposal of immovable property referred to
under Article 5, situated in the other Contracting State, are taxable in that other State.
2. Gains from the disposal of movable property forming part of the business assets of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or of movable property belonging to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent professional services, including gains from the disposal of that permanent establishment (alone or together with the whole enterprise) or that fixed base, may be taxed in that other State.
3. Gains from the alienation of ships, aircraft or road vehicles operated in international traffic, or movable property pertaining to the operation of such ships, aircraft or vehicles, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the transferor is a resident.
Article 12 — Independent personal services
1. Income derived by a resident of a Contracting State from professional services or other independent activities shall be taxable only in that State, unless the resident has a fixed base regularly available in the other Contracting State for performing those activities. If such a fixed base is available, the income may be taxed in the other State, but only to the extent attributable to that fixed base.
2. The term “professional services” includes, in particular, independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.
7
Article 13 — Salaries, wages and other similar remuneration
1. Subject to Articles 14, 16, 17, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If it is exercised there, the remuneration derived from it may be taxed in that other State.
2. Notwithstanding paragraph 1, remuneration received by a resident of a Contracting State for employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
a) the recipient is present in the other State for a period or periods not exceeding a total of 183 days in the fiscal year concerned; and
b) the remuneration is paid by or on behalf of an employer who is not a resident of the other State, and
c) the remuneration is not borne by a permanent establishment or fixed base maintained by the employer in the other State.
3. Remuneration for employment performed aboard ships, aircraft or road vehicles in international traffic shall be taxable only in the Contracting State in which the enterprise's place of effective management is situated.
Article 14 — Members of boards of directors and supervisory boards
1. Fees, attendance payments and other similar remuneration received by a resident of a Contracting State as a member of the board of directors or supervisory board of a company resident in the other Contracting State may be taxed in that other State.
Article 15 — Entertainers and sportspersons
1. Notwithstanding Articles 12 and 13, income derived by a resident of a Contracting State from personal activities performed in the other Contracting State as an entertainer, such as a theatre, film, radio or television artiste, or a musician, or as a sportsperson, may be taxed in that other State.
2. Where income from activities personally performed by an entertainer or sportsperson in that capacity accrues to a person other than the entertainer or sportsperson, that income may, notwithstanding Articles 6, 12 and 13, be taxed in the Contracting State in which those activities are performed.
3. Notwithstanding paragraphs 1 and 2, income derived by an entertainer resident in a Contracting State from personal activities performed in that capacity in the other Contracting State shall be taxable only in the first State if the activities in the other State are largely financed from public funds of the first State, or are performed under an official cultural exchange programme between the two States.
Notwithstanding the preceding provisions of this Article, remuneration received in
8
Article 16 — Pensions
1. Subject to the provisions of paragraph 2 of Article 17, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.
Article 17 — Government service
1. a) Remuneration, other than pensions, paid by a Contracting State or one of its political or administrative subdivisions or local authorities to an individual for services rendered to that State, subdivision or local authority shall be taxable only in that State;
b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the recipient of the remuneration is a resident of that State who:
i) Is a national of that State; or ii) did not become a resident of that State solely for the purpose of rendering the services.
2. a) Pensions paid by a Contracting State, a political or administrative subdivision or a local authority thereof, either directly or out of funds created by them, to an individual in respect of services rendered to that State, subdivision or authority shall be taxable only in that State.
b) However, such pensions shall be taxable only in the other Contracting State if the recipient is a resident and national of that State.
3. Articles 13, 14 and 16 apply to remuneration and pensions paid in respect of services rendered in connection with a business carried on by a Contracting State or one of its political or administrative subdivisions or local authorities.
Article 18 — Professors
1. Remuneration received by a professor or another member of teaching staff who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State, and who is sent or invited to the first State solely to teach or conduct scientific research for a period not exceeding two years at a university or another non-profit educational or scientific research institution, shall not be taxable in the first State.
Article 19—Students
1. Payments received for maintenance, education or training by a student or apprentice who is, or was previously, resident in a Contracting State and is sent to the other Contracting State solely to study or complete vocational training shall not be taxable in that other State, provided that they arise from sources outside that other State, or are received as remuneration for work performed in that other State up to an appropriate level of income enabling the student or apprentice to pursue studies or complete vocational training.
Article 20 — Other income
1. Items of income of a resident of a Contracting State, wherever arising, that are not dealt with in the preceding Articles of this Convention shall be taxable only in that State.
Article 21 — Capital. 1. Capital represented by immovable property referred to in Article 5, owned by a resident of one
Contracting State and situated in the other Contracting State may be taxed in that other State.
2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for performing independent professional services, may be taxed in that other State.
3. Capital represented by ships, aircraft and road vehicles operated in international traffic, and by movable property used in operating those ships, aircraft or vehicles, shall be taxable only in the Contracting State in which the enterprise's place of effective management is situated.
4. All other elements of the capital of a resident of a Contracting State shall be taxable only in that State.
Article 22 — Method for eliminating double taxation. 1. It is agreed that double taxation shall be avoided in accordance with the provisions of the following
paragraphs of this Article. 2. As regards Bulgaria:
a) where a resident of Bulgaria derives income or owns capital that, under this Convention, may be taxed in Italy, Bulgaria shall exempt that income or capital from tax;
b) Where a resident of Bulgaria receives dividends or royalties which, under Articles 8 and 10, may be taxed in Italy, Bulgaria shall allow a deduction from the tax it levies on that resident’s income equal to the tax paid in Italy on those dividends or royalties. However, the deduction may not exceed the portion of tax, calculated before the deduction, attributable to those dividends or royalties arising in Italy.
c) Where, under any provision of the Convention, income or capital owned by a resident of Bulgaria is exempt from tax in Bulgaria, Bulgaria may nevertheless take the exempt income or capital into account in calculating the tax due on that resident's remaining income or capital.
3. As regards Italy: where a resident of Italy derives items of income which may be taxed in Bulgaria, Italy, in calculating its income taxes specified in Article 2 of this Convention, may include those items of income in the taxable base unless express provisions of this Convention provide otherwise. In that case, Italy shall deduct from the taxes so calculated the income tax paid in Bulgaria, but the deduction may not exceed the portion of Italian tax attributable to those items of income in the proportion in which they contribute to total income. However, no deduction shall be granted where the item of income is subjected in Italy to taxation by final withholding tax at the request of the recipient of the income under Italian law.
4. Where a company resident in Italy derives income from its participation in a ‘joint venture’ established in accordance with Decree No. 535/80 of the State Council of the People's Republic of Bulgaria, the tax paid in Bulgaria on that income shall, for the purposes of paragraph 3 above, be deemed to be 36 per cent.
Article 23 — Non-discrimination
1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or connected requirement which is different from or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. This provision shall, notwithstanding Article 1, also apply to persons who are not residents of one or both Contracting States.
2. For the purposes of this Article, the term “nationals” means: (a) individuals possessing the nationality of a Contracting State;
b) legal persons, partnerships and associations constituted in accordance with the legislation in force in a Contracting State.
3. The taxation of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourable in that other State than the taxation of enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant residents of the other Contracting State the personal allowances, reliefs and tax reductions it grants its own residents because of their personal circumstances or family responsibilities.
4. Interest, royalties and other expenses paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining that enterprise’s taxable profits, be deductible under the same conditions as if paid to a resident of the first-mentioned State. Similarly, debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the enterprise’s taxable capital, be deductible under the same conditions as if contracted with a resident of the first-mentioned State.
5. Enterprises of a Contracting State in which one or more residents of the other Contracting State hold an interest shall not be subjected in the first-mentioned State to any taxation or related requirement that is different from or more burdensome than the taxation and related requirements to which other enterprises of the same nature in the first-mentioned State are or may be subjected.
6. The provisions of this Article apply to taxes of every kind and description, notwithstanding Article 2.
Article 24 — Mutual agreement procedure
1. Where a person considers that measures taken by one or both Contracting States result or will result in taxation not in accordance with this Convention, that person may, irrespective of the remedies available under those States’ domestic law, present the case to the competent authority of the Contracting State of residence or, where the case falls within Article 23(1), to that of the Contracting State of nationality. The case must be presented within two years of the first notification of the measure resulting in taxation not in accordance with the Convention.
2. If the competent authority considers the objection justified and cannot itself reach a satisfactory solution, it shall endeavour to resolve the case by mutual agreement with the competent authority of the other Contracting State, to avoid taxation contrary to the Convention.
3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising from the interpretation or application of the Convention.
4. The competent authorities of the Contracting States may communicate directly with one another with a view to reaching an agreement as referred to in the preceding paragraphs. Where oral exchanges of views are considered helpful in reaching such an agreement, they may take place within a commission composed of representatives of the competent authorities of the Contracting States.
Article 25 — Exchange of information
1. The competent authorities of the Contracting States shall exchange the information necessary to apply this Convention or the domestic laws of the Contracting States concerning taxes covered by the Convention, insofar as the taxation provided for by those laws is not contrary to the Convention, and to prevent tax evasion. The exchange of information is not restricted by Article 1. Information received by a Contracting State shall be treated as secret in the same manner as information obtained under that State's domestic laws and shall be disclosed only to persons or authorities, including courts and administrative bodies, involved in the assessment or collection of taxes covered by the Convention, proceedings concerning those taxes, or decisions on appeals relating to them. Such persons or authorities shall use the information only for those purposes.
2. Paragraph 1 shall in no case be construed as imposing on a Contracting State an obligation:
a) to take administrative measures at variance with its legislation and administrative practice or those of the other Contracting State;
b) To supply information which is not obtainable under its laws or in the normal course of its administration, or those of the other Contracting State;
c) To supply information which would disclose a trade, business, industrial or professional secret, or a trade process, or information whose disclosure would be contrary to public policy.
12
Article 26 — Diplomatic agents and consular officers
1. Nothing in this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or special agreements.
Article 27 — Refunds
1. Taxes collected in either Contracting State by withholding at source shall be refunded at the request of the person concerned or of the State of which that person is a resident where the right to collect those taxes is limited by the provisions of this Convention.
2. Refund applications, which must be submitted within the time limits laid down by the laws of the Contracting State required to make the refund, must be accompanied by an official certificate from the Contracting State in which the taxpayer is resident, confirming that the conditions for entitlement to the benefits provided by this Convention are met.
3. The competent authorities of the Contracting States shall agree upon the arrangements for applying this Article in accordance with Article 24.
Article 28 — Entry into force
1. This Convention shall be ratified and the instruments of ratification shall be exchanged in Rome as soon as possible. This Convention shall enter into force on the date of the exchange of instruments of ratification and its provisions shall apply:
a) To taxes withheld at source on income allocated or paid on or after 1 January of the year following the Convention's entry into force;
b) to other taxes on income and capital for tax periods beginning on or after 1 January of the year following that in which the Convention enters into force.
Article 29 — Termination
1. This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention through diplomatic channels by giving at least six months’ notice before the end of any calendar year, after five years from its entry into force. In that case, the Convention shall cease to apply:
a) to taxes withheld at source on income paid from 1 January of the year following the year of termination;
b) To other taxes on income and capital for tax periods beginning on or after 1 January of the year following the year of termination.
Done at Sofia on 21 September 1988 in duplicate in Italian, Bulgarian and French, the French text prevailing in the event of a dispute.
PROTOCOL
Upon signing the Convention concluded today between the Italian Republic and the People's Republic of Bulgaria for the avoidance of double taxation with respect to taxes on income and capital and the prevention of fiscal evasion, the plenipotentiaries agreed upon the following supplementary provisions, which form an integral part of the Convention. It is understood that:
a) With reference to Article 2, if a wealth tax is introduced in Italy in the future, the Convention shall apply to that tax and double taxation shall be avoided in accordance with Article 22;
b) with reference to Article 4(3)(a), the sale of goods displayed at an exhibition, at the end of that exhibition, does not constitute a permanent establishment;
c) with reference to Article 5(2), the term “immovable property” includes in all cases accessories, livestock and equipment of agricultural and forestry undertakings, and rights to which the provisions of private law relating to landed property apply. Usufruct of immovable property and rights to variable or fixed payments for the exploitation of, or the right to exploit, mineral deposits, springs and other natural resources are also regarded as “immovable property”. Ships, aircraft and road vehicles are not regarded as immovable property;
d) With reference to Article 6(3), “expenses incurred for the purposes of the permanent establishment” means expenses directly connected with that permanent establishment's activities;
e) with reference to Articles 9 and 10, where the interest or royalties paid exceed the arm’s-length value of that income under the law of one of the Contracting States, the excess shall be taxable in that State under its legislation, taking account of the other provisions of this Convention;
f) Article 13(3) shall also apply to remuneration paid to the personnel of an enterprise of one Contracting State engaged in international air transport and operating in the other Contracting State;
g) the provisions of paragraphs 1 and 2 of Article 17 shall also apply to remuneration and pensions paid to their staff by the following Italian services or bodies:
— the State Railways Administration (F.S.); — the Posts and Telecommunications Administration (PP.TT.); — the National Tourism Board (ENIT); — the Foreign Trade Institute (ICE); — the Bank of Italy;
and the corresponding Bulgarian services or bodies;
h) with reference to Article 24(1), the phrase “irrespective of the remedies provided by domestic law” means that initiating the mutual agreement procedure is not an alternative to domestic litigation, which must in any event be commenced first where the dispute concerns taxation inconsistent with the Convention;
i) the provision in Article 27(3) does not exclude the interpretation that the competent authorities of the Contracting States may, by mutual agreement, establish different procedures for applying the tax reductions or exemptions granted by the Convention;
(l) notwithstanding Article 28(2), Article 7(1) shall apply to income earned from 1 January 1981 onwards.
Done at Sofia on 21 September 1988, in duplicate in Italian, Bulgarian and French, the French version prevailing in the event of a dispute.