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Global transfer pricing guide

Transfer pricing - Serbia

01 Oct 2023

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Introduction to transfer pricing in Serbia
Transfer pricing rules
  • Rules on transfer pricing are present in Serbia since 2001, and in July 2013, the Serbian Ministry of Finance issued specific regulations on the application of the transfer pricing rules.
  • Applicable tax legislation in Serbia: Corporate Income Tax Law (CIT Law) and Rulebook on transfer pricing and methods for the determination of arm’s length prices in intra-group transactions (Rulebook).
  • Drafting transfer pricing report is mandatory for all kind of transactions with related parties.
  • An entity is deemed a related party if it has the possibility of control or considerable influence on the business decisions made (at least 25 percent of the shares in the capital – direct or indirect ownership). Members of the immediate family are considered related parties. In addition, any company which is a resident of a jurisdiction with a preferential tax system is deemed to be a related party (51 tax jurisdictions prescribed by the Ministry of Finance).
  • A taxpayer is obliged to prepare and submit documentation presenting related party transactions at both transfer and arm’s length prices along with their annual tax return. The deadline for documentation submitting is end of June, and an additional period of 90 days can be granted on request. The documentation is submitted along with the annual tax return. 
  • For larger groups, in case that parent company is established in Serbia with consolidated revenues over €750m, the Serbia has implemented CbCR (Country by Country Reporting).
OECD guidance
  • The Serbian transfer pricing guidelines are in line with the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines (exception for interest rates on loans granted to or from shareholders or related parties).
  • Serbia is not an OECD member.
Transfer pricing methods

  • Serbia applies the ‘best method approach’ for conducting transfer pricing analysis. Combinations of the several methods can be implemented.

  • Acceptable transfer pricing methods include comparable uncontrolled price (CUP), resale price, cost plus, transactional net margin and profit split or any other method that comply with the arm’s length principle.

  • There is no hierarchy. The best method rule should apply based on the nature of the controlled transaction, the availability of reliable information, and the degree of comparability between controlled and uncontrolled transactions.

Transfer pricing documentation
Preparation of transfer pricing documentation
  • TP documentation is a unique document (a combination of a master file and local file, with mandatory content proclaimed by law)
  • The documentation has to be prepared in Serbian language only.
  • Transfer pricing documentation contains mandatory elements that are:
    • Analysis of the group and the taxpayer
    • Industry analysis
    • Functional analysis
    • Selection of transfer pricing method
    • Conclusions reached
    • Appendices
  • Serbia has also introduced CbCR (Country by Country Reporting) regulations which are effective for fiscal years starting on or after 1 January 2020. Namely, (only) those resident taxpayers who are considered to be the ultimate parent entities of international groups of related legal entities will be obliged to submit to the relevant tax authority the annual report on controlled transactions of the international group of related legal entities (i.e. country-by-country report). An international group of related legal entities is a group of entities that are related by ownership or control in terms of IAS or IFRS, and whose total consolidated revenue, reported in the consolidated financial statements for the period preceding the reporting period, is at least EUR 750 million.
  • The general statute of limitation period of five years (from the day when the period of limitation commenced) is set in Serbia. That general rule also applies for transfer pricing assessments. The absolute period of limitation is ten years.
Master and local file
  • Master file and local file as TP approach is not acceptable in Serbia. TP documentation in Serbia is a combination of these two, with mandatory content proclaimed by law, prepared in Serbian language only.
Some risk factors for challenge
  • Lack of knowledge of tax authority in the field of Transfer pricing can impose different issues
  • Significant changes of profit level through period can be a potential risk for tax control
  • Persistent losses in a 'low risk' entity
  • Management fees including others provided IC services are more risky transactions.
Penalties

  • For non-disclosure of transfer pricing transactions as well as documentation, penalties may range from RSD 100,000 up to RSD 2,000,000 (EUR 800 – EUR 16,500). Additional penalties of up to 25 percent of the understated tax liabilities may be determined by the Tax authorities based on their assessment of the transfer pricing. The additional penalties may not be less than RSD 500,000 (EUR 4,000).

  • There is no penalty relief available, however, taxpayers may be permitted an additional period of up to 90 days to comply with transfer pricing documentary requirements.

Economic analysis and how to demonstrate an arm’s length result

  • Tax authority more preferably internal company transitions (prices or margin) instead of external database use.

  • Local comparable companies are preferred, whilst Balkan region or Eastern Europe or regional comparable companies can be accepted.

  • All local conditions which can have influence over the pricing/margin must be described.

  • Arm`s length principle and comparison must be updated every year, therefore it is expected that a sample of companies and final interquartile range will be similar through the period (year by year).

Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • APAs (Advance Pricing Agreements) are not available to taxpayers.
Exemptions

  • Simplified TP documentation obligations are allowed for related party transactions under RSD 8 million (EUR 70,000 approximately) materiality threshold (one-off or total amount). It should be noted that some TP documentation is required in any case (under/over EUR 70,000 approximately).

  • Serbian Rulebook defines a materiality threshold (one-off transactions amounting up to RSD 8 million, or transactions with one related party amounting up to RSD 8 million). For those transactions, a short version of transfer pricing report (simplified) might be submitted. Financial transactions (loans) are excluded from the simplified documentation option.

  • Short form report should include the following information:

    • a description of the transaction

    • transaction value

    • associated enterprise (related party) involved in the transaction.

Related developments
Financial transactions (loans)
  • Interest rates can be assessed using an interest rate prescribed as arm’s length by the Ministry of Finance. Ministry of Finance publishes the Rulebook on interest rates every year, which are considered to be in line with the 'arm’s length principle'. Alternatively, taxpayers can determine 'arm’s length' interest rates on their own based on the separate benchmark analysis.

For further information on transfer pricing in Serbia please contact:

Zeljko Knezevic.png

Zeljko Knezevic
T +381 63 862 19 03
E zeljko.knezevic@rs.gt.com

 

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