The introduction of Transfer Pricing in the domestic legislation of Serbia is a very recent development. In 2012 the transfer pricing provisions were introduced in the Serbian Corporate Income Tax Law (thereafter CITL) and were later expanded in the Transfer Pricing Rulebook. This Rulebook was published on 12 July 2013 in the Official Gazette of the Republic of Serbia (RS no. 61/2013) by the ministry of Finance.Taxpayers should have the appropriate TP documentation in place in order to defense their Transfer Pricing Policy.
According to the Serbian legislative framework, an entity is considered a related party if there is a possibility of exercising control over or exerting considerable influence on business decisions made. The direct or indirect possession of 25 % or more of the shares in capital shall mean that control over the taxpayer is possible.
In the case of direct or indirect possession of at least 25% of the voting rights is considered as having an influence on business decisions.
In addition, companies that directly or indirectly have the same persons in the management, ownership or control, as already described, are also considered related parties. No matter the percentage of ownership or voting rights in a Serbian Company, any company which is a resident of a jurisdiction with a preferential tax system is deemed to be a related party.
Amendments were adapted to the Rulebook by the Ministry of Finance of the Republic of Serbia on January 2014. The amendments were published in the Official Gazette of the Republic of Serbia No 8/2014 on 29 January 2014 and were basically aimed at the reduction of the transfer pricing documentation requirements of taxpayers in the cases of transactions that do not have a material impact on the tax liability of the taxpayer. Therefore, taxpayers may submit an abbreviated report which does not have to include a detailed analysis identifying whether the transfer prices set abide by the provisions of the arm’s length principle.
In order to fall within the new provisions the threshold amount was set at 8 Million RSD (approx. 70.000 EUR).
It should also be noted that the above provisions for the submission of a simplified report are not applicable to loans and credits.
Transfer pricing documentation and choice of the appropriate method
A full Transfer Pricing study must include the following parts:
- Analysis of the associated enterprises and the group of the taxpayer,
- Taxpayer’s industry analysis,
- Functional analysis,
- Selection of the most appropriate Transfer Pricing method
- Conclusion – Summary of the amounts that should be added to the tax base of the company according to the results of the study
- The taxpayer should choose one or a combination of the methods described in the OECD guidelines :
- Comparable Uncontrolled Price (CUP) method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
- Failure to declare separately in the tax account the value of the transactions conducted with associated persons in accordance with the “arm’s length” principle (Article 60 of the CITL);
- Failure to submit or fulfil documentation from the Article 60.( Paragraph 3 of the CITL) within time frame defined by the notice prescribed by the Article 112a of the CITL(30 to 90 days period).