Transfer Pricing in Serbia

Serbia/ January 2014

Eurofast take on Transfer Pricing (TP) legislation in Serbia. An analysis of the general principles of TP including what steps companies operating in Serbia should take to comply with the TP legislation and rules in country and the respective reporting deadlines.

1. What are the general principles of Transfer Pricing in Serbia?

According to the Rulebook that was published on July 2013, the general principles of TP in Serbia do follow the OECD guidelines. The philosophy remains the same and intercompany transactions should be priced in accordance with the “arm’s length principle”, as described in Article 9 of the OECD Model Tax convention.

A full Transfer Pricing study should include the following:

1. Analysis of the associated enterprises and the group of the taxpayer;
2. Taxpayer’s industry analysis;
3. Functional analysis;
4. Selection of the most appropriate TP method;
5. Conclusion; and
6. Appendices.

The taxpayer should also choose and adopt one or a combination of the following pricing methods:

Comparable Uncontrolled Price (CUP) method;

Resale Price Method;

Cost Plus Method;

Transactional Net Margin Method (TNMM); and

Profit Split Method.

2. How long does TP exist in the western world?  

Interesting question, TP has been around for more than 80 years now in different shapes and forms but effectively the first general guidelines were issued by the  OECD back in 1979. Therafter the first great step was what was called a “White Paper” issued by the U.S in 1988 which led to the development of detailed and comprehensive Transfer Pricing Guidelines (TPG) and ultimately converted to regulations in 1994. The OECD issued the first draft of current guidelines in 1995 and after more than a decade of evolving interpretations of the arm’s length principle, multiple draft papers from the OECD, consultation rounds and voluminous input from the business community – the “new transfer pricing framework” arrived in 2010.

3. Are there many differences and similarities with other TP legislations across the Balkan region and Europe?

There are much more similarities than differences across the Balkan and European regions, since in most of these countries, only a few deviations from OECD guidelines appear. These differences are mainly identified in reporting periods and in the transactions amounts, which do not need documentation.

For example in Hungary for transactions valued less than HUF 50M, simplified documentation is required while in Greece, amounts below EUR 20M do not need any documentation. On the other hand, in Romania there is currently no minimum threshold for documenting controlled transactions or any simplified documentation rules.

Penalties for failure to submit the required transfer pricing documentation also vary according to each country’s tax authority rules.

4. What are the reporting deadlines in Serbia and the correspondent reporting deadlines in the region?

TP documentation is to be submitted to the tax authorities in Serbia, together with the annual tax return within 180 days from the last date of a tax period. In the region deadlines vary according to each country’s Corporate Income Tax Law.

For example, in Romania a TP documentation file needs to be presented only upon request from the tax authorities during a tax audit. The deadline in this case is to be set at maximum three months from the date of receiving the formal written request. On the other hand, for the moment in Bulgaria there are no separate procedures for TP investigations, a taxpayer should be in a position to defend the TP Policies which may be examined during any regular tax audit.

5. Which steps should companies operating in Serbia take to prepare themselves to comply with the TP legislation and rules in Serbia?

Companies should realise that TP is one of, if not the most important, tax issue on the agenda of all financial authorities. Taxpayers should address with careful consideration the documentation of their related party transactions. Having appropriate TP documentation in place is, in all circumstances, is a safeguard against potential noncompliance penalties and adverse tax consequences.

A TP study is more than just a “read and write study”, and does require training in methodology and obtaining experience in the use of a comparable database such as Amadeus.

Companies should therefore seek for the right expert advice to eliminate tax risks as well as achieve harmonisation of their business structure to market conditions and TP Regulations.