You have decided to invest in Serbia. Maybe your plan in Serbia is to set up a service outsourcing centre, a production facility or you plan to import products through a Serbian entity. Newly founded Serbian company will probably enter into transactions with your existing companies. If that is the case, you must be aware of transfer pricing regulation in Serbia. Serbian tax authorities will demand from a Serbian entity to generate profit which would be achieved by a comparable independent entity. Therefore, transfer prices must be complied with market prices. In this text, we will present basic information an investor must know about transfer pricing Serbia regulation.
Who is obliged to prepare transfer pricing report?
A Serbian entity which enters into transactions with the related parties is obliged to prepare transfer pricing report. Two parties are related in the following cases:
- One party controls over 25% of shares in other party
- One party controls over 25% of voting rights in other party’s management bodies
- Both parties are controlled by the same individual/company (over 25% of shares/voting rights)
In addition, if a Serbian entity enters in transactions with companies from tax havens (such as Hong Kong, Panama, Liechtenstein, Monaco, British Virgin Islands, US Virgin Islands etc.), it is obliged to prepare transfer pricing report and provide evidence that these transactions are in line with the ‘’arm’s length’’ principle.
Full transfer pricing file is needed for following types of transactions:
- Financial transactions (such as loans and credits), regardless of their value. However, if a Serbian entity receives interest free loan from related party, transfer pricing analysis is not mandatory
- Commercial transactions (sale/purchase of goods, services, property etc.) with related party, provided that total annual value of transactions with that party is higher than 8.000.000 RSD (approximately 68.000 EUR)
In case total annual value of commercial transactions with related party is lower than 8.000.000 RSD (approximately 68.000), tax payer is obliged to present these transactions, but there is no obligation to further analyse them from transfer pricing perspective.
Transfer pricing report is submitted to the tax authorities for each fiscal year.
Is transfer pricing regulation aligned with the OECD Guidelines and BEPS?
The Ministry of Finance regulates transfer pricing area on the basis of documentation published by the OECD and other international organisations, so we may say that transfer pricing in Serbia is mostly aligned with the OECD Guidelines. However, in Serbian Rulebook on transfer pricing there are some specific differences in comparison to the OECD Guidelines, such as:
- Benchmarking analysis must be prepared for each fiscal year. Comparable independent companies from Serbia have priority over foreign comparable entities. In case there are no comparable companies in Serbia, geographic search may be extended to similar markets (Balkan states, Eastern Europe, European Union etc.)
- It is not mandatory to prepare master file. However, the information from master file may be used in analysing transactions with related parties
- The last version of OECD Guidelines, published in July of 2017, propose the simplified approach in the analysis of low value – adding intra group – services (implementation of 5% cost plus margin without the need of benchmarking analysis). However, such approach is not regulated in Serbian Rulebook on transfer pricing. Therefore, for intercompany services is necessary to perform functional analysis, comparability analysis, as well as benchmarking analysis (if there is no internal comparable transaction)
Although Serbia is not OECD member state, our country started implementing BEPS measures. The National Assembly ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. In addition, Serbia is a member of The OECD/G20 Inclusive Framework on BEPS, is expected to propose new taxation rules for digital economy. Therefore, transfer pricing regulation in Serbia will follow presented BEPS measures and initiatives.
What transfer pricing methods are applicable?
The list of applicable transfer pricing methods in Serbia are:
- Comparable uncontrolled price (CUP) method
- Cost plus (C+) method
- Resale (RS) method
- Transactional net margin (TNM) method
- Profit split (PS) method
Combination of two or more presented transfer pricing methods is also possible.
In case none of these five methods are applicable in a certain case, tax payer may decide to use any other method for making a conclusion on price in accordance with the ‘’arm’s length’’ principle. For example, in case of purchase/sale of property, an independent appraiser may be engaged in order to value a subject of transaction. Estimated value of property may then be used as an ‘’arm’s length’’ price.
Are Advanced Pricing Arrangements (APA) applicable in Serbia?
APAs do not exist in Serbian transfer pricing regulation. Therefore, it is not possible to get an approval by tax authorities on group transfer pricing policy.
Are there any Safe Harbour rules in Serbia?
Safe harbour rules do not exist in Serbian transfer pricing regulation. Thus, each transaction with the related party must be analysed in detail (e.g. functional analysis, comparability analysis, benchmarking analysis etc.).
What are penalties in case of non-compliance with transfer pricing regulation?
If a tax payer does not prepare and file transfer pricing report to the tax authorities, following expenses may be expected:
- Penalty for company for not filing transfer pricing report to the tax authorities: from 100.000 RSD (approximately 850 EUR) to 2.000.000 RSD (approximately 17.000 EUR)
- Penalty for responsible individual for not filing transfer pricing report to the tax authorities: from 10.000 RSD (approximately 85 EUR) to 100.000 RSD (approximately 850 EUR)
- Additional corporate income tax on the basis of adjustment of tax base (if transfer pricing analysis proves that tax payer’s tax base is lower than tax base in accordance with the arm’s length principle)
- Interest for not paying corporate income tax on time
If additional corporate income tax is higher than 1.000.000 RSD (approximately 8.500 EUR), the offence may be considered tax evasion and may lead to prison penalty for responsible individuals.
Final remarks
Our company is one of the leading transfer pricing practices in Serbia. We prepare more than 100 complex local transfer pricing files a year for the largest multinational and domestic companies, as well as for small and medium sized enterprises. In case you need services of preparing transfer pricing report or transfer pricing consulting services, please do not hesitate to contact our consulting team.
WTS Serbia provides comprehensive portfolio of financial and tax consulting services, which help companies adjust to dynamic Serbian business environment. In case you are interested in investing in Serbia, we propose you read our texts on grant opportunities, tax opportunities and business opportunities in Serbia and contact our consulting team.
