In our Newsletter 17/2013, we presented novelties introduced into Serbian transfer pricing regulations by the new Rulebook on Transfer Pricing and Arm’s Length Methods Applicable to Determination of Prices in Transactions Between Related Entities (“Rulebook”), which elaborates on the statutory requirement for mandatory transfer pricing documentation for FY 2013 and onwards.
On 29 January 2014, the Ministry of Finance adopted amendments to the Rulebook aimed at easing certain transfer pricing requirements and rectifying certain ambiguities and technical errors. The most important amendments pertain to the following:
- abbreviated form of the transfer pricing report;
- content of functional and group analysis;
- definition of internal comparable uncontrolled price;
- definition of the term related entity for the purpose of the application of the certain transfer pricing methods.
Abbreviated report
The amended Rulebook allows for submission of an abbreviated report which does not have to contain analysis as to whether the transfer prices are in conformity with the arm’s length principle, in the following cases:
- for one-off transactions with the individual value not exceeding RSD 8.000.000 (turnover threshold for mandatory VAT registration);
- if the total value of all transactions with one related entity in the relevant financial year does not exceed RSD 8.000.000.
Abbreviated report must indicate:
- description of the transaction;
- value of the transaction; and
- designation of the related counterparty.
Loans between related entities always require full report.
Group and functional analysis
The obligation to list all related entities within the group analysis is abolished. According to the amended Rulebook, taxpayer is required to provide only basic information on related entities counterparties to its transactions.
The content of the functional analysis is slashed by doing away with the obligation to disclose information on planned development of the business and transfer pricing policies with related entities.
Definition of internal comparable price
Definition of internal comparable price is expanded to encompass not only prices in transactions with unrelated parties but also prices in transactions which the taxpayer’s related entity executed with unrelated parties, provided that such transactions were carried out under comparable circumstances.
Definition of “unrelated entity” for the purpose of different transfer pricing methods
Before the amendments, unrelated entity was defined for all purposes as an entity which has no related entities within the meaning of Article 59 of Law on Corporate Income Tax (“CIT”). This was a drafting error as there was no intention to unduly restrict the concept of unrelated entity in this manner. The error is now rectified. For the purpose of internal comparable price and internal comparable margin techniques, unrelated entity is an entity which is not related to the taxpayer within the meaning of Article 59 CIT, irrespective of whether this unrelated entity is a stand-alone company or a member of a group. For the purpose of external comparable price and external comparable margin techniques, the parties to the benchmark transaction have to be mutually unrelated. Finally, unrelated entity is defined as an entity which has no related entities within the meaning of the Article 59 of CIT only for the purpose of the application of transactional net margin method, which is used to determine the market range of transactional net margins.
