Who is affected?
Companies and group of companies with related party transactions are affected by transfer pricing rules.
Related party definition
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.
Type of transactions
Subject to transfer pricing are: product sales; product acquisition; lendings; borrowings; royalties; management fee payment; provision of management services; cost-sharing within the group; research and development activities; provision of other services; and use of other services.
Transfer pricing methods
The taxpayer should choose one or the combination of the methods described in the OECD guidelines. The taxpayers should also describe the decisive reasons for the determination regarding the method used for the reconciliation of the transfer prices with the arm's-length principle (ALP) for the transactions carried out with the associate enterprises.
Transfer pricing audit and penalties
When a taxpayer fails to submit or submit improper transfer pricing documentation, penalties can arise. The Serbian tax authorities have recently shown increased interest in transfer pricing documentation and failure to comply with legal requirements carries penalty exposure from RSD100,000 ($1,100) to RSD2 million.
Additionally, the tax authority may request from the taxpayer to provide additional documentation to support its reconciliation of prices with ALP, in case they assess that the documentation provided is not sufficient. In this case, the time and extra money spent should be taken into consideration.
Transfer pricing 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.
Statute of limitations on TP adjustments
There is no special statute of limitations on assessment of transfer pricing adjustments. Statute of limitation period for a tax audit is five years, starting from the first day of a year following a year in which tax liability became due. Practically this means that inappropriate documentation for transactions conducted in 2013, may lead to penalties in 2019. The absolute period of limitation is 10 years, applicable under certain circumstances.