Submission of a Simplified Transfer Pricing Report

According to the Corporate Income Tax Law, taxpayers performing transactions with related parties are required to submit transfer pricing documentation together with their tax balance. This documentation presents transactions with related parties and includes an analysis of whether the terms of such transactions comply with the arm’s length principle, i.e. the conditions that would apply between independent parties.

However, for transactions with related parties that are considered to have lower economic significance, the legislation provides for a simplified procedure. In such cases, the taxpayer is not required to perform a detailed market comparison analysis or prepare full transfer pricing documentation, but may submit a simplified transfer pricing report.

A simplified report may be used for transactions with related parties (except loans and credits) if one of the following conditions is met:

• the value of an individual transaction during the tax period does not exceed RSD 8,000,000; or
• the total value of all transactions with the same related party during the year does not exceed RSD 8,000,000.

This option is available to all taxpayers regardless of their size or legal form, provided that the prescribed criteria are met.

For such transactions, no analysis of compliance with the arm’s length principle is required, and no adjustments of income or expenses are made in the taxpayer’s tax balance based on these transactions.

However, this rule does not apply to loans and credits between related parties. If a taxpayer receives interest income from a related party, it is required to prepare full transfer pricing documentation and verify whether the agreed interest rate corresponds to market conditions, regardless of the value of the loan or credit.

The same rule applies when a taxpayer grants an interest-free loan to a related party. In such a case, the taxpayer must adjust the tax balance by including the amount of interest that would have been earned under market conditions, and must also provide full transfer pricing documentation.

On the other hand, if a taxpayer receives an interest-free loan from a related party and does not recognize any expenses related to such loan, there is no obligation to submit a transfer pricing report, either in simplified or full form.