Transfer pricing study

The term transfer pricing refers to the formation of prices in transactions between related companies with the aim of redistributing income (or losses) within the group and minimizing the tax base, including the participation of controlled group members in low-tax jurisdictions.

Transfer pricing has the following advantages:

• Distribution of influence spheres between different branches of the company

• Withdrawing funds earned by subsidiaries from countries with capital outflow restrictions

• A larger market share gain by artificially reducing product costsTransfer pricing is relevant not only for large holdings, but also for small and medium-sized enterprises. Reducing taxation and, as a result, increasing profits is achieved in completely legal ways. The final value is formed on the basis of the subjective properties of the object.

  Which transactions are subject to analysis?

  Additional control is introduced in relation to transactions arising from:

• between the taxpayer and another person if one of them owns at least 25% or more of the capital,

• between the taxpayer and another person if one of them directly or indirectly owns at least 25% or more of the voting rights in the management bodies

• between the taxpayer and another person where the same persons participate in management, control or capital with 25% or more, as well as with a critical 25% of voting rights in their management bodies,

• between the taxpayer and natural persons who are in a family, marital or extramarital relationship with a person who owns at least 25% of the capital, or a critical 25% or more of the voting rights in the management bodies of the taxpayer,

• between taxpayers and all legal entities that are residents of jurisdictions with a preferential tax system.

In order to prevent abuse, the Republic of Serbia has introduced the obligation to prepare a transfer pricing study, where all transactions with related parties are identified in the aforementioned report and an analysis of compliance with the “arm’s length” principle is performed.

Taxpayers who have recorded transactions with related parties in the previous year in the value of more than 8,000,000 dinars are required to prepare and submit a transfer pricing study to the Tax Administration. If the value of the transactions is lower, an abbreviated report is submitted. Also, to fully understand the transfer pricing report itself, it is important to understand the difference between market and transfer prices.

The transfer pricing report contains the following elements:

• group and taxpayer review – analysis of the group of related persons to which the taxpayer belongs,

• activity analysis,

• functional analysis,

• selection of transfer pricing verification methods (verification of compliance of transfer prices with arm’s length prices),

• conclusion of the study for the correction of the tax base,

• other contributions on the data used to prepare the study.

  If the company had transactions with related parties in previous years, and the studies were not submitted within the deadline, it is necessary to prepare and submit them in order to avoid an independent assessment by the tax authorities.

  Preparing an extended transfer pricing report includes a range of different services designed to meet both regulatory requirements and the company’s internal needs for proper documentation and justification of transactions. The Creative Finance team will be happy to offer you assistance in preparing either the abbreviated or the extended transfer pricing report.

The deadline for submitting transfer pricing studies is the same as the deadline for submitting tax returns – June 30th.