Transfer Pricing Treatment of Purchasing Fixed Assets

The Ministry of Finance of the Republic of Serbia published changes to the legislation on transfer pricing in December of the previous year. These changes are applicable for the 2019 fiscal year as well as following fiscal years.

The amendments relate to the transfer pricing treatment of purchasing fixed assets for which tax depreciation is calculated. Namely, if there is a positive difference between the purchase value in a controlled transaction and the value of assets in accordance with the “arm’s length”’ principle, 20% of calculated difference will be included in company’s tax balance sheet of the current fiscal year. The same amount of correction (20% of the calculated difference) also needs to be included in company’s tax balance sheet for following four fiscal periods. Therefore, the tax burden of the positive difference between the purchase value in a controlled transaction and the value of assets in accordance with the arm’s length principle will be separated in five consecutive fiscal periods.

Regarding the tax depreciation of fixed assets purchased from a related party, the calculation base is a purchase value in a controlled transaction, which is in line with the Article 10b of the Corporate Income Tax Law.