Republic of Serbia: Changes in Corporate Income Tax law related to transfer pricing

On 14 December 2017, the National Assembly of Republic of Serbia enacted changes and amendments of Corporate Income Tax law, in order to harmonise Serbian tax regulation with European Union’s tax regulation.

Regarding transfer pricing, the most important change is that, in the case of the sale of fixed assets to a related party, on the basis of which capital gain (loss) is calculated, the taxpayer is not obliged to assess the price according to the ”arm’s length” principle, since market price is used in calculating capital gain (loss). According to the Article 27, Paragraph 1 of Corporate Income Tax law, sales of the following types of fixed assets are subject to capital gains tax:

• Property which is or was used for operating activities, including property under construction
• Industrial property (such as patents, industrial designs, etc.)
• Interests in the capital of legal entities and other securities, which are recognised as long-term financial placements according to IAS/IFRS, with the exception of bonds issued in accordance with the regulations dealing with settlement of commitments of the Republic of Serbia based on the loan towards economic development and household foreign exchange savings and debtor securities issued in accordance with the law by the Republic, an autonomous province, a local self-government unit or the National bank of Serbia
• Investment units bought by open investment funds, in accordance with the law dealing with investment funds

For transactions involving the sale of fixed assets other than the types mentioned above and for transactions involving the purchase of fixed assets, taxpayers are obliged to assess the price according to the ‘’arm’s length’’ in their local transfer pricing files.

For example, if a Serbian company sells software produced in Serbia to a non-resident parent company, this transaction is not subject to capital gains tax, since software is considered a copyright, not an industrial property. Therefore, the Serbian company is obliged to compare transfer price with the price ‘’out of reach’’.

According to the Corporate Income Tax law, for commercial transactions with a single related party of total value below RSD 8 million (approximately EUR 65,000), the taxpayer is obliged only to disclose them, not to analyse them. In the changes presented, paid and received advances are no longer included in total value of commercial transactions with a related party.