Serbia
The Ministry of Finance passed new rulebooks on the form and content of tax balance and tax return for corporate taxpayers and sole entrepreneurs. In addition, the Ministry issued a separate rulebook which prescribes the arm's length interest rates for 2013 and an official explanation of the manner in which transfer pricing rules should be applied.
Rulebooks on tax balance and tax returns for corporate taxpayers and entrepreneurs
The Rulebook on the Form and Content of Tax Balance and Other
Issues Relevant for the Assessment of Corporate Income, pertaining
to the 2013 tax year, came into effect on 22 February 2014. The new
rulebook was enacted in order to align the content of tax balance
with changes made to the Law on Corporate Income in 2013.
The most important change is that the rulebook on tax balance no
longer prescribes rules for the arm's length interest rate.
Under the previous rulebook, the arm's length interest rates
were established by the National Bank of Serbia on the basis of the
average weighted reference rate for loans in Dinars, and the
average weighted rate at which Serbian banks borrowed abroad for
foreign currency loans. The arm's length rates for 2013 are
prescribed by a separate rulebook (see below).
The new rulebook more closely describes the items of tax balance
sheet which should indicate expenses that are not recognised for
tax purposes, but generally, the form of tax balance is the same as
under previous rulebook.
The content of the "PK Form" for computation of the
investment tax credit under Article 48 of the Law on Corporate
Income Tax (abolished by the latest amendments to the Law) has been
changed. The value of investments in intangible assets can now be
listed. The form has also been aligned with the latest applicable
version of Article 48, which provides that the portion of a tax
credit which hasn't been used in the year of the investment,
may be carried forward in the amount of up to 33% of the tax of
medium and large legal entities (as opposed to the 50% of the tax
as it was previously allowed).
The new Rulebook on the Form and Content of the Tax Return
prescribes a new content of tax returns for corporate income tax
payers. The new forms will be used at the assessment of the
corporate income tax for 2013.
The Rulebook on the Form and Content of Tax Balance for Sole
Entrepreneurs became applicable on 27 February 2014. According to
the new rulebook the taxable profit of an entrepreneur will be
declared in the tax balance, while the amount of tax due and tax
relief will be declared in the tax return (see below).
The Rulebook on Changes to the Rulebook on the Forms of Tax
Returns for the Assessment of Personal Income Tax was also
published at the end of February. The new rulebook now prescribes
that entrepreneurs who are paying tax on "lump-sum"
profit ("pauaalci") should submit a tax return on form
"PPDG – 1P". A separate form of tax return (the
form "PPDG – 1S") is also prescribed for
entrepreneurs who are paying tax on actual profit. Until now, all
entrepreneurs used the tax return with same form and content.
Additionally, entrepreneurs that paid out a personal salary
("lična zarada") in 2013 are required to prepare and
submit a separate tax balance and tax return for the period from 1
January to 30 June 2013 and for the period from 1 July to 31
December 2013.
Arm's Length Interest Rates
The Rulebook on Arm's Length Interest Rates became
applicable on 15 February 2014.
The new rulebook prescribes different arm's length interest
rates for banks and providers of financial leasing as opposed to
other types of companies. The rulebook also differentiates the
arm's length rates for long-term loans, on the one hand, and
short-term loans on the other. Arm's length interest rates are
prescribed for loans in Serbian Dinars, Euros, US dollars and Swiss
Francs.
This approach seems much fairer than before when the arm's
length interest rates for both commercial companies and banks was
equal to the interest rates at which banks borrowed money abroad.
The new rulebook recognises the difference between conditions under
which loans are borrowed by financial institutions and by other
commercial entities. The result of this new approach is that the
prescribed arm's length interest rates for commercial entities
is much higher than before (for example the arm's length
interest rate prescribed for loans in EUR for both banks and
companies was 2.76% in 2012, while under the rulebook for 2013, the
prescribed arm's length interest for companies is 6.55% for
long-term loans, and 7.88 % for short-term loans).
Entrepreneurs and Transfer Pricing
The Ministry passed the Rulebook on the Manner that
Entrepreneurs Follow in Declaring Transfer Prices in Tax Balance
(applicable as of 22 February 2014). Under the new rulebook,
entrepreneurs will be required to declare their transactions with
related parties in the same manner as corporate taxpayers. The form
and content of their transfer pricing documentation is also the
same as for corporate taxpayers.
Under the general rule, entrepreneurs are required to submit
documentation in the form of a Report, while the Short Form Report
is submitted if there is one-off transaction with the related party
which does not exceed RSD 8 million, or if the total value of all
transactions with one related party does not exceed RSD 8
million.
Entrepreneurs are required to submit the tax balance and transfer
pricing documentation by15 March 2014 for previous tax year.
State-owned Companies as Affiliated Entities for Corporate Income Tax Purposes
On 3 February 2014, the Ministry of Finance issued its official opinion in which it confirmed that companies in which state-entities (Republic of Serbia, autonomous province or municipality) hold minimum 25% share in capital or voting rights represent related parties for transfer pricing purposes and are, therefore, required to prepare transfer pricing documentation as all other private taxpayers. This means that each company in which the Republic has minimum 25% share is considered a related party to any other company where the Republic of Serbia has minimum 25% share(the situation is the same if the holder of share in two different companies is an autonomous province or municipality).
For transfer pricing purposes, Republic of Serbia and local self-governments (autonomous provinces and municipalities) are not deemed to be related parties, so that a company controlled by the Republic of Serbia (by means of minimum 25% share in capital or voting rights) is not considered a related party with the company controlled by an autonomous province or a municipality, and vice versa.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
