Transfer Pricing Report Preparation

   Transfer prices are the prices at which related parties transact with each other. Companies which do business with their related parties (subsidiaries, parent companies, other companies within a group etc.) are obligated to prepare transfer pricing documentation along with the annual financial reports, as a neccessary input for the corporate income tax return preparation. Article 59 of the Serbian Corporate Income Tax Law defines what is considered to be a related party (notice: any non-resident legal entity form jurisdictions with preferential tax systems is considered to be a related party).

   The prices calculated in those transactions define economic relations between related parties by determining directly the amount of revenue for the party which appears as a seller (vendor, service provider) and the amount of expenses for the the party appearing as a customer in the transaction. Consequently, the prices calculated in such transactions directly affect the company’s net profit and income tax obligation.

   Having in mind their possible implication on the tax base reduction, transfer prices are inevitably the subject of the special attention by tax authorities. In most countries, tax regulations insist on transfer prices checking through their comparison with prices calculated in the transaction of the same kind between unrelated parties (the “arm’s length” transaction rule). Serbian Corporate Income Tax Law recognize the following methods for transfer pricing checking:

• Comparable Uncontrolled Price Method (CUP Method)
• Cost Plus Method
• Resale Price Method
• Transactional Net Margin Method (TNMM Method)
• Profit Split Method (PSM Method)
• Any other method which the “arm’s length” transaction price can be determined by, provided that the above methods are not possible to be used or that the latter method better fits the circumstances of the case

   In the transfer pricing analysis it is necessary to consider:

• the nature of the transactions being analyzed;
• the analysis inputs availability, reliability and relevancy;
• the nature and reliability of the assumptions.

   The content of the transfer pricing report is determinted by the Rulebook on Transfer Pricing. Mandatory parts of the report are:

• Group (of companies) analysis
• Taxpayer’s business activities analysis
• Presentation of all transactions with related parties
• Functional Analysis – determination of activities performed, risks taken and taxpayer’s actual economic position in transactions with related parties
• Selection of methods for checking the compliance of transfer prices with “arm’s length“ transaction prices
• Conclusion on the need for tax base correction

   According to the Corporate Income Tax and the Rulebook on Transfer Pricing, in the conclusion of the transfer pricing documentation, the taxpayer first determines the amount of transfer pricing adjustment for each transaction or for each type of transaction with a singular related party. The sum of the final transfer pricing adjustments from transactions with all singular related parties are than included in the income tax basis.

   We provide our clients with all types of transfer pricing services, from the preparation of transfer pricing reports (studies) to comprehensive ongoing consulting services (throughout the year) aimed at minimizing the risk of non-compliance with relevant tax regulations in the Republic of Serbia and all the expenses which such non-compliance can create.