Transfer pricing, that is, the prices at which products and services are sold between associated enterprises is one of the key tax and financial issues today. But how do we know what associated enterprises are? A person related to the obligor is a natural or legal person whose relations could include supervision over or more precisely, significant influence on business decisions. Also, associated enterprises are legal entities whereby one party has at least a 25% share in the company, that is, the voting right in management bodies. The legislator determined that associated enterprises are considered to be connected through the capital, management function, family relations and the company, that is, several parties whose headquarters are located on the territory of a special jurisdiction.
This relatively new discipline in economics is a consequence of the current conditions under which modern international business is conducted. This segment brings with it significant risks, bearing in mind the conflicting interests whereby tax authorities are trying to increase their revenues, while multinational companies want to reduce their tax liabilities.
Each country has different transfer pricing rules, so it is very important to consult with a tax expert in a particular country to meet all the prescribed requirements. In Great Britain, for example, until four years ago, individuals who were residents but did not stay in the United Kingdom were given an opportunity to “clean” their offshore accounts and transfer those funds to the UK without paying taxes to the state. In the Republic of Serbia, submitting documentation on transfer prices to the Tax Administration became obligatory in 2013. The Law on Profit Tax for Legal Entities forms the basis for regulating transfer pricing in our country and all companies that carry out transactions with associated enterprises are legally obliged to submit the required documentation. The transactions that are the subject of analysis are the sale of products and services, the sale of fixed and intangible assets, the financing of mutual loans, as well as joint participation in research and development.
Making a transfer pricing study is one of the most complex and difficult areas of tax law application. The corporate world continues to struggle with the challenges of providing appropriate supporting documentation and assessing the tax risks arising from related party transactions.
The transfer pricing report includes:
1. Analysis of the group of associated enterprises to which the obligor belongs
2. Activity analysis
3. Functional analysis
4. Selection of methods for checking the compliance of transfer prices with the prices determined according to the so-called ‘arm’s length’ principle
5. Calculation of interest in line with the thin capitalization principle and transfer pricing method
6. Conclusion and determination of the transfer price correction amount
7. Extract from form PB-1 or PB-2 (the part related to transfer prices) depending on the form of the enterprise’s organization.
To avoid paying fines ranging from 100,000 to 2 million dinars and to complete the report correctly and until the prescribed deadline, please contact FinExpertiza.