Serbia: Related-party interest rates for 2020, transfer pricing documentation implications
Serbia: Related-party interest rates for 2020
The Ministry of Finance released a “rulebook“ providing the arm’s length interest rates for 2020.
The rulebook—published in the official gazette (No. 21 dated 6 March 2020) and effective 14 March 2020—contains the prescribed interest rates applicable for taxpayers that had or will have related-party financing during 2020. Thus, the rulebook has transfer pricing implications.
Arm’s length interest rates for 2020 from the rulebook
Read a table [PDF 80 KB] prepared by the KPMG member firm in Serbia that lists the arm's length interest rates for loans or transactions in various currencies.
Implications for transfer pricing documentation for 2020 and for income tax treaties
According to provisions of Serbia’s corporate income tax law, in determining arm’s length interest expenses or revenue, taxpayers can:
- Use interest rates as prescribed by the rulebook, or
- Apply general OECD-based methods for assessment of arm’s length interest as prescribed by the income tax law
Taxpayers must apply only one of these interest-rate options, and the interest-rate option elected must be consistently applied to all intercompany loans. Further, the prescribed interest rates must be applied to interest income and expense recognized during 2020 regardless of the period from which loan(s) originate.
The rulebook prescribes separate interest rates for long-term and for short-term borrowings for all non-finance entities and a single interest rate for banks and finance leasing companies (except for RSD-denominated loans when the interest rate is prescribed only for short-term loans).
In determining the amount of interest subject to beneficiary rates prescribed by an applicable income tax treaty, taxpayers may also use prescribed rates or apply general OECD-based methods. Unlike the calculation of transfer pricing adjustments, taxpayers may apply prescribed rates and general methodology interchangeably in determining potential withholding tax exposure.
Read a March 2020 report [PDF 333 KB] prepared by the KPMG member firm in Serbia
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