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:
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
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.