Transfer prices

We cannot talk about the calculation of transfer prices if we do not know what transfer prices are. So, let’s define this term right away.

Transfer prices are the prices at which goods and services are sold between related parties, as well as the granting of mutual loans and credit. Given that this involves transactions between related parties, there is a possibility of manipulation for the purpose of avoiding the payment of taxes.

Transfer prices are also often referred to as controlled transactions, due to the possibility of related parties colluding on adjustments and the aforementioned manipulations.

Any company that does business with related legal entities is obliged to calculate transfer prices.

By law, related legal entities are defined as entities connected through:

• Capital – ownership with a holding of over 25% of the ownership;
• Management function – Legal entities in which the same natural or legal persons participate in management and control or in the capital – management functions (director, chairman of the board)
• Family ties – when a natural or legal person is the founder or co-founder of several companies that work together. This means when the owners or directors of the companies do business with family members.
• The fourth form of connection and the subject of business analysis is business relationships with companies or a company that has its registered office in a territory of a special jurisdiction, or what is commonly known as a ‘tax haven’.

All countries in the world protect their budget and ensure that there is no uncontrolled capital outflow. Serbia is no exception. It is not uncommon for multinational companies to establish subsidiaries or branches in countries where the tax rate is lower than in their home country, and in this way transfer profits from one country to another in order to pay less tax.

An audit of business transactions, to verify whether related parties have traded at “controlled – transfer prices” or at arm’s-length prices, aims to check the correctness of the tax calculated and paid.

Furthermore, companies are increasingly taking on the role of banks, lending money to one another, particularly when it involves related parties. The person conducting the transfer pricing study is tasked with verifying whether the interest rate is draining the company that received the loan, or if it is a market-related rate.

Companies that lend to their related parties without interest are also under scrutiny; in such cases, the authorities say, “Alright, you may not value your capital and lend it out without interest, but the state is not prepared to forgo the revenue” – namely, tax on the uncharged interest. For this reason, the lender of the interest-free loan is obliged to calculate what the interest would have been if it had been charged, and to pay tax on that amount.

• Turnover of goods and services
• Turnover of fixed assets (equipment, business premises, land), and intangible assets (trademarks, intellectual property, licences, trade marks…)
• Financing – mutual loans, regardless of whether they are given with or without interest;
• Joint participation in research and development

Who is obliged to submit a transfer pricing report?

The obligation to submit a transfer pricing report rests with companies and sole traders that do business with associated persons, or with companies that have their registered office in a territory of a special jurisdiction or commonly known as a ‘tax haven’.

One of the significant characteristics of transfer prices is that they are largely independent of the influence of market factors, because when associated companies enter into transactions with each other, all the rules regarding transactions and final prices are defined within the associated legal entities and thus directly affect the seller’s income and the buyer’s expenses, which leads to the control of the tax bases for both entities.

At the Vizija Računovodstvo accounting agency, you can obtain transfer pricing calculation services on very favourable terms, in compliance with the highest European quality standards.

The deadline for submitting the transfer pricing report is the same as that prescribed for filing the tax return. For legal entities, this deadline is 180 days from the end of the tax period.

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The deadline for filing transfer pricing reports is 31/03. It takes 15 days to prepare the documentation, so please contact us today.

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