Serbia

Tax grouping/consolidation is allowed to a group of companies where all members are Serbian residents and one company directly or indirectly controls at least 75% of the shares in another company. Each company files its own tax balance sheet, and the parent company files a consolidated tax balance sheet for the whole group.

In the consolidated tax balance sheet, losses of one or more companies are offset by the profits of other related companies. Each company is liable for the portion of tax attributable to its share of the group's taxable profit.

Once approved by the Ministry of Finance, tax grouping/consolidation applies for at least five years.

Transfer pricing

A transfer price is the price of transactions between related parties. Related parties exist if there is a possibility of control or influence over business decisions between them. Ownership of 25% or more, or a majority of shares, is considered as potential control. Influence over business decisions exists when an associated party holds 25% or more, or individually holds the greatest portion, of votes in the taxpayer's management bodies. If the same persons participate in management or control of both companies, a connection between them will be deemed to exist.

Close family members are also regarded as related parties. Non-resident entities from tax havens are considered as related parties of resident entities. The Serbian Ministry of Finance prescribed the list of countries that are to be considered as tax havens for the application of relevant CIT Law provisions.

It is mandatory to prepare and submit annual transfer pricing documentation (in local language) together with the CIT return. It should be noted that the Master File / Local File concept envisaged by the Organisation for Economic Co-operation and Development’s (OECD’s) Action 13 has not been introduced in local legislation, which prescribes mandatory content of annual transfer pricing documentation. A company should disclose all transactions with related parties (whether they are domestic, cross-border, or with a company located in a tax haven) at transfer prices and at arm's-length prices in its CIT return and document them within the annual transfer pricing documentation.

When a difference between arm’s-length prices and transfer prices is determined, positive differences (adjustments of expenses) and negative differences (adjustments of revenues) between these prices are included in taxable profit.

Serbian CIT Law recognises the following methods for determining arm’s-length prices:

• Comparable uncontrolled price (CUP).
• Cost plus.
• Resale minus.
• Transactional net margin (TNMM).
• Profit split.
• Any other method that allows determination of arm’s-length prices if none of the above methods can be applied.

It is mandatory to prepare and submit transfer pricing documentation together with the CIT return.

Transfer pricing rules for intra-group loans

Any interest incurred on related-party loans exceeding the arm's-length interest rate is not tax deductible. Arm's-length interest is deemed to be the:

• weighted average key policy rate for the tax period for loans denominated in dinars, and
• weighted average interest rate at which domestic banks borrowed from foreign lenders in the related tax period for foreign currency loans.

These indicators are determined by the National Bank of Serbia and published by the Ministry of Finance. However, taxpayers are entitled to determine market interest rates by using all general methods for determining arm’s-length interest rates. In case the taxpayer decides to determine interest rates by applying general methods, it will be obligated to apply such interest rates for assessment of all related-party loans.

Transfer pricing rules in this respect are applied up to the amount of tax-deductible interest determined in accordance with the thin capitalisation threshold (see below).

Country-by-country (CbC) reporting

A resident taxpayer that is considered to be the ultimate parent entity (UPE) of a multinational enterprise (MNE) group whose total consolidated group revenue in the previous year exceeds 750 million euros (EUR) is required to file a CbC Report. CbC reporting in Serbia is introduced and applicable as of 2020. There is no CbC notification requirement.

Thin capitalisation

The interest and related costs will be fully deductible if the loans from related parties do not exceed four times the taxpayer's net equity (ten times for banks and leasing companies). The amount of a taxpayer's net equity for this purpose is calculated as the average of the total assets less total liabilities at the beginning and the end of the year, while the amount of loans from related parties is calculated as a daily average for the year.

In cases where the loans from related parties exceed the prescribed threshold, the amount of non-deductible interest will be calculated as proportional to the amount of loans exceeding the 4:1 (10:1) threshold.

Controlled foreign companies (CFCs)

There are no CFC rules in Serbia.