Tax Alert, January 2020

Rulebook on transfer pricing and methods that are applied according to the arm’s length principle in determination of transaction prices between related parties (“Official Gazette of RS”, No. 61/2013, 8/2014 and 94/2019, hereinafter: “Rulebook”), as well as method for calculation of depreciation basis, in case when fixed asset is acquired from related legal entity, is published on 28 December 2019, in accordance with Law on Corporate Income Tax (hereinafter: “the Law”).

Rulebook comes into force on 1 January 2020, and is applicable on corporate income tax calculation for 2019.

Rulebook introduces to rule according to which, in case that taxpayer acquires fixed assets from its related entity, whereas tax depreciation of such asset is determined in accordance with Article 10b of the Law (rules for determination of tax depreciation of the assets acquired after 1 January 2019), total amount of transfer pricing adjustment in that tax period, as well as in following four periods, is to include 20% of difference between transfer price of the asset and its arm’s length price. That is, instead previous rule, according to which tax base was lower amount between transfer price and arm’s length price, for the assets acquired from related legal entities after 1 January 2019, depreciation will be calculated on acquisition price, as recorded in taxpayer’s books, while the adjustment for difference between transfer price and arm’s length price will be performed in 5 tax periods, following the acquisition.

Within transfer pricing documentation, taxpayer is obliged to disclose the amount of difference between transfer price of the asset and its arm’s length price, in each tax period in which the adjustment is to be made, as explained above.