Serbia’s Ministry of Finance adopted a “rulebook” concerning arm’s length interest rates—that is, the prescribed interest rates applicable to taxpayers who had or will have related-party financing during 2015 and 2016. The rulebook is effective 20 February 2016.
According to the provisions of Articles 59, 60 and 61 of Serbia’s corporate income tax law, in determining arm’s length interest expenses or revenue, taxpayers can either use interest rates as prescribed by the rulebook or elect to apply general OECD based methods for assessment of the arm’s length interest rate. The method selected must be consistently applied to all loans involving related parties. Prescribed interest rates are to be applied to interest income/expenses recognized during 2015 and 2016 regardless of the period from which the loan(s) originate.
The rulebook prescribes a single interest rate for both short-term and long-term borrowings/placements for banks and finance lease companies (except for those denominated in the Serbian dinar). The rulebook prescribes separate interest rates for short-term and long-term borrowings/placements for all non-finance entities, as well as for Serbian dinar-denominated borrowings/placements for banks and financial leasing companies.
In determining the amount of interest subject to beneficial rates prescribed by applicable income tax treaties, taxpayers may also use the prescribed rates or apply the general OECD based methods. Unlike the calculation of transfer pricing adjustments, taxpayers applying treaty provisions may apply prescribed rates and general methodology interchangeably in determining potential withholding tax exposure.
Read a February 2016 report [PDF 177 KB] prepared by the KPMG member firm in Serbia: Double Taxation Treaties—Situation as of 1 January 2016
The KPMG member firm in Serbia has prepared a table [PDF 44 KB] that sets out the “arm’s length” interest rates as prescribed by the rulebook.