A “rulebook” of arm’s length interest rates for 2018 (published in the official gazette in March 2018) contains the prescribed interest rates for taxpayers that had or will have related-party financing during 2018. The rulebook is effective 17 March 2018 and applies through 31 December 2018, and has implications for Serbian transfer pricing documentation and income tax treaty requirements.
Under provisions of the income tax law in Serbia, in determining arm’s length interest expense or revenue, taxpayers can elect to apply one of two interest rate methods:
The method elected by the taxpayer must be consistently applied to all intercompany loans. Also, the prescribed interest rate must be applied to interest income / expense recognized during 2018, regardless of the period from which the loan(s) originated.
The rulebook prescribes separate interest rates for long-term and for short-term borrowings for all non-finance entities, and provides a single interest rate for banks and finance leasing companies (except for RSD-denominated loans).
In determining the amount of interest that is subject to beneficiary rates under an income tax treaty, taxpayers may also use prescribed rulebook rates or apply general OECD-based methods. Unlike the determination of the interest rates for transfer pricing purposes, taxpayers are not limited to one method, but may apply prescribed rates and general methodology interchangeably in determining potential withholding tax exposure.
Read a March 2018 report (Serbian and English) [PDF 105 KB] prepared by the KPMG member firm in Serbia
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