Serbia: Arm’s length interest rates for related-party financing

Serbia: Arm’s length interest rates

The Ministry of Finance of the Republic of Serbia has adopted a “rulebook” (Pravilnik) with respect to arm’s length interest rates for 2017. The rulebook contains the prescribed interest rates for taxpayers who had or will have related-party financing during 2017. The rulebook is effective as of 18 March 2017.

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According to the provisions of Articles 59, 60 and 61 of Serbia’s corporate income tax law, in determining arm’s length interest expense or revenue, taxpayers can either use interest rates as prescribed by a rulebook from the Finance Ministry or elect to apply general OECD-based methods for assessment of arm’s length interest as prescribed by the corporate income tax law. The method selected must be consistently applied to all loans to or from related parties.

Prescribed interest rates are to be applied to interest income and expenses recognized during 2017—regardless of the period from which loan(s) originate.

The rulebook prescribes separate interest for long-term and for short-term borrowings/placements for all non-finance entities, and a single interest rate for banks and finance lease companies (except for RSD denominated loans). In determining the amount of interest that is subject to beneficiary rates prescribed by the applicable income tax treaty, taxpayers may also use prescribed rates or apply general OECD-based methods. Unlike the calculation of transfer pricing adjustments, taxpayers may apply prescribed rates and general methodology interchangeably in determining potential withholding tax exposure.

The following table provides an overview of market interest rates as prescribed by the Ministry of Finance.

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