The Ministry of Finance passed new rulebooks on the form and content of tax balance and tax return for corporate taxpayers and sole entrepreneurs. In addition, the Ministry issued a separate rulebook which prescribes the arm’s length interest rates for 2013 and an official explanation of the manner in which transfer pricing rules should be applied.
Rulebooks on tax balance and tax returns for corporate taxpayers and entrepreneurs
The Rulebook on the Form and Content of Tax Balance and Other Issues Relevant for the Assessment of Corporate Income, pertaining to the 2013 tax year, came into effect on 22 February 2014. The new rulebook was enacted in order to align the content of tax balance with changes made to the Law on Corporate Income in 2013.
The most important change is that the rulebook on tax balance no longer prescribes rules for the arm’s length interest rate. Under the previous rulebook, the arm’s length interest rates were established by the National Bank of Serbia on the basis of the average weighted reference rate for loans in Dinars, and the average weighted rate at which Serbian banks borrowed abroad for foreign currency loans. The arm’s length rates for 2013 are prescribed by a separate rulebook (see below).The new rulebook more closely describes the items of tax balance sheet which should indicate expenses that are not recognised for tax purposes, but generally, the form of tax balance is the same as under previous rulebook.
The content of the “PK Form” for computation of the investment tax credit under Article 48 of the Law on Corporate Income Tax (abolished by the latest amendments to the Law) has been changed. The value of investments in intangible assets can now be listed. The form has also been aligned with the latest applicable version of Article 48, which provides that the portion of a tax credit which hasn’t been used in the year of the investment, may be carried forward in the amount of up to 33% of the tax of medium and large legal entities (as opposed to the 50% of the tax as it was previously allowed).
The new Rulebook on the Form and Content of the Tax Return prescribes a new content of tax returns for corporate income tax payers. The new forms will be used at the assessment of the corporate income tax for 2013.
The Rulebook on the Form and Content of Tax Balance for Sole Entrepreneurs became applicable on 27 February 2014. According to the new rulebook the taxable profit of an entrepreneur will be declared in the tax balance, while the amount of tax due and tax relief will be declared in the tax return (see below).
The Rulebook on Changes to the Rulebook on the Forms of Tax Returns for the Assessment of Personal Income Tax was also published at the end of February. The new rulebook now prescribes that entrepreneurs who are paying tax on “lump-sum” profit (“paušalci“) should submit a tax return on form “PPDG – 1P”. A separate form of tax return (the form “PPDG – 1S”) is also prescribed for entrepreneurs who are paying tax on actual profit. Until now, all entrepreneurs used the tax return with same form and content.
Additionally, entrepreneurs that paid out a personal salary (“licna zarada”) in 2013 are required to prepare and submit a separate tax balance and tax return for the period from 1 January to 30 June 2013 and for the period from 1 July to 31 December 2013.
Arm’s Length Interest Rates
The Rulebook on Arm’s Length Interest Rates became applicable on 15 February 2014.
The new rulebook prescribes different arm’s length interest rates for banks and providers of financial leasing as opposed to other types of companies. The rulebook also differentiates the arm’s length rates for long-term loans, on the one hand, and short-term loans on the other. Arm’s length interest rates are prescribed for loans in Serbian Dinars, Euros, US dollars and Swiss Francs.
This approach seems much fairer than before when the arm’s length interest rates for both commercial companies and banks was equal to the interest rates at which banks borrowed money abroad. The new rulebook recognises the difference between conditions under which loans are borrowed by financial institutions and by other commercial entities. The result of this new approach is that the prescribed arm’s length interest rates for commercial entities is much higher than before (for example the arm’s length interest rate prescribed for loans in EUR for both banks and companies was 2.76% in 2012, while under the rulebook for 2013, the prescribed arm’s length interest for companies is 6.55% for long-term loans, and 7.88 % for short-term loans).
Entrepreneurs and Transfer Pricing
The Ministry passed the Rulebook on the Manner that Entrepreneurs Follow in Declaring Transfer Prices in Tax Balance (applicable as of 22 February 2014). Under the new rulebook, entrepreneurs will be required to declare their transactions with related parties in the same manner as corporate taxpayers.The form and content of their transfer pricing documentation is also the same as for corporate taxpayers.
Under the general rule, entrepreneurs are required to submit documentation in the form of a Report, while the Short Form Report is submitted if there is one-off transaction with the related party which does not exceed RSD 8 million, or if the total value of all transactions with one related party does not exceed RSD 8 million.Entrepreneurs are required to submit the tax balance and transfer pricing documentation by15 March 2014 for previous tax year.
State-owned Companies as Affiliated Entities for Corporate Income Tax Purposes
On 3 February 2014, the Ministry of Finance issued its official opinion in which it confirmed that companies in which state-entities (Republic of Serbia, autonomous province or municipality) hold minimum 25% share in capital or voting rights represent related parties for transfer pricing purposes and are, therefore, required to prepare transfer pricing documentation as all other private taxpayers. This means that each company in which the Republic has minimum 25% share is considered a related party to any other company where the Republic of Serbia has minimum 25% share(the situation is the same if the holder of share in two different companies is an autonomous province or municipality).
For transfer pricing purposes, Republic of Serbia and local self-governments (autonomous provinces and municipalities) are not deemed to be related parties, so that a company controlled by the Republic of Serbia (by means of minimum 25% share in capital or voting rights) is not considered a related party with the company controlled by an autonomous province or a municipality, and vice versa.