The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
The Ministry of Finance of the Republic of Serbia (“MF”) has adopted the Rulebook on “arm’s length” interest rates (“the Rulebook”). The Rulebook contains the prescribed interest rates applicable to taxpayers who had or will have related party financing during 2015 and 2016.
According to the provisions of Articles 59, 60 and 61 of the Corporate Income Tax Law (“the CIT Law”), in determining arm’s length interest expense/revenue, taxpayers can either use interest rates as prescribed by the MF Rulebook or opt to apply general OECD based methods for assessment of arm’s length interest as prescribed by the CIT Law. Selected option needs to be consistently applied to all loans to/from related parties.
Prescribed interest rates should be applied to interest income/expense recognized during 2015 and 2016 regardless of the period from which loan(s) originate.
The Rulebook prescribes a single interest rate for both short and long term borrowings/placements for banks and finance lease companies (except for Serbian Dinar).
The Rulebook prescribes separate interest for long term and for short term borrowings/placements for all non-finance entities, as well as for RSD denominated borrowings/placements for banks and financial leasing companies.
In determining the amount of interest which is subject to beneficiary rates prescribed by applicable Double Tax Treaty (“DTT“), taxpayers may also use prescribed rates or apply general OECD based methods. Unlike to the calculation of transfer pricing adjustments, taxpayers may apply prescribed rates and general methodology interchangeably in determining potential withholding tax exposure.
Overview of market interest rates as prescribed by the MF is presented below:
Arm’s length” interest rates as prescribed by the Rulebook
KPMG will continue to monitor all relevant developments in this complex area, and inform you about possible impact of these events on business operations.
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