Arm’s length interest rates for 2023

Ministry of Finance (“MF”) has adopted the Rulebook on arm’s length interest rates for 2023 (“the Rulebook”). The Rulebook was published in the Official Gazette of Serbia No. 24 dated 29 March 2023 and is effective as of 6 April 2023.

Impact of the Rulebook to transfer pricing documentation for 2023

According to the provisions of Article 61 of the Corporate Income Tax Law (“the CIT Law”), in determining arm’s length interest expense/revenue, taxpayers can:

use interest rates as prescribed by the MF Rulebook or
apply general OECD based methods for assessment of arm’s length interest as prescribed by the CIT Law.

Taxpayers may opt only for one of the above options. Selected option needs to be consistently applied to all intercompany loans.

Prescribed interest rates should be applied to interest income/expense recognized during 2023 regardless of the period from which loan(s) originate.

The Rulebook prescribes separate interest rates for long-term and for short-term borrowings for all non-finance entities and a single interest rate for banks and finance leasing companies (except for RSD denominated loans where interest rate is prescribed separately for short term and long term loans).

Arm’s length interest rates for 2023 as prescribed by the MF

What impact may this have on your business?

In general, increasing trend of interest rates when compared to 2022 is present according to the Rulebook, which is in line with the increasing average borrowing costs in the economy.

It is necessary to review if new interest rates for 2023 are aligned with interest rates currently applied in your related party financial instruments. In addition, companies exposed to significant / long-term related party financing should consider applying general OECD based methods for assessment of arm’s length interest as prescribed by the CIT Law, as such approach may be more beneficial and provide increased level of certainty in relation to future tax treatment.

Impact of the Rulebook on the application of beneficial withholding tax rates on interest in accordance with double tax treaties requires detailed review.

Igor Lončarević

Partner, Head of Tax & Legal

KPMG in Serbia and in Montenegro

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Biljana Bujić

Partner, Tax & Legal

KPMG in Serbia and in Montenegro

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Arm’s length interest rates for 2023

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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.