Transfer pricing is essentially a financial statement that describes business transactions between related parties. These transactions between related parties are often called controlled transactions in practice and are described in the report itself.

The very prerequisite for the existence of transfer prices is transactions between related parties, that is, the situation in which related companies perform transactions with each other.

In addition, the price is considered to become transferable at the exact moment when an obligation arises in connection with transactions between related companies.

To understand the transfer pricing report itself, it is important to understand the difference between market and transfer pricing.

For example, when two market-oriented firms that are not related to each other operate and perform transactions, the prices they form are called market prices and they are – as the word itself suggests – “directed” by the state of the market.

On the other hand, when two related parties do business, the prices themselves that are formed in practice between related parties may be different from the actual market prices (at which transactions are carried out between unrelated companies), which means that they may be the same, lower or higher than the market prices. price, which leads to unregulated market operations.

Such business relations between related legal entities can arise for several reasons, all of which are primary – to achieve market plans and results, as well as to achieve other non-market goals.

In addition to the above, there is an additional business goal, which is to reduce tax liabilities in the countries or places where they are incurred through mutual transactions of related legal entities.

The essence of the transfer pricing report is that through transfer pricing, the Serbian company can reduce its profit tax base, and this is exactly the part that is most important to the tax administrations (thus making the transfer pricing report a high-risk report).

An example

To illustrate everything, we will assume that the Serbian company (daughter company) is owned by an American company (mother company) and that the company was from Serbia on 12/31/2022. made a profit before tax of EUR 100,000 and applying a tax rate of 15%, should pay EUR 15,000 in profit tax.

However, on 31.12.2022. year, an American company invoices consulting services to a Serbian company for EUR 100,000. This invoice is recorded as an expense in the books of the Serbian company, the profit before tax is 0 EUR and, therefore, there is no obligation based on profit tax.

The name-controlled transaction was created precisely because of the very possibility of controlling them, i.e. to influence them due to the very structure of the connection of legal entities. This characteristic of controlled transactions represents the main difference about the so-called uncontrolled (market) transactions that occur between mutually unrelated persons, that is, they occur between those legal entities that are supposed to operate according to market rules, as independent persons.

The transfer prices themselves in their report include analyses of:

• prices of products, goods, and services
• prices of fixed assets and intangible assets
• financing
• joint participation in research and development costs

The moment of creation of the transfer prices themselves is considered the moment of creation of the price that arose in connection with the transaction assets or the creation of obligations between related parties.

Based on this, we can conclude that the appearance of transfer prices represents the existence of interconnected persons, as well as transactions between them.

What is important to emphasize with regard to transfer pricing is that related parties may be residents of the same tax jurisdiction or may be of different tax jurisdictions (both natural and legal entities). In translation, related legal entities can be in a country, but they can also be in several countries.

Jedna od značajnih karakteristika transfernih cena je da su uglavnom nezavisne od uticaja tržišnih faktora jer u slučaju kada povezana lica ulaze u transakcije među sobom, sva pravila po pitanju transakcija i finalnih cena se definišu unutar povezanih pravnih lica i samim tim direktno utiču na visinu prihoda prodavca odnosno visinu rashoda kupca što dovodi do kontrolisanja osnovica za oporezivanje oba pravna lica.

The preparation of the transfer pricing case is intended for companies that do business with domestic and international related parties and in whose ownership structure there are some of the above common bases:

Legal entities between which there is the possibility of control or the possibility of significant influence on business decisions – possession of at least 25% of shares or shares, that is, votes in management bodies (Article 59, paragraphs 3 and 4 of the Law);

Legal entities where the same physical or legal entities participate in management and control or capital (Article 59, paragraph 5 of the Law);

Relatives of the owners of legal entities who are related by holding at least 25% of shares or shares, that is, votes in management bodies (Article 59, paragraph 6 of the Law);

Legal entities from jurisdictions with a preferential tax system – the so-called tax havens (Article 59, Paragraph 7 of the Law).

The accounting agency Ideal Accounting provides the following services in the field of transfer pricing reports:

• Assessment of the risk of business non-compliance with the law
• Analysis of transfer prices
• Benchmarking analysis
• Transfer pricing documentation

The deadline for submitting the transfer pricing report – it is submitted within the same deadline as prescribed for submitting the tax return. This deadline for legal entities is 180 days from the end of the tax period, and for entrepreneurs until March 15 of the following year.

In order to arrive at the final price of the report (elaboration) on transfer prices, it is important to go through several factors that vary and affect the final price of the report:

1. Complexity of business and business model:

Larger and more complex businesses with many transactions of different types between related parties may require a more extensive transfer pricing report.

2. Type of industry:

Some industries have specific requirements and standards that can increase the cost of reporting due to the complexity of analyzing comparability data.

3. The country for which the study on transfer prices is being prepared:

regulations and standards vary by country, which affects the amount of work required for compliance.

4. Amount of required documents:

If the company already has some of the required documentation, this can reduce the price.

5. Quality and experience of advisers:

Reputable consulting firms usually charge more for their services.

In general, the cost of producing a transfer pricing report for the extended version can be:

Smaller companies with simple structures: From 1,000 to 5,000 euros.
Medium-sized companies with moderate complexities: From 5,000 to 20,000 euros.
Large companies with complex business operations: Over 20,000 euros, and sometimes more.