Every transaction with a related party triggers transfer pricing obligations in Serbia. But determining exactly who qualifies as a "related party" under Article 59 of the Corporate Income Tax Law is where most companies make costly mistakes.

The consequences of getting this wrong cut both ways. Fail to identify a related party relationship, and you face penalties for missing transfer pricing documentation. Incorrectly classify an unrelated party as related, and you waste resources preparing a transfer pricing study that was never required.

Serbian law establishes five distinct tests for related party status, each with specific thresholds and calculation methods. The 25% ownership threshold sounds straightforward until you encounter indirect shareholdings, management board positions, or family relationships that may — or may not — create a connection.

The 25% Threshold: Direct and Indirect Ownership

The most common related party relationship arises when one entity holds at least 25% of shares or capital in another. Direct ownership is simple to identify. If your parent company holds 78% of your Serbian subsidiary, that's clearly a related party relationship requiring transfer pricing documentation for all intercompany transactions.

Indirect ownership creates more complexity. When ownership flows through multiple entities, you calculate the indirect percentage by multiplying each link in the chain. A company holding 60% of an intermediate entity that holds 50% of your Serbian company has 30% indirect ownership — above the threshold, triggering transfer pricing obligations.

What many companies miss: when the same entity has both direct and indirect ownership, you add the percentages together. A 10% direct stake combined with 15% indirect ownership equals 25% — exactly at the threshold where transfer pricing rules apply.

Votes in Management Bodies: A Separate Test

Related party status can also arise through voting rights in management bodies, independent of capital ownership. This matters particularly for associations, cooperatives, and companies where voting rights don't follow shareholding proportions.

If a three-member management board governs an entity, each member holds 33.33% of votes — above the 25% threshold. That member becomes a related party, and any company they're connected to may also become related through them.

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The Director Question: A Common Misconception

One of the most frequent questions we receive concerns directors serving multiple companies. If the same individual is director of Company A and Company B, are those companies automatically related parties requiring transfer pricing documentation?

The answer from the Ministry of Finance is clear but counterintuitive: being a director alone does not create related party status. A director must independently meet the 25% ownership or voting rights threshold. If someone serves as director of one company while owning 100% of another, those two companies are not related parties — unless the director also holds 25% or more ownership or management votes in the first company.

This interpretation has practical importance. Many multinational groups appoint the same individual as director across several Serbian entities for administrative convenience. Without additional ownership or voting rights, these appointments don't trigger transfer pricing obligations between the entities.

However, we advise caution here. The Ministry's position is binding on tax authorities, but the underlying logic — that directors lack "control or significant influence" without ownership stakes — remains debatable. Documentation of your analysis is essential.

Family Relationships: Who's In, Who's Out

Serbian law extends related party status to specific family members of individuals who meet the 25% threshold. Your company is related not only to its 30% shareholder but also to that shareholder's spouse, children, parents, siblings, and several other relatives.

The list of included relationships is specific and exhaustive. Certain relatives you might assume are covered — such as a brother-in-law (spouse's brother's wife) or a niece's husband — actually fall outside the statutory definition. Transactions with these individuals don't require transfer pricing documentation under the family relationship rules.

We regularly see companies either over-documenting transactions with relatives who aren't legally "related parties" or missing documentation requirements for relatives who are. The distinctions matter for transfer pricing compliance.

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Sister Companies: Related or Not?

A scenario we encounter frequently: two Serbian companies owned by siblings. The brother owns 100% of Company A; the sister owns 100% of Company B. The companies trade with each other. Do they need transfer pricing studies?

The answer surprises many clients: Company A and Company B are not related parties under Serbian law. The sister is related to Company A (as the sibling of its owner), and the brother is related to Company B (as the sibling of its owner). But the two companies themselves have no direct connection under Article 59.

This means intercompany transactions between such "sister companies" don't require transfer pricing documentation — though transactions between either company and the other owner personally would.

The same principle applies to companies owned by spouses, parents and children, or other family members. The individuals may be related to each other's companies, but the companies aren't related to each other.

Preferential Tax Jurisdictions: Automatic Related Party Status

One category of related party requires no ownership analysis at all. Any transaction with a legal entity from a jurisdiction on Serbia's preferential tax regime list automatically triggers transfer pricing obligations — regardless of any actual connection between the parties.

The current list includes jurisdictions like Liechtenstein, the British Virgin Islands, and several others. If your Serbian company purchases services from an entity in one of these jurisdictions, you'll need transfer pricing documentation even if you've never met the service provider and have zero ownership connection.

Getting the Analysis Right

Related party determination is the threshold question for transfer pricing compliance. Every intercompany transaction, every payment to a shareholder or family member, every purchase from a foreign supplier requires this initial analysis before you can determine your documentation obligations.

The rules contain nuances that aren't apparent from reading the statute alone. Ministry of Finance opinions, accumulated over years of specific inquiries, have clarified — and sometimes complicated — the interpretation of Article 59.

If you're unsure whether a specific relationship triggers transfer pricing obligations, or need help mapping your related party network before the filing deadline, book a consultation and we'll review your situation together.

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