Transfer prices

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Transactions performed between related parties are called “controlled transactions” due to the possibility of agreements between related parties that are not in accordance with market conditions and the possibility of manipulating the tax base.


Transfer prices are considered to be prices in controlled transactions, i.e. prices at which products and services, fixed assets and intangible assets are sold between related parties, and also include financial transactions such as mutual loans and credits, and capital transactions (purchase and sale of shares, etc.).




One person is related to another when it participates in the management, control or capital of that other person or when the same person or persons participate in the management, control or capital of both persons.


A person participates in the management, control or capital of another person when that person owns at least 25% of the shares in another legal entity or when that person has the factual ability to control the business decisions of another person, that is, when:

  • owns or controls 25% or more of voting rights in another legal entity,
  • has control over the structure of the board of directors of another legal entity,
  • has the right to participate in the profit of another person of 25% or more,
  • is a family member or a person related to a family member or
  • otherwise has factual control over the business decisions of another person.


Family members are considered: married and common-law spouses, children and adopted children, parents and adoptive parents, brothers and sisters, i.e. relatives in the direct line regardless of degree, in the collateral line up to the third degree, as well as in-law relatives up to the second degree.




A taxpayer who has transactions with related parties is obliged to determine his tax base in a manner that is in accordance with the “arm’s length” principle, i.e. according to the market conditions that would exist between unrelated parties in comparable transactions and comparable circumstances.


The Law on Income Tax defines the obligation of every taxpayer, who has transactions with related parties, to have documentation on transfer prices (Elaborate), which documents contain sufficient data and analysis on the basis of which it can be confirmed that the terms of transactions with related parties are in accordance with the “arm’s length” principle. For failure to act in accordance with the above (not possessing documentation on transfer prices that contains sufficient data and analysis, failure to submit documentation within 30 days at the invitation of the Tax Administration of the RS, and failure to submit the annual declaration of controlled transactions), the law prescribes a penalty within 20,000.00 BAM – 60,000.00 BAM for a legal entity, and 5,000.00 BAM – 15,000.00 BAM for a responsible person in a legal entity.




The VELA consulting team has extensive experience in making studies on transfer prices, where we try to look at all aspects of your business with related parties and the very essence of controlled transactions, and in this way we choose the most adequate legally prescribed method for testing controlled transactions, i.e. transfer prices.


At the same time, we can also give you guidelines according to which your future business should be carried out so that it is in accordance with the ” arm’s length ” principle!