2013 Transfer pricing global reference guide
Macedonia, Former Yugoslav Republic of
Taxing authority and tax law
Tax authority: Revenue Office and Customs Office
Tax laws and ministerial instructions:
- Corporate Income Tax (CIT) Law
- Article 13 para 1 — correction of prices applied between related parties; reference to transfer pricing methods
- Article 14 para 1 — correction of the interest rate applied between related parties
- Article 16 — related party definition
- Tax Procedures Law
- Article 60 — obligation of the taxpayer to justify, upon a tax authority’s request, any tax position taken
- Customs Law
- Article 28 para 2 — definition of fair market price for customs purposes
- Double taxation treaties enacted by Macedonia
Relevant regulations and rulings
- 135/2011 — Administrative guideline on the obligation of the taxpayer to provide, upon a tax authority’s request, analysis of why the transfer prices applied were considered to be at arm’s length
- 135/2011 — Administrative guideline — a safe harbor rule for intercompany interest charges
- 39/2005 — Administrative guideline — defining related party for customs purposes
OECD Guidelines treatment
No reference is made in the law or in the administrative guidelines to the OECD Transfer Pricing Guidelines (OECD Guidelines). However, in the absence of any guidance, outlining what the contents of adequate documentation should look like, the OECD Guidelines can effectively serve as a model.
There are no specific tax regulations on business restructurings in Macedonia
The CIT law makes explicit reference to the CUP and the Cost Plus method, although preference is for the CUP method. No reference is made to the other transfer pricing methods of the OECD Guidelines. However, using one of the other OECD transfer pricing methods should be acceptable, as long as no comparable uncontrolled prices are available and the taxpayer’s analysis demonstrates that the method chosen is the most appropriate one, in line with the OECD Guidelines.
Transfer pricing penalties
Failure to report the correct amount of tax liability results in a penalty of up to 10 times the amount of the understatement of tax. Additionally, a default interest of 0.03% applies on the amount of the additional tax liability for each day of delay in settling such liability. Penal prosecution may not be ruled out if there are sufficient indications that there is a tax evasion in place. For not providing the tax authority, upon its request, with transfer pricing documentation, a fine ranging between EUR2,500 to EUR3,000 is imposed. For the same offence, tax authorities are entitled to suspend the taxpayer’s business activity for 3 to 30 days.
Currently, no penalty relief is available.
No specific transfer pricing documentation requirement exists under the current tax legislation. The first transfer pricing guidance formally issued by the Ministry of Finance on 15 December 2011 stipulates that the taxpayer who is involved in intercompany transactions is obligated to present, upon the tax authority’s request, sufficient information and analysis for proving that the prices applied are in line with the arm’s length principle. In practice, a transfer pricing analysis prepared in line with the OECD Guidelines should be sufficient for the taxpayer to comply with the tax authority’s request.
There are currently no specific provisions for documentation deadlines. In the tax authority’s request, the timeframe within which the taxpayer should provide the documentation is specified. However, in practice, the timeframe is very short; hence, it is advisable that the documentation be compiled as soon as practicable after the close of the tax year.
Statute of limitations on transfer pricing assessments
There is a five year statute of limitations for all taxes after which the tax authorities may not audit the taxpayer’s reported position and reassess his tax liabilities. Audited tax periods can be re-audited further to the decision of the tax authority, as long as the five year time period has not elapsed.
Return disclosures/related party disclosures
There are currently no specific disclosure requirements.
Transfer pricing-specific returns
There are no transfer pricing-specific return requirements.
Audit risk/transfer pricing scrutiny
There is no mandatory frequency of performing tax audits. Initiation of a tax audit rests at the discretion of the tax authority, exercised in accordance with the audit plans. In general, the likelihood of an annually recurring tax audit is high. Likewise, the likelihood that transfer pricing will be reviewed as part of that audit is also high. This is due to the reforms of the corporate income tax regime in 2009, under which the annual tax base of a taxpayer includes expenses not recognized for tax purposes and additional income resulting from any transfer pricing adjustments, whereas any reported profits are subject to taxation only upon distribution. The likelihood that the transfer pricing methodology will be challenged is medium.
The tax legislation does not provide for a binding advance pricing agreement. However, companies are entitled to file an application to the tax authority for a ruling with respect to the tax position they intend to take, to which the tax authority is obliged to reply. Due to lack of training in tackling transfer pricing issues, the responses are often ambiguous. In any case, the request should be accompanied by a transfer pricing analysis and a request to the tax office for its opinion on the compatibility of the methodology followed in setting the transfer prices with domestic law requirements. Although the tax authority’s opinion is not binding, it represents the tax administration’s position and should be considered by a tax auditor, unless the factual or regulatory background has changed.