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Global transfer pricing guide

Transfer pricing - North Macedonia

01 Jul 2020

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Introduction to transfer pricing in North Macedonia
Transfer pricing rules
  • The North Macedonia transfer pricing (TP) legislation is regulated with Corporate Income Tax Law (CIT) and the Transfer Pricing Rulebook since 1 January 2019 and onwards. Legislation prescribed detailed rules on transfer pricing, transfer pricing reporting requirements in respect of transfer prices applied between related parties based on the arm’s length principle that follows the OECD Guidelines.
  • The TP Rules apply to Macedonian taxpayers for related transactions with non-residents.
  • The threshold consists of realized revenues on an annual basis exceeding 4,877,628 EUR, (300,000,000 MKD)
  • The CITL specifies which entities are considered as related parties, i.e. generally direct or indirect ownership at least 20% percent based on voting rights, share capital, common control. As related parties are considered as well as other related persons (such as person participating in the management or control; family connection, loan granted or guaranteed that constitutes more than 20% of the book value of the total assets of the other related entity, one party receives at least 20% of the profits of the other entity, based on an agreement for business cooperation between the two entities. etc.). Further, the tp documentation, the form and content of the transfer pricing report, the types of methods for determining the transaction price in accordance with the arm's length principle and the manner of their application are further regulated with the Rulebook on Transfer Pricing.
OECD guidance
  • North Macedonia is not OECD signatories yet, although TP rules follow OECD Guidelines which reflected the arm’s length principle.
Transfer pricing methods
  • The most appropriate pricing method should be selected on a transaction-by-transaction basis, providing the most reliable measure of an arm’s length result in each case. 
  • The TP regulation prefers the CUP method as the primary method, in case of impossibility to apply the CUP method, it is determined which of the other transfer pricing methods can be applied and is the most appropriate for the respective transaction. The methods, are according OECD, comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods are all accepted but the method used must be in line with the functional and risk profile of the entity.
Self-assessment
  • The North Macedonia has a self-assessment regime, where the onus is on the taxpayer to ensure that transfer pricing regulations are adhered to. 
Transfer pricing documentation
Preparation of transfer pricing documentation
  • The North Macedonia legislation prescribes the form and the content of TP report. The form and content of the transfer pricing report, the types of methods for determining the transaction price in accordance with the arm's length principle and the manner of their application.
  • The regulation provides a short report and a full form of report. The form of the report is directly dependent on the realized revenues and transactions with related parties in one calendar year.
  • Taxpayers with an annual income over 4,877,628 EUR, (300,000,000 MKD) are obligated to prepare Local file with full form of report (MasterFile). While, short version of TP report submits taxpayer, if the total value of the transactions with related parties during the year does not exceed EUR 162,588 EUR, (10,000,000 MKD).
  • Transfer pricing report should be prepared in Macedonian language provided to the Public Revenue Office within 15 days of their request.
  • Transfer pricing documentation and TP report need to be filed in Macedonian language.
  • As attachments to the report the taxpayer submits:
    • Annual consolidated financial statements for the MNE;
    • Annual financial statements for the taxpayer;
    • Copies of all agreements concluded by the taxpayer in relation to controlled transactions;
    • Copies of existing unilateral, bilateral and multilateral advance pricing agreements and other tax decisions to which the tax authority is not a party but which are related to the controlled transaction;
    • Data, reports and documents that are relevant for the selection of the TP method for  the transaction between related parties in accordance with the arm's length principle;
    • Other data reports and documents that the taxpayer deems relevant to the report.
Master and local file
  • The Master and Local file structure is prescribed by the Rulebook, issued by the Ministry of Finance.
  • Transfer pricing documentation should usually include a background to the Group and local company, an ownership and organization structure, an outline of the key intercompany transactions under analysis, an analysis of the key functions, assets and risks of the company, industry analysis and economic analysis including supporting evidence such as comparable, (CUP method or benchmarking analysis).
Some risk factors for challenge
  • Companies that have intercompany business transactions with related parties located in low tax jurisdictions;
  • Financing transactions;
  • Management Fees or licensing fees paid to foreign parent entities;
  • Limited risk distributor and contract services/ contract R&D arrangements could also potentially be affected.
Penalties
  • In case a taxpayer does not fulfill the requirements according CIT Law, fine in the amount of 300 to 1,000 EUR to a taxpayer legal entity (micro), from 600 to 2,000 EUR to a taxpayer legal entity (small), from 1,800 to 6,000 EUR MKD counter value to a taxpayer legal entity (large) shall be imposed for a misdemeanor if the taxpayer fails to submit to the Public Revenue Office a TP report in the appropriate form within the prescribed period. 
  • Fine in the amount of 50 to 250 EUR of a responsible person in a legal entity (micro), from 100 to 500 EUR of a responsible person in a legal entity (small), from 150 to 500 EUR for a responsible person in a legal entity (middle) and in the amount of 200 to 500 EUR shall be imposed on the responsible person in a legal entity (large) for the misdemeanor referred to in above paragraph.
Economic analysis and how to demonstrate an arm’s length result
  • TP administrative aspects are related to economic analysis and demonstration of arm’s length result are generally aligned with the OECD Guidelines.
  • Local and reginal comparable companies are preferred, Pun European comparable companies are accepted.
  • Macedonian tax authorities are not permitted to use 'secret comparable'. There are also no published TP 'safe harbors”’.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • North Macedonia does not currently have an APA program.
Exemptions
  • Transfer pricing reporting for tax payers are exempt in case annual revenues not exceeding a  threshold of  4,877,628 EUR (300,000,000 MKD).
Related developments
Digital services tax
  • Based on legislation on force, digital services tax are specified and regulated as a specific type of e-services.
COVID-19
  • So far, there is not official announcement or recommendations in connection with COVID-19 from Macedonian tax authorities.

For further information on transfer pricing in North Macedonia please contact:

Maja Filipceva.png

Maja Filipceva
T +389 2 3214 700
E maja.filipceva@mk.gt.com

 

 

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