VAT Implications of Transfer Pricing in Serbia – Joining the Incompatible

Adjustments to transfer pricing (TP) have been a subject of intense scrutiny within international taxation and customs procedures. This paper provides a comprehensive survey of global practices and regulatory frameworks, focusing on Serbia’s legal approach influenced by OECD standards and EU regulations. It examines the alignment of related party transactions with the arm’s length principle, the impact of TP adjustments on corporate income tax (CIT), value-added tax (VAT), and customs valuation, and the challenges faced by multinational enterprises (MNEs). The study argues that TP adjustments should be considered outside the scope of indirect taxation due to their intrinsic characteristics. Through a comparative analysis of practices in the USA, Canada, and various EU member states, the paper highlights the need for clear guidance from Serbian authorities to ensure legal and fiscal consistency. The findings suggest adopting a U.S.-like five-factor test for TP adjustments concerning customs valuations to provide a clearer compliance route. The paper concludes with recommendations for synchronizing VAT and customs legislation with international standards to enhance compliance and reduce tax evasion risks.