Transfer pricing is no longer an issue reserved only for large multinational groups. In the Republic of Srpska, it has become an important tax compliance matter for domestic companies that conduct business with their owners, related companies, group members, or other related parties. Particularly following the latest amendments to tax regulations, the question is no longer merely whether a transaction has been properly recorded in the accounting books, but also whether the taxpayer can demonstrate that the price at which the transaction was carried out is an arm’s length price.

The applicable framework consists of the Corporate Income Tax Law of the Republic of Srpska (“Official Gazette of the Republic of Srpska”, Nos. 94/15, 1/17, 58/19, 48/24 and 114/25), as well as secondary legislation governing transfer pricing. The latest amendments to the Law, published in the “Official Gazette of the Republic of Srpska” No. 114/25, have applied since 1 January 2026.

What Exactly Is Transfer Pricing?

Put simply, transfer pricing refers to the prices applied in transactions between related parties. From a tax perspective, the mere fact that two related companies conduct business with each other is not problematic. Such business relationships are entirely common. The tax issue arises when the terms under which related parties conduct business differ from the terms under which the same or a similar transaction would be concluded by two independent businesses.

The essence of transfer pricing rules is therefore the arm’s length principle. Related parties may conduct business with each other, but prices, interest rates, fees, rents and other commercial terms must be economically justified and comparable to the conditions that would exist between unrelated parties in the market.

In other words, having a contract and an invoice is not enough. Where there is a statutory obligation to do so, it must also be possible to explain why a particular price is what it is.

Who Should Pay Particular Attention?

Transfer pricing occurs in practice much more often than company owners assume. A typical example is when one company sells goods or provides services to another company owned by the same person, when a parent company invoices services to a subsidiary, when one related company grants a loan to another, when interest is charged between related companies, when an owner leases business premises to their company, or when certain rights, assets or services are transferred within a group.

Therefore, the fact that two companies are registered as completely separate legal entities does not automatically mean that they are unrelated for tax purposes. For transfer pricing purposes, ownership, control, management and other relationships that may influence the terms under which a transaction is concluded are taken into account.

Particular attention should therefore be paid by business groups with several companies owned by the same or related owners, companies with significant loans between related parties, companies that provide administrative, consulting, management, IT, marketing or other services to each other, as well as companies using real estate or other assets belonging to their owners or related companies.

Why Is a Transfer Pricing Study Necessary?

A transfer pricing study, i.e. transfer pricing documentation, serves as evidence that the taxpayer has analysed its controlled transactions and that the prices and other terms of business with related parties have been determined in accordance with market principles.

A good study is therefore not a document prepared merely to satisfy a formal requirement. It should identify the related parties, explain the nature of their relationship, list the relevant transactions, analyse the functions performed by the respective companies, the assets they use and the risks they assume, and, based on an appropriate method, determine whether the prices applied are consistent with market conditions.

Methods used to determine whether prices are at arm’s length include the comparable uncontrolled price method, cost-plus method, resale price method, transactional net margin method and profit split method. The choice of method depends on the specific transaction and the availability of reliable comparable data.

The BAM 50,000 Threshold Is Particularly Important

According to the published interpretation of the Ministry of Finance of the Republic of Srpska regarding the application of the amendments to the regulations, the obligation to prepare transfer pricing documentation applies to taxpayers who, during the tax year, have transactions with related parties, including loans and borrowings, with a total value exceeding BAM 50,000. In practice, this means that it is not sufficient to look at only one individual invoice or contract; the total volume of relevant transactions with related parties during the tax period must be considered.

This is particularly significant for small and medium-sized enterprises. The BAM 50,000 threshold can be reached relatively quickly through the lease of business premises, monthly services between related companies, purchases of goods, loans, or a combination of several different transactions.

For this reason, related-party transactions should not be reviewed only when the annual corporate income tax calculation is being prepared. During the business year itself, the company should maintain an overview of who its related parties are and what the cumulative value of transactions with them is.

In practical terms, transfer pricing should no longer be treated as an issue to be addressed only if a tax audit eventually takes place. Documentation is becoming an integral part of the company’s regular tax compliance.

The Greatest Risk Is Not the Relationship Itself — It Is a Price You Cannot Explain

A company may have a completely legitimate business reason to transact with a related company. One company within a group may provide accounting, administrative or IT services to another. An owner may lease business premises to the company. One company may finance another. Related companies may sell goods to one another.

But in each of these cases, the same question arises: would an independent party accept approximately the same terms?

If the answer is yes and the taxpayer can document this through an appropriate analysis, the mere existence of a related-party relationship is not a problem. However, if a company pays a related company a fee that significantly deviates from market conditions, uses interest-free or unusually expensive loans, pays rent that cannot be economically justified, or receives large invoices for services whose actual performance and value cannot be demonstrated, the tax risk increases significantly.

A Transfer Pricing Study Protects the Company’s Tax Position

The most important function of a quality transfer pricing study is to enable the taxpayer to explain its position before a tax inspector asks for an explanation.

If it is determined that a price between related parties is not consistent with the arm’s length principle, the consequence may be an adjustment of income or expenses and, consequently, the tax base. This may further result in additional corporate income tax liability, applicable interest and other consequences provided for under tax regulations.

Therefore, transfer pricing is not merely an accounting issue. It is simultaneously a tax, legal and financial matter.

Particular Attention Should Be Paid to Loans Between Related Parties

In practice, there is often a misconception that transfer pricing rules apply only to the sale of goods and invoicing of services. This is not the case. Financial transactions between related parties may be one of the most important areas of analysis.

If one related company grants a significant loan to another, the financing terms need to be analysed: the interest rate, maturity, currency, collateral, borrower’s credit risk and other circumstances that would affect the price of such financing if the loan had been granted by an independent party.

Therefore, the question “Do we have transfer pricing?” should often be replaced with a much more specific question: “Did we have any economic relationship with a related party during the year?”

If the answer is yes, that relationship should be analysed.

Transfer Pricing Is Above All a Matter of Tax Certainty

A well-organised company should know who its related parties are, what transactions it has with them, the value of those transactions and the basis on which the prices were determined.

This is precisely why a transfer pricing study should not be viewed as just another administrative expense. It represents a kind of tax file for the business relationship between related parties: a document explaining the economic rationale behind transactions and demonstrating that the tax base has not been arbitrarily shifted between owners, companies or members of the same business group.

For clients doing business with related parties, our recommendation is simple: do not wait for a tax audit before analysing your transfer pricing for the first time.

The related parties and transactions should be reviewed in good time, it should be determined whether there is an obligation to prepare documentation, and the arm’s length nature of the prices applied should then be documented. The cost of timely analysis is almost always more predictable than the cost of subsequently explaining transactions that have remained undocumented for years.

StandardPrva can support its clients in identifying related parties and relevant transactions, analysing tax risks, preparing the required documentation and aligning business operations with transfer pricing rules.

Because when it comes to transfer pricing, the most important question is not only how much you paid or charged, but — can you prove why that particular price was an arm’s length market price?