Global transfer pricing guide
Transfer pricing - North Macedonia
01 Jan 20256 min read
This publication provides a high-level overview of North Macedonia's transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents
Introduction to transfer pricing in North Macedonia
- 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.
- North Macedonia is not OECD signatories yet, although TP rules follow OECD Guidelines which reflected the arm’s length principle.
- 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.
- 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
- Kenya recognizes the OECD transfer pricing documentation model based on the Master File and Local File (BEPS Action 13) approach.
- Paragraph 11 of the Eighth Schedule of the proposed Income Tax Bill expected proposes to enact Country by Country (CBC) reporting as a mandatory requirement for entities.
- Currently the KRA may request a tax payer to submit the following documentations for purpose of transfer pricing.
- Books accounts;
- The selection of the transfer pricing method and the reasons for selection;
- The application of the method, including the calculations made and price adjustment factors considered;
- The global organization structure of the enterprise;
- The details of transactions under consideration;
- The assumption, strategies, and polices applied in selecting the method; and
- Background information as may be necessary regarding the transaction.
- All documentations are required to be prepared in or be translated into the English language.
- The presence of the documentation assists tax authorities in filling of TP questionnaires and proving that the application of the arm’s length principle.
- The master and local file offer useful information to tax authorities on evaluation of the functions carried out by MNE’s and their associated enterprises and provide comparability data of similar transactions worldwide.
- The Finance Act, 2022 introduced specific information requirements for each file prescribed in the section 18D of Income Tax Act, Cap 470. Additionally, the Commissioner is expected to issue guidance on the specify manner of filing for the master file and the local file.
- Country by Country reporting
- What is a CbC report?
A Country by Country (CbC) report is a three tier annual transfer pricing filing requirement, as a minimum standard reporting recommendation of the BEPS Action 13. The CbC reporting standard has been seen to increase information sharing on group operations worldwide and encourage transparency between tax authorities in different jurisdictions. This reporting standard requires ultimate parent entities to disclose financial information relating to their operations in each jurisdiction where the group has a taxable presence. - What is the statutory definition of an ultimate parent entity?
An ultimate parent entity (UPE) means an entity that is resident in Kenya for tax purposes, is not controlled by another entity and owns or controls a multinational enterprise group. MNE’s which meet the threshold for CbC reporting will be required to file a CbCR notification to the Commissioner within the financial year. - Who does CbC reporting apply to?
CbCR applies to ultimate parent entities resident in Kenya and part of a multinational enterprises (MNE’s) with a gross turnover of KES 95 Billion, including extraordinary or investment income. The CbC reporting requirement includes an additional compliance requirement to file a master and local file containing standardized information relevant for all multinational enterprise group members and the material transactions of the local taxpayer, respectively. - When is CbC filing due?
A CbC report should be filed in Kenya within 12 months of MNE’s financial year end, where the ultimate parent entity is resident in Kenya. The requirement to comply with CbC reporting will apply from 2022 and subsequent years of income. For those who are eligible for CbC reporting, it would be prudent to begin preparing and reviewing the Master file and Local file for purpose of filing within 6 months from the group financial year-end. - Why are CbC reports required in Kenya?
It is now a statutory requirement to provide the tax authority with information relating to the amount of revenue, profit or loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees and tangible assets other than cash or cash equivalents with regard to each jurisdiction where the group has taxable presence.
This information enables the tax authority to assess transfer pricing risks, understand resources are allocated and the ascertain extent of income is attributable to Kenya for tax purposes. - Exemption to filing CbC report
A multinational enterprise group with total consolidated group income of less than KES 95 Billion (in a financial year), where the ultimate parent entity (UPE) is obligated to file a country-by-country report in its jurisdiction of tax residence outside Kenya.
The resident UPE has an international agreement (bilateral or multilateral) and an exchange of information on CbC reports agreement in force.
The Commissioner has not notified the resident constituent entity in Kenya of a systemic failure.
A non-resident parent entity file a CbC report of the group with the tax authority in its jurisdiction of residence, as a requirement.
The tax authorities of jurisdictions where the group operates have an Exchange of Information agreement.
The tax authority in a jurisdiction of the where the non-resident parent is resident has not notified Kenya of a systemic failure.
The non-resident parent entity notifies the tax authority in the jurisdiction of its tax residence that it is the designated surrogate parent entity of the group. - Our comments on the recently introduced CbC reporting requirement in Kenya
This reporting obligation applies to returns for the year of income 2022 and subsequent years, therefore it would be prudent, for MNE’s resident in Kenya to assess their operations for their financial year to gauge their eligibility to meet the country-by-country report, master file and local file requirements.
Whereas in certain circumstances some eligible entities are excluded from the country-by-country reporting, the requirement for master and local file reporting will not be extinguished. Therefore, such entities will need to have their master and local files in place for reporting purposes.
The penalty for non-compliance with the CbC reporting requirement, will be an offense subject to a fine not exceeding KES 1 million, a prison term not exceeding three years or both, upon conviction. We observe that the most applicable provision would be Section 94 of the TPA, which provides that a person commits an offence if the person without reasonable cause fails to submit a tax return or other document required under a tax law by the due date.
- What is a CbC report?
- Online platforms and complex business models offering IT services and have a digital presence in Kenyan market.
- Limited legal remedies to cope with the rapid changing framework of international business models and treaty agreements which offers legal loopholes for MNC to avoid taxation.
- Limited risk distributor and contract services / contract R&D arrangements could also potentially be affected, especially where significant people functions are in Kenya.
- Post-restructuring arrangements may pose certain challenges with respect to the identification of potential comparable in cases where the restructuring implements a business model that is hardly found between independent enterprises.
- Lack of alignment of transfer pricing outcome with value creation undertaken in the country.
- 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
- N/A.
- Based on legislation on force, digital services tax are specified and regulated as a specific type of e-services.
- The transfer pricing audit started 2025 and the trend reveals a growing interest of the Macedonian tax authorities towards transfer pricing. Under these circumstances, MNE are advised to pay close attention to the arm’s length of their related party transactions and there documentation in order to be prepared in case of transfer pricing tax audit and avoiding potential disputes with the tax authorities.
- So far, there is not official announcement or recommendations in connection with COVID-19 from Macedonian tax authorities.
Contact us
For further information on transfer pricing in North Macedonia please contact:
Maja Filipceva
T +389 2 3214 700
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