Transfer Pricing in Montenegro

The legal framework

Montenegro's transfer pricing rules are detailed in form but recent in vintage. Articles 38, 38a, 38b and 38c of the Corporate Income Tax Law (Zakon o porezu na dobit pravnih lica), in Chapter X on group taxation and transfer prices, were inserted by Sl. list CG 146/21 of 31 December 2021, entered into force on publication and apply from the 2022 tax year. Neither Sl. list CG 88/24 nor the far larger amending law of Sl. list CG 104/26 altered them. What 104/26 did, on 17 July 2026, was insert a new Chapter Xa, 'Pravila protiv premjestanja dobiti', immediately after Article 38c: ten articles covering interest limitation, controlled foreign companies, exit taxation, hybrid mismatches and, at Article 38m, advance pricing agreements, applying from 1 January 2027. The 2022 architecture is what a 2026 audit is conducted against; 2027 is when the surrounding law changes.

Relatedness is tested at 25 per cent. Article 38(2)-(4) catches any person participating directly or indirectly in the taxpayer's management, control or capital: 25 per cent of shares, 25 per cent of voting rights in the governing bodies, entitlement to 25 per cent of profit, or a real ability to control business decisions. Article 38(4)(3) extends to fourth-degree collateral blood relatives. The trap for inbound groups is Article 38(6): a non-resident seated in a territory that taxes corporate profit and distributions more lightly than Montenegro, or that does not exchange beneficial-ownership and liability information with the Montenegrin authority, is deemed related irrespective of shareholding, and payments to it bear 30 per cent withholding rather than 15.

Article 38a(1)-(2) imposes the arm's length standard in conventional terms; the mechanic that follows is not. Article 38a(4) permits the base to be increased only, by the positive difference between arm's length and actual income, or between actual and arm's length expense. There is no downward domestic adjustment, no corresponding-adjustment route and no secondary-adjustment rule. The OECD Guidelines are not enacted domestically either: Article 38(7) directs the Ministry of Finance to prescribe methodology in line with them, so they bind the rule-maker and reach taxpayers only through the Uputstvo.

Methods, comparables and benchmarking

Article 38b(1) lists seven routes: comparable uncontrolled price, cost plus, resale price, transactional net margin, profit split, any other method capable of producing an arm's length result where those five fail, and a combination. Beyond the residual status of the last two there is no hierarchy. The discipline comes from Article 4 of the Uputstvo o blizem nacinu utvrdivanja transfernih cijena transakcija (Sl. list CG 121/22), requiring the method best suited to the case, judged against the functional analysis, data reliability and comparability.

Two features differ from the defaults many advisers import. Article 8 codifies the interquartile range, but only for the TNMM: paragraph 8 prescribes the quartile statistical method, paragraph 9 deals with margins falling below the first and above the third quartile, and paragraph 11 defines the market range as first quartile to third. And paragraph 10 requires those margins to be a weighted net average over three to five years, the closing year in the first documentation year being the year for which data are available in the databases used. A single-year benchmark in a Montenegrin file is non-compliant on its face. Article 8 has eleven paragraphs and no more, so any citation to Article 8(12) is to nothing.

Comparable selection follows a domestic-first hierarchy. Article 10(3) obliges use of internal comparables where available and otherwise primarily Montenegrin data; Article 10(4) allows foreign comparables only where no comparable data can be established under paragraph 3, and then requires market comparability to be addressed. The practical outcome is usually a South-East European set, but the step-out must be reasoned in the file.

Financing is policed by one blunt instrument, and only until 2027. Article 38b(2) requires the Ministry to prescribe a deemed arm's length interest rate before 31 December for the following year: 4.97 per cent for 2026, against 5.29 for 2025 and 3.98 for 2023. Article 38b(3) preserves the right to price a loan on general methods instead. For now that rate and the two related-party interest lines in the return are the whole of the debt regime — but the Article 38d interest limitation, at 30 per cent of EBITDA or EUR 3,000,000, and the Article 38e-38f CFC rules inserted by Sl. list CG 104/26 apply from 1 January 2027 and close both gaps.

Documentation: what the Poreska uprava expects

Montenegro has no master file and local file split: one file, in full or abbreviated form, and what varies is whether it is lodged or merely held. Under Article 38c(1) a large taxpayer transacting with related parties submits documentation with its corporate income tax return; under Article 38c(2) everyone else must possess it at the moment of filing and produce it within 45 days of a request. Dealings between a Montenegrin permanent establishment and its non-resident head office are expressly inside the obligation under Article 38c(4).

Large-taxpayer status is the pivot, and it is not self-assessed. The Pravilnik of Sl. list CG 31/2017 sets three criteria, two of which must be met: public-revenue liabilities above EUR 600,000 across the two preceding business years, turnover above EUR 10,000,000 over the same period, and more than 50 employees. Banks and insurers qualify automatically, and status is notified in writing.

Below that, Article 38c(3) allows abbreviated documentation where transactions with a related party do not exceed EUR 75,000 for the year. The threshold is tested per counterparty, not per group, and never removes the obligation: point 10, paragraph 5 of the Uputstvo still requires the description of the transaction, its value and the counterparty. The full file under Article 10(1) runs to six blocks, ending with a conclusion quantifying the adjustment transaction by transaction and party by party, and an annex evidencing comparables and sources. There is no transfer pricing language rule, but Article 41 of the Law on Accounting requires financial records in Montenegrin, and the authority expects the file in Montenegrin with group material translated.

Timing is where files are lost. Article 44b is a transitional concession: until 2027 both submission and possession run to 30 June following the reporting year. Whether the last concessionary year is FY2025 or FY2026 is genuinely ambiguous on the wording, the July 2026 amending law left the article alone, and once it lapses the date reverts to the return deadline of three months after year end. Treat 2027 as the pivot and confirm with the authority.

Audits, penalties and the enforcement climate

The outcome is visible on the face of the return. Obrazac PD carries lines 26 to 28 for expenses and lines 32 to 34 for income, each comparing transfer prices with arm's length prices and taking the positive difference, while line 23 strips excess related-party interest and line 30 grosses up deficient interest. Lines 28 and 34 feed taxable profit at line 38, taxed at 9, 12 or 15 per cent, so an adjustment costs at most 15 cents in the euro at the margin — which shapes how hard a case is worth fighting. The form in use is the version substituted by Sl. list CG 114/24 as amended by Sl. list CG 20/2025, filed through the IRMS portal since 12 January 2026.

Penalties are narrow and procedural. Article 42a(1) fines a legal person EUR 1,000 to EUR 20,000 for failing to submit documentation with the return, and separately for failing to hold it and produce it within the 45 days, with EUR 500 to EUR 2,000 on the responsible individual. There is no percentage-based adjustment penalty and, equally, no documentation-based penalty protection. The assessment window is five years from the end of the year in which the liability should have been assessed, interrupted by any official act of the authority, with an absolute ten-year bar; prescription for the documentation misdemeanours themselves is governed by the Law on Misdemeanours rather than by the tax statute.

The climate is changing faster than the statute. Inspection powers under Articles 6, 78 and 87a of the Law on Tax Administration extend to seizing books and equipment; field audits run to 90 working days. The historic focus has been VAT and expense substantiation. On 3 June 2026 the Tax Administration signed terms of reference with Tax Inspectors Without Borders for transfer pricing cooperation, director Sava Laketic calling transfer pricing among the greatest challenges facing tax administrations. That is the clearest signal that audit capability, and volume, will rise from 2027.

Dispute resolution and advance certainty

Advance certainty is arriving, but it is not here yet. Until July 2026 nothing in Articles 38 to 38c, the Uputstvo or the Law on Tax Administration provided for advance pricing agreements. Sl. list CG 104/26 then inserted Article 38m, 'Prethodni sporazum o transfernim cijenama': a binding agreement, binding on taxpayer and authority alike for its term, at the taxpayer's full cost, and expressly extending to agreements with the tax authorities of other states where the related party is resident or operates through a permanent establishment, so bilateral and multilateral APAs are contemplated. It applies from 1 January 2027, the procedure, content, validity periods and fees await a Ministry rulebook, and Article 45a as amended defers Article 38m to the date of EU accession. For every period now open to audit, the only prospective certainty is still the annually prescribed interest rate.

Downstream relief is thin domestically. Because Article 38a(4) only increases the base, a taxpayer facing a foreign primary adjustment has no domestic route to a matching reduction. Relief for economic double taxation depends entirely on treaty mutual agreement procedure, across a network the official lists put at 39 partners as at August 2026 — PwC tabulates 47, so any count should be treated as approximate and checked against the Poreska uprava list. Montenegro's inexperience is formally recognised: it was assessed under the simplified Action 14 peer review reserved for jurisdictions with no meaningful MAP caseload, its Stage 1 report released on 4 March 2025.

That improves shortly. Montenegro deposited its instrument of ratification of the BEPS Multilateral Convention on 6 May 2026, with entry into force on 1 September 2026 — the mechanism by which Article 16 MAP improvements, and any elected Article 17 corresponding adjustment, enter its covered treaties; Sl. list CG 104/26 separately added Article 45b, committing Montenegro to accede to the EU Arbitration Convention. Domestically, Article 54(2) of the Law on Tax Administration confirms that an appeal does not defer execution of a tax decision, and the 15-day appeal period for an assessment comes from the general administrative procedure law through Article 42 of the CIT Law rather than from an express tax provision — the statute's own 15-day rule, Article 58(1), governs enforced-collection decisions. An administrative dispute before the Administrative Court follows. No Montenegrin transfer pricing judgment has been published.

Pillar Two and what changes in 2026

Montenegro enacted the Law on the Global Minimum Tax on Corporate Profits in Sl. list CG 33/2026 on 10 March 2026, in force on publication and expected to apply from 1 January 2026. The design is deliberately minimal: a 15 per cent domestic top-up tax for groups above EUR 750 million of consolidated revenue in at least two of the four preceding fiscal years, with no income inclusion rule and no undertaxed profits rule. A de minimis exclusion applies below EUR 10 million average jurisdictional revenue and EUR 1 million profit, and both returns are due 18 months after year end.

Around it the disclosure perimeter has widened sharply. The Law on Tax Administration now carries platform operator reporting, crypto-asset reporting and DAC6-style cross-border arrangement disclosure with a 30-day trigger, alongside country-by-country reporting in Article 14f, whose implementing Uputstvo was itself replaced in August 2026 by Sl. list CG 113/2026 with effect from 1 January 2027; Article 105 fines rose in July 2026 from EUR 1,000-15,000 to EUR 4,000-40,000. Public country-by-country reporting, in Articles 36 to 39 of the Law on Accounting, is deferred to 1 January 2027.

The ATAD alignment is no longer prospective. The Ministry's draft of 23 April 2026 was enacted as Sl. list CG 104/26 on 17 July 2026, inserting interest limitation at 30 per cent of EBITDA or EUR 3,000,000, CFC rules, exit taxation and hybrid mismatch rules with effect from 1 January 2027, with implementing rulebooks at Sl. list CG 116/2026 and 118/2026 already published. Interest limitation and CFC rules landing on top of the prescribed interest rate materially change intra-group financing analysis, and the same law is the source of the new Article 38m APA regime.

How practitioners should respond

Fix the deadline first. The 30 June concession is operative now, but 2027 is the pivot and a group used to filing in June must move to March; confirm the transition rather than reading Article 44b optimistically. Second, rebuild benchmarks to the local specification: three to five years of weighted data under Article 8(10), an interquartile range for TNMM under Article 8(11), and a reasoned justification for every step outside Montenegrin comparables. Files imported unedited from a regional master file routinely fail on all three.

Third, treat the absence of downward adjustments as a planning constraint, not a technicality. With no corresponding adjustment, and no APA available for any period before 2027, the only defence against economic double taxation is a well-evidenced contemporaneous file and, failing that, MAP in a jurisdiction with almost no MAP history. Fourth, price intra-group debt against the current year's prescribed rate or document a full analysis under Article 38b(3) — and model the Article 38d interest limitation now, because it bites from 1 January 2027; loans carrying an earlier year's percentage are the easiest adjustment an inspector can make. Finally, Montenegro has no OECD transfer pricing country profile, so the domestic instruments are the only authoritative scaffold — reconfirm article text against the Official Gazette before relying on any private consolidation, which in this jurisdiction now means checking whether an instrument has been repealed as well as amended.