Corporate Income Tax Law of Montenegro, Art. 42a · misdemeanour and tax liability
Transfer pricing penalties: what they really cost
The fine for a legal entity is up to €20,000 per offence, with a separate fine for the responsible person. The adjustment of the tax base is often the more expensive part.
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In short
The fine is €1,000 to €20,000 for a legal entity and €500 to €2,000 for the responsible person (Art. 42a of the Corporate Income Tax Law).
Fines apply to failure to submit documentation (large taxpayers), to not holding it and not submitting it within 45 days of a request, and to tax calculated contrary to the law.
An upward adjustment of the tax base often costs more than the fine itself.
01Guide
Fine and tax base adjustment
The consequences have two parts. The offence under Art. 42a consists of: failure to submit documentation with the return (large taxpayers, item 3); not holding documentation when the return is filed and not submitting it within 45 days of receiving a request (item 4); and corporate income tax not calculated in accordance with the law (item 5).
A fine of €1,000 to €20,000 for a legal entity and €500 to €2,000 for the responsible person (Art. 42a).
An upward adjustment of the tax base, which increases corporate income tax.
02Guide
Illustrative example: what the absence of a study costs
Suppose a manufacturing company with €5 million of revenue pays its parent a management fee of €400,000 a year, without a transfer pricing study. (An illustrative example, not a specific client.)
If the fee is not recognised and the tax base is adjusted upwards for four years (an illustration), and taxable profit before the adjustment is between €100,000 and €1,100,000 (so that it stays in the 12% bracket even after the adjustment, Art. 28(2)), the additional tax alone is 4 × €400,000 × 12% = €192,000. A fine may be added to that.
A study prepared on time costs only a fraction of that amount.
03Guide
Amount of the fine
The law sets a range of €1,000 to €20,000 for a legal entity and €500 to €2,000 for the responsible person; the amount in a specific case is set by the competent authority in misdemeanour proceedings. The best protection is documentation that exists on time and is submitted within 45 days of receiving a request.
20,000EUR1
upper limit of the fine for a legal entity (Art. 42a)
2,000EUR1
upper limit of the fine for the responsible person (Art. 42a(2))
45days1
deadline to submit documentation on request (Art. 38c(2))
Sources and the date they were checked are at the foot of the page.
IVMethodology
A study prepared on time costs only a fraction of that amount.
Illustrative example: what the absence of a study costs
VIFee
We name the fee in writing, in our reply to your inquiry
The fee depends on the number and complexity of transactions. A fixed fee is confirmed in writing before work starts.
Scope, timing and fee are confirmed in writing before work starts. What is not included is listed in the written offer.
VIISources and legal framework
Primary sources for this page
Content prepared and checked by the Schule d.o.o. Podgorica team. The sources are in Montenegrin; this page is general information, not advice for a specific case.
Updated Sources checked
VIIIQuestions
Questions clients ask about this topic
Is the responsible person in the company personally liable?
Yes, in the misdemeanour part the responsible person in the legal entity is also liable, with a fine of €500 to €2,000 (Art. 42a(2)), in addition to the company itself.
Can the amount of the adjustment be negotiated with the Tax Administration?
The outcome depends on evidence and arguments, so a sound economic analysis and an alternative benchmark can change the finding on the amount of the adjustment.
Inquiry
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IXNext step
Describe your related parties and transactions: we reply on the next working day
We reply on the next working day. We name the fee in writing, in our reply to your inquiry. Scope and timing are confirmed in writing before work starts.