Although Croatia is not an OECD member country, the provisions
of the relevant Croatian tax legislation are generally based on the
OECD Transfer Pricing Guidelines.
Transfer pricing rules are prescribed by Article 13 of the
Corporate Income Tax (CIT) Act and by Article 40 of the CIT
Who is affected?
Pursuant to the relevant provisions (art 13 of the CIT Act and
art 40 of CIT bylaw), in the case of mutual business between
related parties, if the agreed prices or conditions differ from the
prices or conditions which would have been agreed between
non-associated parties, the whole amount of the profit that would
be realized if the business relations were performed between
non-associated parties shall be included in the associated
parties' tax bases.
Apart from cross-border transactions, transactions between
resident associated entities are also under transfer pricing rules
if one of the parties:
has a privileged tax status or is
subject to profit tax at a rate lower than the stipulated rates or
is exempt from the payment of profit tax, or
is entitled to carry forward the tax
loss from previous tax periods in the given tax period.
Related Party Definition
The definition of associated parties is very broad and includes
persons that directly or indirectly participate in the management,
control, or capital of the other party. The Croatian CIT law does
not include any threshold percentage for the definition of
Transfer Pricing Methods & Data
The Act and the Regulation prescribe the use of different
methods for determining whether the prices are agreed at arms'
length. Generally, the same methods as those prescribed by the OECD
are applicable, including:
resale price method
profit –split method and
It is worth noting that internal data and traditional methods
are preferred by Croatian Tax Authorities.
Transfer Pricing Audit and Penalties
There is currently no special audit procedure specific to
transfer pricing that differs from the regular tax audit procedure.
However, the tax authority has published the Guidebook for
Surveillance of Transfer Pricing which is designed for internal use
but is also available to all taxpayers. The number of audits
related to transfer pricing has increased in the past few years and
substance is over form. Tax authorities exhibit an aggressive
approach related to large management fee payments or other
intra-group payments that indicate high transfer pricing risk.
There are no specific penalties related to transfer pricing.
Fines go up to HRK 200,000 (approx. EUR 27,000) for a company and
up to HRK 20,000 (approx. EUR 2,700) for the responsible individual
within the company. Penalty interest would also be calculated from
the date when the tax was due until the date when the tax is paid.
For gravest tax violations, the penalty can even reach the amount
of HRK 500,000 for the legal entity.
There is no specific deadline for the preparation of the
transfer pricing documentation prescribed by the legislation. The
law requires that the transfer pricing documentation is available
and is submitted to the tax authorities upon their request in a tax
audit. The transfer pricing study should be available at the same
time of the submission of the annual tax return which is at the end
of the 4th month from the taxpayer's year end (30th of April
for the majority of companies).
Statute of Limitation Period
The general statute of limitations expires at the end of the
third year following the year in which a tax return should have
been filed. However, the general statute of limitations may be
prolonged and recommences after each intervention by the tax
authority with respect to a filed tax return. The absolute statute
of limitations is 6 years; however, attention should be paid on
relevant amendments regarding the extension of the limitation
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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