Bosnia and Herzegovina (Federation of Bosnia and Herzegovina)Bosnia and Herzegovina (Federation of Bosnia and Herzegovina)

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 44, paragraph (1)

Law on Corporate Income Tax (“Official Gazette of the Federation of Bosnia and Herzegovina (“BiH” or FBiH”)”) No. 15/16 and 15/20) Article 44, paragraph (1) states that: “The taxpayer that takes part in a transaction with a related entity shall determine its taxable income in a manner consistent with the at arm’s length principle.”

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16)

The OECD Transfer Pricing Guidelines are not applicable under legislation in the Federation of BiH. However, the Rulebook on Transfer Pricing lays down more specifically the application of particular transfer pricing methods, determining the transfer pricing, and the burden of proof procedure in transfer pricing.

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 44, paragraph (3)

Law on Corporate Income Tax “(3) The term “related entities” shall apply to any two entities if one entity is acting or will probably act in accordance with guidelines, requests, proposals or wishes of the other entity or if both entities act or will probably act in accordance with guidelines, requests, proposals or wishes of the third entity regardless of whether such guidelines, requests, proposals or wishes were communicated. Related entities shall be considered to include especially the following: a) Spouses, whether by marriage or common-law, descendants-adoptees or descendants of adoptees, parents, adoptive parents, siblings and their descendants, grandparents and their descendants as well as siblings and parents of the spouse, whether by marriage or common-law; b) A legal entity and any individual directly or indirectly owning 25 percent or more of the value or the number of shares or voting rights in the stated legal entity. c) Two or more legal entities if an individual or a third entity directly or indirectly owns 25 percent or more of the value or the number of shares or voting rights in each of the stated legal entities”. Rulebook on Transfer Pricing (1) Related parties to a taxpayer are considered to be: a) natural persons – citizens who, through family relations under Article 44 Paragraph (3) Point a) of the Act, are related to the ones who manage, control or have capital of the taxpayer; b) legal persons who directly or indirectly control persons, or are directly or indirectly controlled by persons, or are together with a taxpayer controlled by one joint entity referred to in the Article 44 Paragraph (3) Point a) of the Act; c) natural persons – citizens, who directly or indirectly own 25% or more of the value of capital or number of shares or voting rights of the taxpayer; d) legal persons who directly or indirectly own 25% or more of the value of capital or number of shares or voting rights of the taxpayer, or in which the taxpayer directly or indirectly owns 25% or more of the value of capital or number of shares or voting rights. (2) Participation in the control means the ownership of capital, with a minimum of 25% of the capital or number of shares or voting rights of the taxpayer. (3) Management participation means a material liability for the performance of certain legal person's obligations vis-à-vis third parties, regardless of the shareholders' equity. (4) Legal persons are considered to be related parties even if one person directly or indirectly participates in the management, control or capital of the other, or if a third party participates directly or indirectly in the management, control or capital of both, or if the same person or the person referred to in the Article 44 Paragraph (3) Point a) of the Act shall participate in the management, control and capital. (5) Related party shall also be considered the person who knowingly enters into a business relationship with the taxpayer in order to transfer the profits. In such cases, an individual transaction is executed under circumstances as if it were a related party.

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 45, paragraphs (2) and (3)

FBIH applies the OECD TPG, which means that other methods are allowed. However, in practice, they are not often used.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (provided)

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 45, paragraphs (2) and (3)

The most appropriate transfer pricing method shall be selected from among the following transfer pricing methods: comparable uncontrolled price method; cost plus method and resale price method. In case that it is not possible to apply methods referred here, one of the following alternative methods may be applied: income split method, transactional net margin method, or any other method, provided that they can be reasonably applied to determine the conditions according to the arm’s length principle for transactions between related entities, and that such other method yields a result consistent with the at arm’s length principle.

• Hierarchy of methods (selected)
• Most appropriate method (not selected)
• Other (not selected)

Currently, FBIH has no specific guidance on commodity transactions.

• For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (not selected)
• Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (not selected)
• Other (selected)

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Articles 29-45

The Rulebook on Transfer Pricing prescribes basic parameters of comparability analysis, concept, steps in the comparability analysis, functional analysis, property, risk, functions and economic circumstances.

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Article 42, paragraph (4)

This is prescribed by the Rulebook on Transfer Pricing. If possible, taxpayers should use local comparable data in the comparability analysis. In a situation where taxpayers are unable to find enough reliable local comparable data, they can expand their search for regional comparable data, and beyond.

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Article 45

The Rulebook on Transfer Pricing prescribes that the comparable transactions adjustment is an important element of the comparability analysis which, when applied appropriately, improves the accuracy and reliability of the comparison. The differences between the transactions with which they are compared and the comparable must be examined in such a way as to determine and adjust the basis for comparison that would be useful for determining the arm's length price. Adjusting comparable transactions eliminates the differences between the situations being compared and those that could have a significant impact on the condition being examined in the methodology (e.g. price or margin). The comparable transactions adjustment should not be made on differences that do not have a significant impact on the comparison. The comparable transactions adjustment includes accounting adjustments and adjustments to functions and/or risks. The following situations should be avoided as they do not improve comparability: a) questionable adjustments because the comparability base criteria are broadly set; b) too many adjustments that largely affect comparability, as it indicates that the party in question is actually not sufficiently comparable; c) adjusting the differences that do not materially affect the comparability; d) very subjective adjustments, such as differences in product quality.

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Articles 59-64

The Rulebook on Transfer Pricing prescribes the classification, aspects and types of intangible assets, methodology and price.

The Rulebook on Transfer Pricing and Law does not provide for transfer pricing rules or special measures regarding hard-to-value intangibles (HTVI).

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Articles 46-58

The Rulebook on Transfer Pricing prescribes types of intra-group services, support services, services within an MNE group, methodology and price.

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Article 54, paragraph (2)

The Rulebook on Transfer Pricing prescribes that taxpayers in support services may apply a 5% cost reimbursement fee under the arm's length principle when the following conditions are met: a) support services relate to the activities referred to: accounting and auditing, debt management, budgeting, IT support, database administration, employee benefits, general administration, legal services, payroll accounting, corporate communications, personnel policy and recruitment, tax consulting, employee training and development; b) the service provider does not offer support services to independent parties.

No other rules outside the transfer pricing rules are applicable.

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Articles 65-67

The Rulebook on Transfer Pricing prescribes types of financial transactions, as a form of financial service or financial assistance between related persons, which includes loans, interest on loans, advances and/or debt, as well as providing any security or guarantee on the basis of financial assistance.

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 18

In the FBIH, the rule of thin capitalization has been implemented, where financial expenditures resulting from the payment of interest or its functional equivalent under financial contracts and instruments taken from related entities, shall be deductible. If the ratio between total liabilities pursuant to financial contracts and the registered capital of the taxpayer in the court register exceed 4:1, financial expenditures that may be assigned to the amount exceeding the ratio 4:1 represent non-deductible expenditures. This rule does not apply to banks, leasing company and insurance companies.

Legal ReferenceRulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Articles 57-58

The Rulebook on Transfer Pricing prescribes types of contractual relationships: a) an arrangement for the joint development of intangible assets, in which each participant contributes a variety of means, resources and expertise and receives a share of the rights in the developed assets on the basis of their contributions; b) a service arrangement on joint financing, or cost and risk sharing of the development, or acquisition of property or services, through the pooling of development funds, advertising campaigns, joint market participation, etc. Moreover, the Rulebook prescribes terms on whether the cost-contribution contract is carried out in accordance with the arm's length principle.

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 49, paragraph 4; Rulebook on Transfer Pricing (“Official Gazette of the Federation of BiH” No. 67/16) Articles 68-96

• Master file consistent with Annex I to Chapter V of the TPG (selected)
• Local file consistent with Annex II to Chapter V of the TPG (selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (selected)
• Other (specify): (not selected)

1. Master and local file: Transfer pricing (TP) documentation should be organized at the MNE group level (master file), and at the level of the taxpayer (local file). TP documentation at the MNE group level is mandatory for taxpayers who have a consolidated gross profit of over BAM 1.5 billion (approx. EUR 750 million). The taxpayer engaging in transactions with the related entities shall be obligated, when filing its tax return, to have local transfer pricing documentation which includes sufficient information and analysis to confirm that the conditions of its transactions with related entities were consistent with the principle at arm’s length. Upon receipt of a request from the tax administration, the taxpayer shall submit the transfer pricing documents to the tax administration within 45 days. Local transfer pricing documentation should be prepared and submitted in one of the official languages in Bosnia and Herzegovina, whereas the MNE group report (i.e. master file) may be in English. The tax administration reserves the right to request the translation of TP documentation. Taxpayers may store TP documentation on any form, i.e. keep paper or electronic records. They must, however, be able to promptly provide relevant information at the request of the tax administration. 2. Country-by-country report: Taxpayers should submit the Form CBC-901 along with the corporate income tax return, if it is a resident of the Federation and generates a consolidated gross revenue of at least BAM 1.5 billion (approx. EUR 750 million). Form CBC-901 must be submitted by 31 March of the current year for the previous year. Form CBC-901 must be submitted in an official language in BIH. 3. Specific transfer pricing returns: Taxpayers should submit Form TP-902 along with the corporate income tax return, if the total amount of transactions of the taxpayer with related party exceeds the amount of BAM 500 000 (approx. EUR 254 033) in the tax period. Form TP-902 must be submitted by 31 March of the current year for the previous year. Form TP-902 must be submitted in an official language in BIH.

Legal ReferenceLaw on Corporate Income Tax (“Official Gazette of the Federation of BiH” No. 15/16 and 15/20) Article 58, paragraphs 2e), h), j), k)

A fine of BAM 3 000 (approx. EUR 1 524) up to BAM 100 000 (approx. EUR 50 867) shall be imposed on the taxpayer for a violation if the taxpayer: - fails to submit a summary of transactions exceeding the amount of BAM 500 000 (approx. EUR 254 033) in the tax period; - Fails to render the transactions with related entities consistently with the arm’s length principle; - does not have transfer pricing documentation; - fails to submit documentation to the tax administration upon its request.

There is no exemption or materiality threshold.

There are no MAPs procedures or guidance in place.

• Rulings (not selected)
• Enhanced engagement programs (not selected)
• Advance Pricing Agreements (APA) (not selected)
• Mutual Agreement Procedures (selected)
• Other (please specify): (not selected)

No other simplification measures are used.

Generally, the taxpayer can adjust the transfer price in the tax return. The adjustments can be made at any point, up to the deadline for submission of the tax return. After that filing date, a taxpayer may submit, within the period of 180 days, an amended tax return for the relevant fiscal period, in which can be incorporated a change to any transfer pricing adjustment.

In how many tax treaties? None of Bosnia and Herzegovina's tax treaties contain the new version of Article 7 of the OECD MTC. If yes, how do you implement it in cases, where the old tax treaties do not contain the new version of Article 7 (OECD MTC 2010 and later) FBiH has not encountered such cases in practice.

Currently, there is no special tax audit procedure for transfer pricing that differs from the regular tax audit procedure.

FBIH will harmonize the Rulebook for Transfer Pricing audit with the outcomes of BEPS Actions 8-10 on Transfer Pricing in the short-term.