CroatiaCroatia

Legal ReferenceProfit Tax Act, Article 13; Profit Tax Ordinance, Article 40 (in Croatian)– the unofficial translation of Article 40 in English is displayed under the question 47

Legal ReferenceProfit Tax Ordinance, Article 40, paragraph 12

OECD TPG will be used to interpret the application of transfer pricing rules from Profit Tax Act and Profit Tax Ordinance.

Legal ReferenceProfit Tax Act, Article 13, paragraph 2

According to the Profit Tax Act, Article 13, paragraph 2: “Persons shall be associated if one of them participates, directly or indirectly, in the management, control or capital of the other person, or if the same persons participate, directly or indirectly, in the company’s management, control or capital.”

Legal ReferenceProfit Tax Act, Article 13; Profit Tax Ordinance, Article 40

According to Profit Tax Act, Article 13, the following methods can be used: - Comparable uncontrolled price method - Resale price method - Cost plus method - Transactional profit split method - Transactional net margin method According to Profit Tax Ordinance, Article 40: In addition to the methods referred to in Article 13, paragraph 3 of the Profit Tax Act, the taxpayer may use other methods for determining prices provided that these prices satisfy the arm's length principle. Other methods shall be used only if the methods referred to in Article 13, paragraph 3 of the Act are not appropriate to the facts and circumstances of the case.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (not provided)

Legal ReferenceProfit Tax Ordinance, Article 40

According to Article 40 of the Profit Tax Ordinance, when selecting the method for determining transfer pricing, it is necessary to determine the method that is most appropriate for a given case. Furthermore, it is stipulated that classical transaction methods can more directly determine whether the terms of trade and financial relationships of related parties are in line with the arm's length principle. Where profit split method and transactional net margin method can be applied with the same reliability, the advantage is given to the classical transaction method.

• Hierarchy of methods (selected)
• Most appropriate method (selected)
• Other (if so, please explain) (not selected)

Currently, Croatia has no framework containing specific guidance on commodity transactions and tend to rely on the OECD TPG.

Legal ReferenceProfit Tax Ordinance, Article 40, paragraph 6 (in Croatian)

According to Article 40 of the Profit Tax Ordinance, to substantiate that the transaction was carried out at arm's length, the taxpayer should prepare and submit upon request to the tax administration TP documentation containing, among others, comparability and functional analysis for materially significant transactions carried out by a local entity. OECD TPG will be used to interpret the application of transfer pricing rules from Profit Tax Act and Profit Tax Ordinance.

If available, domestic comparables are used, otherwise Croatia uses foreign comparables.

In practice, Croatia uses statistical tools such as the interquartile range, as provided in Chapter III. A.7 of the TPG.

Legal ReferenceProfit Tax Ordinance, Article 40, paragraph 1 (in Croatian)

When choosing the most appropriate method, one should take into account, among others, the reliability of comparability adjustments that may be necessary for elimination of material differences between controlled and uncontrolled transactions (Profit Tax Ordinance, Article 40). In practice, Croatia follows the OECD TPG in this regard. The 2019 Croatian TP Manual (in Croatian) contains a direct reference to paragraphs 3.47 to 3.54 of the TPG.

Croatia applies the OECD TPG in practice.

Although Croatia has not formally adopted the HTVI approach, the 2022 Croatian TP Manual contains a direct reference to paragraphs 6.186 to 6.195 of the TPG in this regard.

Croatia applies the OECD TPG in practice. The 2019 and 2021 Croatian TP Manuals contain a direct reference to Chapter VII of the TPG in this regard.

The 2019 Croatian TP Manual contains a direct reference to Chapter VII of the TPG in this regard.

Legal ReferenceProfit Tax Act, Articles 8 and 14

Croatia applies a thin capitalisation approach provided for by Article 8 of the Profit Tax Act. Also, the 2021 and 2022 Croatian TP Manuals provide guidance in accordance with Chapter X of the TPG in this regard.

Legal ReferenceProfit Tax Act, Article 30.a

Profit Tax Act in Article 30.a prescribes Interest limitation rules in line with the EU ATAD (implementing BEPS Action 4).

Legal ReferenceProfit Tax Act, Article 13; Profit Tax Ordinance, Article 40 (in Croatian); Act On Administrative Cooperation in the Field of Taxation, Article 34 (in Croatian); PD-IPO.pdf (in Croatian)

PD-IPO form - transactions between related parties.

• 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) (not selected)
• Other (specify) (selected)

Legal ReferenceProfit Tax Act, Article 13; Profit Tax Ordinance, Article 40 (in Croatian); Act On Administrative Cooperation in the Field of Taxation, Article 34 (in Croatian); PD-IPO.pdf (in Croatian)

Master File/Local File: No threshold. Submission to the Competent Tax Authority upon its request. Language: Generally Croatian; if in English, a translation shall be required as appropriate. Update: Documentation should be updated to reflect material changes. Country-by-country Reporting: Aligned with Action 13 minimum standard and EU Council Directive 2016/881. PD-IPO form: Must be prepared if the taxpayer had transactions with related parties and submitted with the tax return.

Legal ReferenceGeneral Tax Act, Article 192

Croatian legislation does not contain specific transfer pricing penalties but some penalties in the General Tax Act are commonly applied regarding TP documentation. According to Article 192 of the General Tax Act, a fine between EUR 2.650,00 and 66.360,00 shall be imposed for failures related to keeping records, accounting entries, and presenting documentation upon request.

Legal ReferenceGeneral Tax Act, Article 10 and 70; General Tax Ordinance, Articles 6-16 and 49-61 (in Croatian); Profit Tax Act, Article 14a; APA Ordinance (in Croatian); MAP guidelines; Croatia MAP Profile

An APA programme is in place whereby the duration of an APA is 5 years. There is no simplified procedure. The covered period should not exceed five consecutive years and fees apply.

• Rulings (selected)
• Enhanced engagement or cooperative compliance programmes (selected)
• Advance Pricing Agreements (APA) (selected)
• Unilateral APAs (selected)
• Bilateral APAs (selected)
• Multilateral APAs (selected)
• International Compliance Assurance Programme (ICAP) (not selected)
• Mutual Agreement Procedures (selected)
• Other (not selected)

Currently, it is under consideration.

Legal ReferenceProfit Tax Act, Article 13 and 14

Croatia only has safe harbours for financial transactions. The interest rate is prescribed by the Ministry of Finance. By way of derogation from this rule, the taxpayer may determine the interest according to the conditions and using the TP method provided in Article 13 of the Profit Tax Act.

Legal ReferenceProfit Tax Act, Article 13

If prices or other conditions agreed between associated parties are different than those between non-associated parties, then the taxpayer must make a profit adjustment to the amount that would be realised if the transaction took place between independent enterprises/parties in comparable circumstances.

Croatia applies the OECD TPG in practice. It’s possible to make the actual allocation of profits through secondary adjustment, but it depends on the facts of the case.

Article 7 as it read before 2010 is contained in 66 treaties. Article 7 as it reads after 2010 is contained in 4 treaties.

• Article 7 as it read before 2010. (selected)
• Article 7 as it reads after 2010. (selected)
• Other (please provide additional details) (not selected)

Croatia applies the AOA in practice, regardless of whether it is contained in treaties or not.

Yes, they follow the AOA as described in the 2008 and 2010 Reports on the Attribution of Profits to Permanent Establishments.

The following Croatian TP Manuals are currently in force: • TP Manual for transfer pricing audit, adopted in 2019 that follows 2017 OECD TPG (“2019 Croatian TP Manual”); • TP Manual for transfer pricing audit of financial transactions adopted in 2021 in accordance with the OECD 2020 Financial Transaction Guidelines (“2021 Croatian TP Manual); and, • TP Manual for transfer pricing audit adopted in 2022 in accordance with the 2022 OECD TPG (“2022 Croatian TP Manual”).

Legal ReferenceTransfer pricing (porezna-uprava.hr)

To enhance tax certainty and transparency for taxpayers and treaty partners, Croatia has released on the Croatian Tax Administration’s official website, in Croatian and English versions, the content with key features related to transfer pricing in Croatia. This includes an unofficial translation of the PROFIT TAX ORDINANCE Article 40 (consolidated text), which details methods, selection criteria, documentation requirements, and the use of OECD TPG for interpretation.