Worldwide transfer pricing reference guide 2014

Croatia
Taxing authority and tax law
Tax authority: Ministry of Finance
Tax law:
• The Corporate Income Tax Act (the CIT Act)
• The Corporate Income Tax Bylaw (the CIT Bylaw)
Relevant regulations and rulings
Article 13 of the CIT Act and Article 40 of the CIT Bylaw prescribe arm’s length pricing as the basic principle to be followed, and define
the methods allowed and documentation required supporting prices between related parties.
In general, arm’s length pricing is required only for cross-border transactions between related parties. However, in line with the
Amendments to the CIT Act (in force as of 1 July 2010), the obligation to comply with transfer pricing rules is extended to transactions
between domestic entities if one of the entities is either in a tax loss position or in a special tax status (paying tax at lower rate or exempt
from paying corporate income tax). Note that this is in line with the non-binding, official opinion of the tax authorities issued prior to the
legislation amendments’ introduction (i.e., the opinion governs prior to 1 July 2010). At present, neither the CIT Act nor the CIT Bylaw
provides extensive guidance or instruction to taxpayers with regard to meeting the transfer pricing requirements.
OECD Guidelines treatment
Although Croatia is not an OECD member country, the provisions of relevant Croatian tax legislation are generally based on the OECD
Guidelines. Furthermore, the Ministry of Finance issued instructions for the tax officials performing transfer pricing audits, which are also
based on the OECD Guidelines.
Since Croatia became an EU Member on 1 July 2013, the Croatian tax authorities should also follow the recommendations and
conclusions of the EU Joint Transfer Pricing Forum.
Priorities/pricing methods
The Croatian CIT regulations do not provide detailed rules on how to arrive at the arm’s length price that should be applied in
related party transactions. However, the CIT Act prescribes the methods that a taxpayer can use to determine the arm’s length price:
CUP, Resale Minus, Cost Plus, Profit Split and TNMM. All five standard methods are allowed, however traditional transactional
methods (CUP, Resale Minus and cost plus) have priority over profit-based methods when establishing whether or not the conditions
imposed between related parties are at arm’s length. If possible, the CUP method should be applied. Transactional profit methods
(Profit Split and TNMM) should be used only on occasions where traditional methods cannot be reliably applied.
Transfer pricing penalties
Fines of up to HRK200,000 (approximately EUR27,000) for a company, and HRK20,000 (approximately EUR2,700) for the individual
responsible within the company, may be imposed for any underestimation of the corporate income tax liability. Penalty interest is
calculated from the date when the tax was due until the date when the tax is paid.
Penalty relief
There are no specific provisions concerning penalty relief.
There are no specific provisions concerning penalty relief.
Documentation requirements
According to the CIT Bylaw, a taxpayer should prepare documentation to substantiate the arm’s length nature of the prices charged for
transactions with any related parties. Such documentation will include:
• Information on the corporate group in which it operates and its position in the group, an analysis of related party transactions and other
details of the group and the taxpayer;
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