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Transfer pricing methodologies in Croatia are based on the OECD transfer pricing guidelines. Croatia is a signatory of the OECD BEPS multilateral instrument, the final goal of which is international tax reform. There is a trend toward preventing tax planning strategies which exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is minimal or no economic activity.
In implementing the BEPS project, world legislators (especially those from the EU) have focused on the issue of transfer pricing.
Croatian tax legislation does not stipulate a deadline in which transfer pricing documentation needs to be prepared and submitted, however, in practice the tax authority:
- Expects large taxpayers to submit transfer pricing documentation when they file their annual corporation tax returns
- Expects that other taxpayers submit documentation at the request of the tax authority within a reasonable time (i.e. within 30 days)
While carrying out a transfer pricing study it is essential to secure the following:
- Information about the group and status of the taxpayer within the group and a description of all associated transactions
- A description of the selected transfer pricing methodology and the benchmarking process, and an explanation as to why the particular method was selected
- Information about the assumptions and estimates made to determine transfer prices
- Calculations of the application of the selected method related to the taxpayer and a comparable taxpayer
- Sources for the transfer pricing analysis
Croatian legislation is harmonised with the OECD guidelines and applies the following transfer-pricing methods:
- Comparable uncontrolled transaction method
- Resale price method
- Cost plus method
- Transactional profit split method
- Transactional net margin method
In Croatia, the transfer pricing study must be submitted in Croatian.
If a transfer pricing study has not been carried out, the tax authority may correct the tax base, charge a late payment interest and/or impose a fine. The only possibility of minimising the risk of having the tax base corrected is to submit a transfer pricing study within the required time frame.