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Croatia – Transfer Pricing (2025)

Croatia’s domestic transfer pricing framework is built primarily on the Profit Tax Act and the Profit Tax Ordinance. The Profit Tax Act contains substantive rules on pricing between related parties (Article 13) and the Profit Tax Ordinance (Article 40) sets out application criteria and documentation requirements. The legislation requires that where prices or other conditions agreed between associated parties differ from those that would be agreed between independent enterprises under comparable circumstances, the taxpayer must make a profit adjustment to the amount that would be realized under arm’s length conditions (Profit Tax Act, Article 13). Administrative rules in the Profit Tax Ordinance further require preparation and updating of documentation to substantiate compliance with the arm’s length principle and the method chosen.

Arm’s length principle and the role of the OECD Guidelines

Croatian law explicitly refers to the arm’s length principle and assigns an interpretative role to the OECD Transfer Pricing Guidelines. Profit Tax Ordinance, Article 40, paragraph 12 states that “The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of the Organisation for Economic Cooperation and Development shall be used to interpret the transfer pricing rules in the Act and provisions of this Article.” In practice, the OECD Guidelines are used to interpret and apply the rules in the Profit Tax Act and the Profit Tax Ordinance and to guide the Croatian Tax Administration’s TP manuals (2019, 2021 and 2022 Croatian TP Manuals).

The domestic definition of related parties for transfer pricing purposes is provided in Profit Tax Act, Article 13, paragraph 2. The Act specifies: “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.” This definition delineates control, ownership and management links that trigger transfer pricing obligations. Permanent Establishments are considered within the analysis where management, control or capital links and transactions between non-independent parties make it relevant; in practice Croatia applies the Authorized OECD Approach (AOA) for attribution of profits to PEs.

Methods and selection criteria

Profit Tax Act, Article 13 lists the transfer pricing methods that may be used: Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus, Transactional Profit Split and Transactional Net Margin Method. Profit Tax Ordinance, Article 40 elaborates on method selection and allows the use of other methods as long as they comply with the arm’s length principle and where the methods of Article 13(3) are not appropriate. Use of any alternative method must be supported by an explanation as to why the Article 13(3) methods are less appropriate and the reasons for applying the other method (Profit Tax Ordinance, Article 40, paragraphs 3 and 4).

The Profit Tax Ordinance also sets out two central rules on method selection: choose the “most appropriate method” for the case at hand and prefer traditional transactional methods when equally reliable. Selecting the method requires assessing advantages and disadvantages, the method’s suitability to the nature of the controlled transaction based on a functional analysis, availability of reliable information, and the reliability of comparability adjustments. Traditional transaction methods (CUP, Resale Price, Cost Plus) are preferred because they can more directly determine whether commercial and financial relations conform to the arm’s length principle. Where both a traditional transaction method and a transactional profit method can be applied with equal reliability, preference is given to the traditional method; where CUP and another method offer equal reliability, preference is given to CUP. Nonetheless, the Ordinance stresses choosing the method most appropriate to the facts and circumstances (Profit Tax Ordinance, Article 40, paragraphs 1 and 2).

Comparability and ranges

Croatia follows the comparability analysis guidance in Chapter III of the OECD Guidelines in practice, as reflected in Profit Tax Ordinance, Article 40, paragraph 6. Domestic comparables are preferred when available; otherwise foreign comparables may be used. Secret comparables are not permitted. Regarding statistical measures and arm’s length ranges, the domestic framework does not explicitly provide for the use of statistical ranges, but in practice Croatian authorities and guidance use statistical tools such as the interquartile range consistent with Chapter III.A.7 of the OECD Guidelines. Comparability adjustments are required under the domestic framework when necessary to eliminate material differences between controlled and uncontrolled transactions (Profit Tax Ordinance, Article 40, paragraph 1), and the 2019 Croatian TP Manual cites paragraphs 3.47–3.54 of the OECD Guidelines on adjustments.

Documentation and reporting

The domestic framework requires preparation of transfer pricing documentation and explicitly contemplates Master File, Local File and Country-by-Country Reports consistent with Annexes I–III of Chapter V of the OECD Guidelines. There is also a domestic PD-IPO form that must be prepared if the taxpayer had transactions with related parties during the tax period and filed together with the tax return (Profit Tax Act, Article 13; Profit Tax Ordinance, Article 40; Act On Administrative Cooperation in the Field of Taxation, Article 34). For Master File and Local File the profile indicates there is no specific monetary threshold in the country profile: documentation should be prepared and submitted to the tax authority upon request. The documentation is generally required to be in Croatian; if prepared in English, a translation into Croatian may be required as appropriate. Taxpayers must update prior year documentation that was relied upon during the current year to reflect material changes in relevant facts and circumstances (Profit Tax Ordinance, Article 40, paragraphs 6 and 7).

CbC reporting is governed by the Act on Administrative Cooperation in the Field of Taxation and by the Ordinance on Automatic Exchange of Information in the taxation area. Croatian legislation on CbC reporting is aligned with the BEPS Action 13 minimum standard and with EU Council Directive 2016/881. The profile does not set out additional domestic quantitative thresholds beyond those in the international standard; these should be checked in the primary legislation and administrative guidance where necessary.

Timing and adjustments: if at the end of the tax period the taxpayer finds that the price was not determined at arm’s length, a compensating adjustment must be made prior to submission of the tax return and the taxpayer must provide justification with the tax return explaining why the price determined before or at the time of the controlled transaction did not comply with the arm’s length principle (Profit Tax Ordinance, Article 40, paragraphs 9 and 10). Taxpayers are also required to document, before or at the time of the controlled transaction, the reasonable efforts made to determine an arm’s length price based on information available at that time (Article 40, paragraph 8).

Safe harbours and simplification measures

Croatia provides limited safe harbours, specifically in relation to financial transactions. Profit Tax Act, Article 14 sets out a safe harbour rule for revenue from loans given or expenditure for loans received from associated parties; the interest rate under the safe harbour is prescribed by the Ministry of Finance. By derogation, a taxpayer may determine interest according to transfer pricing methods under Article 13 provided that the same method is applied to all agreements. No general safe harbours for other industries are identified in the country profile. In financial transactions the Profit Tax Act, Article 8 implements a thin capitalization rule: interest on loans from shareholders or members is not tax-deductible if the lender holds at least 25% of shares or voting rights and if, at any time during the taxation period, such loans exceed four times the amount of that shareholder’s share in capital or voting rights, except for loans from financial organisations. Article 30.a implements interest limitation rules aligned with the EU ATAD (implementing BEPS Action 4).

APAs and MAP: procedures and timelines

Croatia operates an APA programme regulated by Profit Tax Act, Article 14a and the APA Ordinance. Unilateral, bilateral and multilateral APAs are available. The covered period for an APA should not exceed five consecutive years and fees apply. There is no simplified APA procedure described in the profile. The country also provides Mutual Agreement Procedure (MAP) mechanisms and has MAP guidance and a MAP profile published by the tax administration. The profile identifies maximum APA duration and the existence of fees but does not provide detailed statutory timelines for APA or MAP processing; the administrative guidance should be consulted for procedural timing.

Penalties and other considerations

Croatia’s legal framework does not set transfer pricing-specific penalties; however, General Tax Act, Article 192 contains general penalties that the tax authorities commonly apply to TP documentation failures. Article 192 provides fines for legal persons between EUR 2.650,00 and EUR 66.360,00 where financial and tax records are not kept in accordance with tax regulations, accounting entries are incomplete or incorrect, records are not kept within prescribed deadlines, or records and documentation are not presented upon request.

The domestic framework does not provide for unilateral downward corresponding adjustments in the absence of a Mutual Agreement Procedure (response in the profile: No). Year-end adjustments are required: if a taxpayer finds at the end of the tax period that the price was not arm’s length, a compensating adjustment must be made before filing the tax return (Profit Tax Ordinance, Article 40, paragraphs 9 and 10). Secondary adjustments are possible in Croatia; the tax administration applies the OECD Guidelines in practice and a secondary adjustment that effects an actual allocation of profits can be made depending on the facts of the case.

Attribution of profits to Permanent Establishments

With respect to treaties, Croatia has both pre-2010 and post-2010 versions of Article 7 of the OECD Model in its treaty network: 66 treaties contain Article 7 as it read before 2010 and 4 treaties contain the post-2010 version. Regardless of treaty wording, Croatia applies the Authorized OECD Approach (AOA) in practice. The domestic guidance follows the AOA as described in both the 2008 and the 2010 Reports on the attribution of profits to permanent establishments.

Other relevant information

The Croatian Tax Administration has issued several TP Manuals to support audit and administration: the 2019 TP Manual (following the 2017 OECD Guidelines), the 2021 TP Manual for financial transactions (in line with the 2020 OECD Financial Transactions Guidelines), and the 2022 TP Manual updated according to the 2022 OECD Guidelines. The Tax Administration’s website publishes material in Croatian and English, including an unofficial consolidated translation of Profit Tax Ordinance Article 40 and other key features related to transfer pricing.

Conclusion

Croatia’s transfer pricing regime is closely aligned with the OECD Guidelines. The domestic law defines associated persons by participation in management, control or capital (Profit Tax Act, Article 13, paragraph 2), recognizes and prescribes application of the standard transfer pricing methods (Profit Tax Act, Article 13), allows alternative methods with justification (Profit Tax Ordinance, Article 40), mandates TP documentation (Master, Local, CbC and PD-IPO), requires year-end adjustments prior to filing, and offers APAs and MAPs with practical use of the AOA for PE attribution. Safe harbours are narrowly applied to financial transactions and the tax administration uses OECD statistical approaches in practice. Where specific numerical thresholds or detailed procedural timelines are not provided in the country profile, the relevant primary legislation and administrative guidance should be consulted.

References

For consolidated access to the OECD transfer pricing country profiles: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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