CMS Expert Guide to Transfer Pricing Documentation in Croatia

Under the Corporate Profit Tax (CPT) Act, cross-border business relations between associated persons are only recognised for tax purposes if the taxpayer has and provides information about the associated persons and its business relations with those persons, the methods used to determine comparable market prices, and the reasons for selecting a particular method. In that sense, taxpayers are obliged to maintain transfer pricing (TP) documentation. This obligation applies to all taxpayers taking part in cross-border intragroup transactions, no thresholds are applicable. 

The same applies to intragroup transactions between resident companies if one: 

• Is subject to corporate profit tax at a rate below the standard rate, or is exempt from corporate profit tax; or 
• Has tax losses carried forward. 

Croatian tax legislation does not prescribe the exact format/form of the transfer pricing documentation required. While the CPT Law makes general provision as to which transfer pricing methods can be used, the CPT Bylaw gives more detail as to what the taxpayer must do to establish/document whether a transaction was performed at arm’s length, specifically: 

• Collect information about the group, the position of the taxpayer within the group and the analysis of intragroup transactions (i.e. general information which may be the same for other members of the group) as well as specific information relating to the taxpayer; 
• Identify the chosen TP method, describe the data, methods and analyses conducted to determine transfer prices and explain why the particular method was chosen; 
• Compile documentation as to the assumptions and estimates adopted in determining transfer prices (in relation to comparability, functional analysis and risk analysis); 
• Compile and document all calculations performed in applying the chosen transfer pricing method in relation to the taxpayer in question and the comparable taxpayers; 
• Appropriately update any documentation from previous years that is relied upon in respect of the current year, showing any adjustments which are necessary to reflect material changes of circumstances; 
• Compile documentation that demonstrates the basis or otherwise supports or is mentioned in the analysis of transfer prices.  

In practice, in respect of the transfer pricing documentation requirements, Croatian tax authorities follow the OECD Guidelines and EU Joint Transfer Pricing Forum (EU JTPF) recommendations. 

Therefore, the transfer pricing documentation should include, at a minimum, the following: 

• On the group level (master file): 
  • History and activities of the group – legal, functional, financial, management and organisational structure; 
  • Economic role of the affiliated companies within the group;  
  • Intellectual property ownership and use. 
• On the level of the subject/local company (country-specific file): 
  • Activities/functions of the company and market; 
  • Functional analysis; 
  • Usage of intellectual property based on contractual relationships;  
  • Financing of the company; 
  • Analysis of transactions between related parties; 
  • Functional analysis of the transactions (definition of functions, risks, economic and financial conditions of the contracts); 
  • Analysis of transactions with non-related parties; 
  • Analysis of turnover and margin for each transaction; 
  • Analysis of transfer pricing methods with an explanation of the method applied;  
  • Documents proving that the selected method reflects the arms’ length principle. 

All transactions between associated persons must be documented. No thresholds are applicable. 

Under Croatian corporate profit tax legislation, resident and non-resident persons are regarded as associated: 

• Where one directly or indirectly participates in the management, control or capital of the other; 
• Where the same persons participate, directly or indirectly, in their management, control or capital. 

Transactions between a permanent establishment and its head office are in the scope of the documentation requirement. 

Croatian Tax Authorities accept documentation prepared in line with EU TPD recommendations.   

See above. Croatian tax legislation does not prescribe the exact form of documentation, but rather the scope of information that must be included. A taxpayer may choose to apply any approach if it fulfils Croatian legislation requirements. 

Tax authorities can only require Croatian taxpayers to submit business books, records, business documentation or other documents held by the taxpayer or any other person in possession of required documentation, keeping in mind the principle of efficiency under which the tax audit should be restricted to essential facts that could increase or decrease tax liability. 

Additionally, under international cooperation agreements, tax authorities may request the relevant information from authorities in other jurisdictions. 

Croatian tax authorities can require information from Croatian taxpayers regardless of where the documentation is located. 

Generally, the tax authorities accept regional benchmark studies, but it is recommended that local benchmarks be submitted, if possible. 

Only safe harbour, which exempts taxpayers from benchmark studies provided by Croatian legislation, is the one related to intragroup financing. Interest rates are published annually (for 2024, the interest rate is set at 3.25%). Still, taxpayers may choose not to apply safe harbour (prescribed market interest rate) and perform the benchmark. 

In practice, Croatian Tax Authorities may on a case-by-case basis accept to exempt a taxpayer from benchmark studies. In the document “Manual on transfer pricing audit”, published by the Ministry of Finance, it is stated that the “normal” mark ups for the internal services between relating companies may vary between 3% and 8%. The mark ups outside of this range should trigger detailed analysis of intra-group costs. Mark ups within this range does not mean that the whole calculation is correct and that it will be automatically accepted by the tax authorities. However, in practice, mark ups within the stated range are usually acceptable under the condition that the cost base is correctly calculated and supported by an appropriate documentation. The document refers to the intragroup services generally with no distinction between low value adding services and high value adding services. However, in case of intragroup management services that are comprised of different types of services (e.g. IT, legal, accounting), a separate analysis of each type of service is recommended to assess the appropriate mark up. 

The documentation should be submitted in the Croatian language. However, if the taxpayer submits documents in a foreign language, the tax authorities will set a deadline for the taxpayer to submit verified Croatian translations. 

The CPT legislation does not prescribe any specific deadline for submitting transfer pricing documentation. There is no legal obligation to submit transfer pricing documentation together with the regular tax returns. Transfer pricing documentation should be kept and maintained by the taxpayer, ready to be delivered to tax authorities upon request (usually during the tax audit). 

No specific penalties are prescribed in respect of transfer pricing documentation. Generally, the taxpayer is subject to penalties ranging from EUR 2,650 to EUR 66,360 if the taxpayer: 

• Does not keep business books and other records in accordance with the mode of taxation or does not ensure that information is available, legible and credible; 
• Does not respond to a request made by the tax authorities; 
• Does not deliver the requested business books, records and other documentation to the tax authorities. 

In the same circumstances, the responsible person of the taxpayer is subject to a penalty ranging from EUR 660 to EUR 5,300. 

Generally, the burden of proof is borne: 

• by the tax authority, in relation to facts establishing a tax liability; and 
• by the taxpayer, in relation to facts reducing or eliminating a tax liability. 

In practice, if the transfer price is challenged/reassessed (which may be for various reasons, including the absence or incompleteness of transfer pricing documentation), tax authorities must thoroughly justify and document their calculation of the market price and the transfer pricing adjustment to avoid undermining the taxpayer’s right to an efficient appeal. 

The implementation of document-related penalties does not prevent the taxpayer from initiating a mutual agreement procedure under an applicable tax treaty or EU Arbitration Convention. 

Not applicable.

The Law on Administrative Cooperation in Tax Matters, in force from 1 January 2017, introduced the CbCR in Croatia for the tax year 2016 and onwards.  

For 2016, the deadline was 30 June 2018. Afterwards, CbC reports must be filed within 12 months from the last day of the fiscal year to which the CbC report relates.

Multinational Enterprises (MNEs) having total consolidated group revenue over EUR 750m must file CbC reports in Croatia if: 

the ultimate parent entity is a Croatian tax resident, the constituent entity is a Croatian tax resident, and the ultimate parent entity is not obliged to file the CbC report in the country of its tax residency; 

Croatia does not have a treaty allowing for the exchange of the CbC Reports that came into force within 12 months from the last day of Fiscal Year for which CbC report is filed; 

There has been a failure in the system of the jurisdiction of tax residence of the ultimate parent entity or surrogate entity, and Croatian tax authorities informed the Croatian constituent entity of this systemic failure. 

The CbCR may be filed by the ultimate parent company or a surrogate parent company appointed according to the legislation. 

Yes, the content of the CbC report is in line with the OECD model.

For failure to file the CbC report within the prescribed deadline, penalties between EUR 260 and EUR 26,540 may be imposed on the taxpayer. A penalty ranging EUR 260 to EUR 2,650 may be imposed to the responsible person of the taxpayer. 

Only the local taxpayers who are obliged to file CbC reports are subject to penalty. 

On 6 July 2017, Croatia signed the Multilateral Competent Authority Agreement on the Exchange of CbC Reports. Currently, there are 88 partners listed as sending CbC reports to Croatia and 73 partners are receiving CbC reports from Croatia. 

No

All taxpayers are obliged to file a report along with the tax return (Form PD-IPO) listing all transactions with related parties. 

The general content of the PD-IPO form is data on received/granted loans with associated persons and data on the supply of goods and services with related persons.  

The reporting language is Croatian.

The PD-IPO form must be submitted together with the tax return (generally no later than 30 April for taxpayers whose financial year corresponds the calendar year). 

This obligation applies to all taxpayers. 

There is no special penalty. Penalties mentioned in answer A.4 apply.

No.