Croatia implements Advance Pricing Agreements (APAs)

APAs were recently implemented in the Croatian tax legislation. Our Transfer Pricing team briefly presents the main points of the Croatian legislation related to an APA.

Transfer pricing legislation was introduced in Croatia by way of the Corporate Income Tax Act (CIT) on 1 January 2005. However, the Croatian tax authorities have only recently recognized its importance.

The implementation of Advance Pricing Agreements (APAs) in the national legislation of Croatia (Official Gazette No. 47/15) published on 3 May 2017, reveals a significant progress towards harmonizing the Croatian legislation with OECD Transfer Pricing Guidelines.

An APA can be concluded as:

1. A unilateral APA between a taxpayer and the Tax Administration (TA)
2. Bilateral or multilateral APA between taxpayer, TA, associated entities and TA of other countries in which those associated entities are residents.

The procedure for concluding an APA consists of five stages:

1. Submission of the Initiative for the conclusion of the APA.
2. Preliminary interview of the taxpayer by the TA, in order to exchange views and gain additional information about the APA.
3. Submission of the statement of intention to conclude the APA by the taxpayer. This statement includes general and specific information regarding the transactions intended to be covered by the APA.
4. The conclusion of the APA. The conclusion shall include information about the related parties included in the APA, a description of the transactions and the agreed documentation methodology.
5. Monitoring the implementation of the APA by the TA.

The duration of an APA can be defined to be up to five years, depending on the characteristics and type of transactions subject to the agreement. The TA has the right to terminate the APA in case of a violation of any term by the taxpayer.

The cost of the APA conclusion procedure is:

1. HRK 15,000 for a taxpayer whose profit, according to the latest tax return, is to HRK 3 million;
2. HRK 30,000 for a taxpayer whose profit is between HRK 3 milion and HRK 20 million;
3. HRK 50,000 for a taxpayer whose profit exceeds HRK 20 million

In case of concluding a bilateral APA, there is a cost increase of HRK 50,000 and in case of multilateral APA the relative cost increase is HRK 100,000.

The addition of the APA’s to Croatian TP legislation indicates that intragroup transactions are becoming of high importance to the tax administration. MNE’s in Croatia should reassess their significant and complicated intragroup transactions and examine the possibility of concluding an APA in order to minimize their tax risk. Our knowledgeable and experienced TP advisors’ team can assist clients with their TP strategy and compliance.