There are no group taxation provisions in Croatia.
Prices between a Croatian entity and its foreign related parties must be set at fair market value (the arm’s-length principle). Provisions on transfer pricing and interests are also introduced in transactions between resident related parties if one of the parties has:
- beneficial tax status (i.e. reduced tax rates) or
- entitlement to carry forward tax losses from previous years.
If the prices between related entities are different than those between non-related resident and non-resident entities, the tax base must be calculated with prices that would be charged between unrelated companies. In order to determine the market value of the related party’s transaction, the following methods can be used:
- Comparable uncontrolled price.
- Resale price.
- Cost plus.
- Profit split.
- Net profit.
Advance pricing agreements (APAs)
A possibility of concluding an APA between the taxpayer and the tax administration and administrative bodies of other states where related entities involved in transactions with domestic taxpayers are residing is introduced. The APA determines certain criteria (e.g. methods, comparables, adjustments, key assumptions) applicable to future transactions in order to determine transfer prices for such transactions during a certain period.
Interest on loans from a shareholder or a member of a company holding at least 25% of shares or voting power of the taxpayer will not be recognised for tax purposes in relation to the amount of the loan that exceeds four times the amount of the shareholder’s share in the capital or their voting power. Interest on loans obtained from financial institutions is exempt from this provision. Loans from a shareholder or a member of a company are considered to be:
- Third-party loans if guaranteed by a shareholder.
- Loans from related parties.
Interest rate charged between related parties
A possibility was introduced that the taxpayer determines the interest charged between related parties in a way stipulated for determining the fees agreed between unrelated parties in general (i.e. in accordance with the arm’s-length principle), under the condition that the same modality of determining interest applies to all financial agreements that taxpayer has with related parties. The introduction of this possibility is very beneficial to taxpayers since it allows them to determine on their own what the market interest is in the relations between related entities, which is in accordance with requirements on the application of the arm’s-length principle in business activities with related taxpayers. Until now, the regulations have stipulated what is deemed market interest rate in relations between related entities and that interest rate did not necessarily correspond to actual market interest rates.
Controlled foreign companies (CFCs)
No CFC regulations exist in Croatia.