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Croatia Corporate - Group taxation

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There are no group taxation provisions in Croatia.

Transfer pricing

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)

The 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 available. 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.

Country-by-country (CbC) reporting

Croatia has taken its first steps in harmonising its legislation with Action 13 of the OECD’s Base Erosion and Profit Shifting (BEPS) plan by introducing CbC reporting requirements. The new provisions are implemented in the Act on administrative cooperation in the tax field (Official Gazette 115/16) and in the Rulebook on automatic exchange of information in the tax area (NN 18/2017). On the basis of the Act (Article 34) and Rulebook (Articles 101-122), taxpayers (members of multinational enterprises whose global consolidated turnover exceeded 750 million euros [EUR] in 2016) are required, for tax periods beginning 1 January 2016 or after that date, to submit to the tax authorities the following reports and information:

  • CbC report notification, or
  • CbC report.

In the majority of cases, local companies/branches that are not ultimate parents are obligated to notify the tax authorities that they are not the ultimate parent company and:

  • whether they are a surrogate parent company that will file a CbC report instead of the ultimate parent company, or
  • they are a constituent entity of the group.

This is done through CbC report notification, which also includes information on the taxpayer responsible for submission of the CbC report (either the ultimate parent or surrogate parent), its identity, and its tax residence.

CbC report notification is submitted to the tax authorities together with the annual CIT return, and the deadline to file the notification is the same as for a CIT return.

In addition, there are some specific cases where a constituent entity of the group (besides the ultimate parent or surrogate parent companies) could become liable to file a CbC report, which are:

  • if the ultimate parent company is not required to file a CbC report per its country of residence legislation (we assume that it is not required to nor will it voluntarily file the report via a surrogate parent company)
  • the Multilateral Competent Authority Agreement on the Automatic Exchange of Information in the Field of Taxation (the Agreement) between Croatia and the country of residency of the entity that will file the CbC report did not enter into force, or
  • due to an error in the exchange of information system.

Thin capitalisation

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

It is possible for the taxpayer to determine 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. 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. Previously, the regulations stipulated the 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.


Last Reviewed - 29 November 2017

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