Bosnia and Herzegovina
FBiH group taxation
A business association has the right to request tax consolidation on the condition that all businesses in the group are residents of the Federation of Bosnia and Herzegovina.
A headquarters company and its branches may form a business association when there is direct or indirect control between them with no less than 50% share.
A request for tax consolidation must be filed to the authorised branch office of the tax authorities by a headquarters company.
Each group member is required to file its tax balance, and the headquarters of the business association may file a consolidated tax balance for the group.
The consolidated tax balance may offset losses of one or more businesses against the profit of other businesses in the association.
Individual group members are liable for the tax calculated on the consolidated balance proportionately to the profit from the individual tax balance, and the headquarters is the payer of the tax calculated on the consolidated balance.
Once approved, tax consolidation shall be applied for the consecutive period of no less than five years.
When one, several, or all the businesses in the association later opt for individual taxation, all group members shall be obligated to pay the difference proportionately on behalf of the tax privilege they have used.
RS group taxation
The CIT Law of Republika Srpska does not envisage a possibility of group taxation in Republika Srpska.
BD group taxation
An affiliated group of legal persons located within Brčko District may elect to file a consolidated annual tax declaration.
An affiliated group of legal persons is a group of one or more legal entities from Brčko District that are connected through the ownership of stock with a common parent, provided that the common parent owns at least 80% of the stock in a legal person that is included in the affiliated group.
Transfer pricing requirements are imposed at the entity level. The Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District have different regulations in place, including different rules in regard to applicable methods, related parties, and documentation. The regulations in place do not differ if the transactions are within one entity, cross-border, or international. Basically, this means that all transactions can fall under the transfer pricing scope.
With Bosnia and Herzegovina not being an EU or an Organisation for Economic Co-operation and Development (OECD) member, the local legislation does not have the same requirements with respect to transfer pricing documentation as in EU countries nor does the legislation refer to the OECD guidelines.
FBiH related parties
In the Federation of Bosnia and Herzegovina, a related party is considered to be an individual or legal person who has the possibility of control or significant influence on the business decisions of the taxpayer. Owning more than 25% of stocks or shares in a company is considered to be enabled control.
Significant influence is considered to be mutually high sales turnover, technical dependence, or otherwise gained control over the management.
FBiH prescribed methods
The FBiH CIT law recognises the following methods:
- Comparable uncontrolled price (CUP) method (primary method).
- Cost plus method.
- Resale price method.
Alternatively, in case these methods cannot be applied, the following methods can be used:
- Profit split method.
- Transaction net margin method.
In case that none of the above-mentioned methods can be applied, any other method that can reasonably be applied for determination of the arm’s-length principle is allowed.
FBiH country-by-country (CbC) reporting regime
The parent company is required to submit Form CBC-901 if the company is a resident of the Federation of Bosnia and Herzegovina and generates gross consolidated income of a minimum of BAM 1.5 billion.
RS related parties
Under the CIT Law of Republika Srpska, a related party is a person or legal entity that directly or indirectly participates in management, control, or capital of another legal entity. Also, two legal entities are considered to be related if the same person(s) directly or indirectly participates in management, control, or capital of both legal entities.
It is considered that a person directly or indirectly participates in management, control, or capital of a legal entity when it directly or indirectly owns at least 25% of the shares in that legal entity or when it has a factual possibility to control business decisions of that other legal entity.
A person is considered to have a factual possibility of control on business decisions of another legal entity when one:
- has or controls 25% or more of the voting rights in another legal entity
- has a control on assembly of the management board of another legal entity
- has a right to participate in the profit of another legal entity of 25% or more
- is a family member or a related person to a family member, or
- in any other way has a factual control on business decisions of another legal entity.
RS CbC reporting regime
The transfer pricing documentation must provide an overview of the distribution of income, taxes, and business activities and a list of all units of the group by area of tax jurisdiction, the CbC form, if the income of the group to which the taxpayer belongs is more than 750 million euros (EUR).
BD related parties
Under the CIT Law of Brčko District, related parties of a legal person are considered to be physical or legal persons if those persons possess more than 10% of active shares with voting rights.
A legal person can be a related party if it directly or indirectly possesses more than 10% active shares in the other person. Indirect ownership is considered to be:
- If a legal person possesses more than 10% of a dependent company, and that dependent company possesses more than 10% in the other legal person.
- If both legal persons have a common shareholder who possesses more than 10% active shares with voting rights in both legal persons.
BD CbC reporting regime
The Brčko District has not enacted a CbC reporting regime.
RS and BD prescribed methods
The RS and BD regulations prescribe the following five methods that can be used in order to establish whether the prices are in accordance with the arm’s-length principle:
- CUP method (primary method).
- Cost plus method.
- Resale price method.
- Profit split method.
- Transactional net margin method.
FBiH thin capitalisation
Under the thin capitalisation rule of the CIT Law of the Federation of Bosnia and Herzegovina, in order to be entitled to deduct interest expenses on loans received from a related party, a company's ratio between total liabilities from related-party loans and the company's registered equity should not exceed 4:1. Interest expense related to the liabilities from related-party loans exceeding the ratio 4:1 shall be non-deductible for CIT purposes.
The CIT Law prescribes that this rule does not apply to banks and insurance companies.
RS thin capitalisation
There are no thin capitalisation rules in Republika Srpska.
BD thin capitalisation
There are no thin capitalisation rules in Brčko District.
Controlled foreign companies (CFCs)
Bosnia and Herzegovina has no rules on CFCs.