Transfer pricing documentation requirements in Bosnia and Herzegovina

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

As a preliminary remark, it is important to note that Bosnia and Herzegovina (BiH) comprises three administrative units:

  • Federation of BiH (“FBiH”);
  • Republika Srpska (RS); and
  • Brcko District (“BD”),

each with its own corporate tax legislation. Consequently, transfer pricing rules may vary from one administrative unit to another.

There is no obligation to maintain specific transfer pricing documentation in any of the three jurisdictions. However, taxpayers have an obligation to report all related party transactions (domestic and cross-border) in their annual tax statement. There is a separate obligation, applicable to all taxpayers, to report the value of related-party transactions based on market prices or substantially similar transactions (i.e. at ‘arm’s length’ prices). No thresholds are applicable.

None of the jurisdictions requires the taxpayer to maintain transfer pricing documentation, but there is a general obligation to maintain business documentation in accordance with accounting legislation and legislation regulating tax procedures and tax administration.

2. What is the content of the documentation that must be prepared?

The format of transfer pricing documentation is not explicitly laid down by the Corporate Profit Tax legislation in any of the three jurisdictions. However, the legislation does stipulate which transfer pricing methods may be used to establish the market value of the goods / services.

Under a rule specific to RS and BD, in order for the transactions to be tax recognised the taxpayer must keep documentation:

  • Establishing the legal status and business activities of the taxpayer;
  • Identifying the related party transactions (relevant data must be kept for five years);
  • Listing the activities and providing information about business partners, insofar as relevant to the transactions;
  • Identifying the chosen transfer pricing method and explaining reasons for applying it.

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

All transactions with related persons have to be documented.

b) What is the definition of “associated enterprises” for the purposes of this requirement?

RS and BD:
A natural or legal person is considered to be associated with an entity if it owns, directly or indirectly, 10% or more of the shares in the entity.

FBiH:
The definition refers to:

  • An individual or legal entity which is capable of exercising control over or exerting significant influence on business decisions,
  • A legal person in which the same legal entities participate in control, supervision or capital or influence business decisions.

It is provided that control over a taxpayer is achieved by holding a share of 50% or more in the taxpayer (as a highest single percentage of shares). Additionally, it is considered that having 50% or more of voting rights (as the highest percentage of voting rights) in the taxpayer enables an entity to exert significant influence over the taxpayer’s business decisions. Significant influence may also be achieved through an extraordinary volume of mutual transactions, technological dependency etc.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

N / A – BiH is not an EU Member State.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

The tax authorities can require the taxpayer to submit all the business books, records, business documentation and any other document held by the taxpayer (or any other person holding required documentation).

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

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

The tax authorities generally accept regional benchmark studies in all three jurisdictions.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

For all three jurisdictions, the legislation regulating tax administration and tax procedures prescribes that one of the official languages in RS, BD, or FBiH has to be used (Serbian, Bosnian or Croatian).

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

As previously explained, taxpayers have an obligation to report all related party transactions in their annual tax statement, which must be filed by 31 March of the following year.

In RS and BD, taxpayers are obliged to submit information regarding affiliated persons along with the tax return.

In all three jurisdictions, it is advisable for the taxpayer to maintain documentation supporting transfer prices, ready to be delivered to the tax authorities upon request (usually in the course of a tax audit).

There are no penalties specifically related to maintaining transfer pricing documentation.

Specific to RS:
A taxpayer which does not keep business books and records in accordance with the tax regulations, or does not provide documents upon the request of the tax authorities, is subject to a penalty in the range of BAM 1,000 – 3,000 (EUR 500 – 1,500). Penalties may also be imposed on the person responsible, in the range of BAM 500 – 1,500 (EUR 250 – 750).

A taxpayer which does not calculate its tax liability and submit its tax return is subject to a penalty of 25% of the tax liability established.

Specific to FBIH:

A taxpayer which fails to submit a tax return in the manner prescribed by the tax legislation is subject to a penalty of 10% of the tax due or required to be reported on the tax return, for each month until the declaration is filed, up to a maximum of 150% of that amount. The responsible person is subject to a penalty in the range of BAM 500 – 3,000 (EUR 250 – 1,500).

Please note that the tax authorities are authorised to submit a tax declaration on behalf of a taxpayer if the taxpayer has not submitted the tax declaration within 15 days of the due date for the tax declaration as laid down by the tax legislation. For any declaration prepared by the tax authorities on behalf of the taxpayer, a penalty in the amount of 10% of the assessed tax due may be imposed.

A taxpayer which does not provide documents upon the request of the tax authorities is subject to a penalty of BAM 200 (EUR 100) for every omission, subject to a maximum of BAM 25,000 (EUR 12,500).

Specific to BD:
A taxpayer which fails to submit a tax return in a manner prescribed by the tax legislation is subject to a penalty in the range of BAM 1,000 – 5,000 (EUR 500 – 2,500). The responsible person is subject to penalty in the range of BAM 200 – 1,000 (EUR 100 – 500).

A legal person which fails to submit its business books and records in accordance with the tax legislation is subject to a penalty in the range of BAM 1,500 – 5,000 (EUR 750 – 2,500). It may also be prohibited from carrying out business activities for a period of six months to five years, if the omission is repeated within two years.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

In the course of any tax audit, the tax authorities are required to clarify all circumstances and facts within the scope of the audit, including circumstances and facts favourable to the taxpayer. There are no specific stipulations concerning the burden of proof due to missing transfer pricing documentation, but the taxpayer bears the risk of tax base adjustment due to the lack of appropriate supporting documentation.

The burden of proof that the tax liability established by tax authorities is incorrect is borne by the taxpayer (reversed).

The imposition of document-related penalties does not prevent the taxpayer from initiating a mutual agreement procedure, as prescribed by applicable tax treaties.