Croatia

  1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
  2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
  3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
  4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
  5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
  6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
  7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
  8. Is tax collection suspended during the procedure?
  9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
  10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

Legal bases for eliminating double taxation further to a transfer pricing reassessment in Croatia are:

  • Double Tax Treaties (hereinafter “DTTs”) signed with 57 countries; and,
  • the European Arbitration Convention (in force in Croatia as of 1 January 2015).

There is no special domestic procedure for eliminating double taxation further to a transfer pricing reassessment.

2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?

The DTTs signed with Italy and the Netherlands include the arbitration clause.

3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?

It is difficult to comment on a time frame for the procedure of elimination of double taxation under the DTTs, since there were few cases in Croatia.

Furthermore, we are not aware of any case of elimination of double taxation under the European Arbitration Convention (hereinafter “EAC”), since it only came into force as of 1 January 2015.

4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?

Croatia does not have specific rules about elimination of double taxation incorporated in the local regulations. The only possibility is to apply for the procedure provided by the article 25 of the OECD Model Tax Convention (hereinafter “OECD-MTC”) and the related starting point.

The procedure should be initiated in line with the rules set forth in the DTTs containing article 25 of the OECD-MTC. In most of the DTTs concluded by Croatia, the request for a MAP should be filed within three years after the first notification of the action resulting in taxation not in accordance with the provisions of the DTT. However, some DTTs concluded by Croatia provide for other time limits (e.g. two years with Canada, five years with Norway) or no time limit (DTT with the United Kingdom and DTT with Sweden).

5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)

The application should be filed in line with the rules set forth in the DTTs containing the article 25 of the OECD-MTC, i.e. to the competent authorities of the state of residence of the company requesting relief of double taxation. In case of transfer pricing adjustment affecting both parties, it is advisable for each taxpayer to file separate requests in their respective state of residence.

According to the EAC, where Croatian tax authorities intend to adjust the profits of a Croatian company it shall inform this company and give it the opportunity to inform its related party so that the related party may inform the other Contracting State.

6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?

There are no local rules with this respect and no special department in charge of the procedure for eliminating double taxation. Generally, tax authorities who will deal with the case are the company’s usual tax authorities (tax authorities of the registered seat of the company or separate department for large taxpayers).

7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?

There is no special rule in the local regulations nor administrative practice in this respect.

As regards the EAC, according to Article 8(1) of the EAC taken in combination with the unilateral declaration issued by Croatia when adopting it, Croatian tax authorities can refuse to open a mutual agreement procedure based on the convention in case of “serious penalty” (i.e. a penalty incurred for all taxation-related offences laid down in the Croatian General Tax Act and special tax laws, and penalty for economic crimes laid down in the Croatian Criminal Code).

Since the EAC has been in force for one year, we are not aware of cases where the Croatian tax authorities refused to open a mutual agreement procedure.

8. Is tax collection suspended during the procedure?

Tax collection will not be suspended during the procedure.

9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?

There is no special rule in the local regulations nor practice with this respect, since the EAC only came into force as of 1 January 2015 and mutual agreements based on DTTs have seldom been used.

However, based on the general tax rules in Croatia, we would expect the following:

  • adjustments would be implemented over the last financial year closed by the taxpayer;
  • the taxpayer would be entitled to default interest in case of decrease of the tax due in Croatia.

As a consequence, changes in the tax liabilities would largely depend on the circumstances of the particular case.

10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

There is no special rule in the local regulations in this respect. Article 25 of the DTT generally allows for the procedure of elimination of double taxation to be initiated at the same time as the local (administrative court) procedures. Exception relates to the arbitration clause in DTTs between Croatia and Italy and Croatia and the Netherlands (where the court procedure needs to be abandoned).

Authors

Picture of Tamara Jelic-Kazic
Tamara Jelić-Kazić
Lawyer | Tax, state aid and incentives, social contributions
Picture of Maja Marcelic
Maja Marcelic