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13.4.4. APAs and Dispute Resolution Mechanisms

Advance Pricing Agreement

The Croatian Tax Administration has announced the entry into force on 29 April 2017 of new rules on the procedures for entering into advance pricing agreements (APAs) on transfer pricing. Main aspects of the rules include:

  • APAs may be concluded as unilateral, bilateral, or multilateral;
  • The general APA process includes five main steps:
    • The initial application;
    • Initial consultation (if application not rejected);
    • Formal submission of declaration to conclude the APA;
    • Conclusion of the APA;
    • Monitoring and implementation of the APA;
  • Once concluded, APAs may apply for up to five years, and may be extended if an application for extension is made six months before expiration;
  • APAs may be terminated or revoked by the Tax Administration in cases where:
    • There are errors or omissions in the declaration to conclude the APA and related documentation submitted;
    • The taxpayer fails to comply with the conditions of the APA;
    • There is a significant deviation in one or more critical assumptions; or
    • There was a change in relevant regulations, including provisions of a tax treaty, resulting in a change in circumstances that cannot be resolved through amendments to the APA;
  • Costs to the taxpayer for conclusion of a unilateral APA range from HRK 15,000 to 50,000 depending on the amount of revenue in the taxpayer's last tax return - costs increased by HRK 50,000 for a bilateral APA and by HRK 100,000 for a multilateral APA.

Dispute Resolution Mechanisms

Croatian tax treaties generally include a Mutual Agreement Procedure clause, allowing the competent authorities of the Contracting parties to consult with each other towards resolving cases of (double) taxation not in line with Convention. In practice, there is little recourse to, or experience with MAP in Croatia.  

Furthermore, Croatia is a signatory to the EU Arbitration Convention, which provides for (arbitral) dispute resolution mechanisms between the Contracting parties.

Croatia has published the law transposing the EU Council Directive on dispute resolution mechanism. The law includes rules to ensure effective dispute resolution on aspects of interpretation and application of bilateral tax treaties, along with Union Arbitration Convention and disputes on double taxation. The law entered into force on 24 October 2019 and is applicable from that date for complaints on disputes pertaining to income, profit, or capital for tax years commencing on or after 1 January 2018.