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13.4. Transfer Pricing

Transfer pricing requirements are imposed at the entity level. The FBiH, RS and BD have different regulations in place, including different rules in regard to applicable methods, related parties, and documentation.

Bosnia and Herzegovina is not a European Union or an OECD member and the local tax law does not include same requirements with respect to transfer pricing documentation as in EU countries, nor does the legislation refer to the OECD guidelines.

Definition of Related Parties

In FBiH, a related party is considered to be an individual or legal person who controls or has significant influence on the business decisions of the taxpayer. Individual or legal person owning more than 25% of stocks or shares in the company is considered to be enabled control. Significant influence means mutually high sales turnover, technical dependence, or otherwise gained control over the management of the company.

In RS, a related party is a person or legal entity that directly or indirectly participates in management, control, or capital of another legal entity i.e. 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.

In BD, 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. Indirect ownership is considered 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 or if both legal persons have a common shareholder who possesses more than 10% shares with voting rights in both legal persons.

TP Methods applicable to FBiH / RS / BD

The CIT law recognizes 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

Further, if any of the above methods cannot be applied than any other reasonable method for determining the arm’s length principle is allowed.

Documentation Requirements

Standard Documentation FBiH

A rulebook on Transfer Pricing has been issued in the official gazette on 26 August 2016 which provides details on TP regulations applicable in FBiH. The rulebook is divided in two parts:

  • Liabilities of companies operating within the FBiH territory – applicable as of 27 August 2016;
  • Liabilities of international groups – applicable as of 1 January 2018

According to the rulebook on TP, following 2 types of documentation is required by the companies:

  • Documents prepared for resident companies i.e. local file, and
  • Documentation prepared on a group level i.e. master file. This refers to group companies operating in 2 or more countries and earning BAM 1.5 billion or more of gross revenue on consolidated level.

TP documentation for resident companies includes following information:

  • General information about the taxpayer company;
  • Description of its business;
  • Description of transactions alongwith functional analysis of assets, risks and functions;
  • Transfer pricing analysis including TP method, selection of tested party, details on comparable transaction and review of criteria that affects the selection, analysis of comparability of the transaction, detail of adjustments, price / margin in accordance with the arm’s length principle, calculation method; and
  • Any other relevant data.

TP documentation required at the group level includes following information:

  • Parent entity is required to submit an annual report on controlled transactions of the international legal entity to the tax authorities
  • Annual report generally includes information on all group entities as per jurisdictions and their functions; details of revenues, taxes and business activities per tax jurisdictions.

All taxpayers having transfer pricing transactions are required to submit applicable annual transfer pricing returns, in addition to the annual tax return of the company.

Country-by-Country (‘CbC’) Reporting

Bosnia and Herzegovina has adopted the three-tiered transfer pricing documentation requirements recommended under BEPS Action 13, including CbC reporting, master file, and local file requirements. The CbC reporting and master file requirements are to apply for fiscal years beginning on or after 1 January 2018 for MNE groups meeting a consolidated group revenue threshold of BAM 1.5 billion, approximately EUR 750 million (RS/FBiH, yet to be implemented in BD) in the previous year. The new local file requirements are to apply for fiscal years beginning on or after 1 January 2016. The CbC report is to be submitted by 31 March of the following year. The master and local files are required to be submitted within 45 days of request.