The term transfer pricing in the Republic of Croatia is regulated by the applicable Corporate Income Tax Act, more specifically by Article 13 of the Corporate Income Tax Act and Article 40 of the Corporate Income Tax Ordinance.

The issue of transfer prices is related to affiliated companies in order to establish compliance with the principles of transfer pricing when purchasing raw materials, semi-products, services and sales of finished goods, goods and services.

For determining and assessing whether business relationships between related parties are contracted at market prices, the following methods are foreseen:

• the method of comparable uncontrolled prices,
• the method of trade prices,
• method of adding gross profit to costs,
• divide method of profit and
• net gain method.

When selecting a method for determining transfer prices, it is necessary to apply the method that is adjusted to the management of a group of companies and which is permitted by the taxation rules on profit taxation in the countries in which the companies trade with each other. In determining the transfer prices, all the costs of production to the final customer are included and the total profit from the product on the market is determined and then distributed among the affiliated companies. The transfer price includes the relevant part of the total profit of the product obtained in that market which belongs to the mother company.