Bosnia and Herzegovina’s transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Law on Corporate Income Tax.
Arm’s Length Principle
Bosnia and Herzegovina requires that transactions between related companies (like parent and subsidiary companies) must be done as if they were unrelated, meaning under arm’s length conditions at fair market prices. This rule helps prevent profit shifting.
The taxpayers in all three jurisdictions (Federation of Bosnia and Herzegovina, Republic of Srpska, and the Brčko District) must report all related-party transactions. Authorities in the country check if the prices between related parties are fair. If not, they can adjust the company’s taxable income. Businesses must also report these related transactions and their values when filing taxes.
Related Party Definition
In Bosnia and Herzegovina, related parties are considered:
- When one party or same party(ies) participate directly or indirectly in the management, control, or capital.
- Close family members (like spouses, parents, children, siblings, in-laws).
- Anyone owning 25% or more of a company’s shares or voting rights. For the Brčko District, the threshold is 10%.
- People doing business with a taxpayer to shift profits on purpose.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Bosnia and Herzegovina are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Transactional net margin method
- Profit split method
In the Federation of Bosnia and Herzegovina, companies should use one of three main transfer pricing methods: the Comparable uncontrolled price method, the cost-plus method, and the resale price method. If these don’t fit, other methods like profit split or net margin can be used. In Republika Srpska (RS) and the Brčko District (DB), all these methods are allowed from the start, and, if none of those are suitable, any other method that gives a fair result.
Comparability Analysis
There is a preference for using local comparables over foreign ones, but regional or international data may be used if reliable local data is unavailable. The tax administration does not use secret comparables, meaning any data used in assessments must be shared with the taxpayer. The legislation does not require or use an official arm’s length range or statistical measure to determine pricing. However, comparability adjustments are required when there are significant differences between transactions. These adjustments improve the accuracy of the analysis but must be used carefully; too many unnecessary or subjective adjustments should be avoided.
Documentation Requirements
In the Federation of Bosnia and Herzegovina (FBiH), taxpayers engaged in related-party transactions are required to prepare transfer pricing documentation in the form of a Master file and a Local file. The obligation to prepare a Master file applies only if the consolidated gross income of the group exceeds 1.5 billion BAM. The Master file must include general information about the group at the end of the accounting period, such as its organizational structure, geographical presence, ownership links among group members, and descriptions of intra-group transactions. It should also describe the group’s business activities relevant to the taxpayer, including products, services, key competitors, market conditions, and any strategic changes such as restructuring or acquisitions. Details on intangible assets, their legal ownership, and financial information on related entities must also be included.
The Local file, on the other hand, contains specific information about the taxpayer and its transactions with related parties. It must describe the taxpayer’s business structure, the individuals or entities to whom the taxpayer reports, the nature of its controlled transactions, comparability analysis, any adjustments made for comparability purposes, and the method and assumptions used to determine arm’s length pricing. Both the Master and Local files must be submitted within 45 days of a request from the tax authority.
As the legislation does not distinguish between a Master and Local file, the taxpayer must prepare a single set of documentation that includes a general overview of its business and group structure, a description of its controlled transactions and transfer pricing policies, explanations of applied financial and economic analyses, any agreements with foreign tax authorities, and a conclusion on compliance with the arm’s length principle. This documentation must be provided within 30 days upon request by the tax authority.
Country-by-Country Reporting
This requirement is applied to the companies that are resident in the Federation of Bosnia and Herzegovina. Specifically, resident parent companies are required to submit the by March 31 for the prior financial year if the group’s consolidated income exceeds 1.5 billion BAM.
Whereas in the Republic of Srpska, the requirement to submit a country-by-country report applies when the income of the multinational group exceeds 750 million euros. This report includes an overview of the group’s income, taxes, business activities, and a list of group entities by jurisdiction.
Specific Transfer Pricing Documentation Requirements
In the Federation, taxpayers involved in transfer pricing transactions must submit an annual transfer pricing return using form TP-900, and if the value of controlled transactions exceeds 500,000 BAM, they must also submit form TP-902. For the resident taxpayers of the Republic of Srpska, if the total amount of controlled transactions in a financial year exceeds 700,000 BAM, they are required to submit an annual report on those transactions along with their corporate income tax return.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Taxpayers may request and obtain official rulings from the tax authorities or the Ministry of Finance regarding the application of tax laws to specific transactions or situations. There are no procedures or guidelines available for Mutual Agreement Procedures (MAPs).
Approach to Transfer Pricing Audits
There is no specific law that sets a deadline for when you must provide transfer pricing documents if the tax authority asks for them. Tax authorities may review related-party transactions during a tax audit. If they find prices not at arm’s length, they can adjust the tax base.
Penalties
In Bosnia and Herzegovina, currently, there are no special penalties for improper transfer pricing. However, general tax penalty provisions are still applicable in cases where transfer pricing rules are not followed. If the tax authorities determine that transactions between related parties were not conducted at arm’s length, they have the right to adjust the taxpayer’s tax base accordingly.
Taxation at a Glance
Bosnia and Herzegovina is composed of three entities, the Federation of Bosnia and Herzegovina (FBiH), the Republic of Srpska (RS), and the Brčko District (BD). Within this administrative structure, two primary tax jurisdictions exist, the Federation of Bosnia and Herzegovina, comprising 10 cantons, and the Republic of Srpska.
Each region has its own set of tax systems and laws which include corporate income tax, personal income tax, property taxes, social security contributions, VAT, and also other fees. In each region, the tax authorities are in charge of tax collection and administration.
The currency of Bosnia and Herzegovina is the Bosnia-Herzegovina Convertible Marka.
The official name of the Bosnia and Herzegovina tax authority is the Indirect Taxation Authority.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | FBiH – 10% RS – 10% BD – 10% |
VAT | 17% |
Withholding tax on dividends to non-residents | FBiH – 5% RS – 10% BD – 10% |
Withholding tax on interest to non-residents | FBiH – 10% RS – 10% BD – 10% |
Withholding tax on royalties to non-residents | FBiH – 10% RS – 10% BD – 10% |
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