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FBiH Rulebook on Transfer Pricing

Tax news, August 2016

In this issue: FBiH Rulebook on Transfer Pricing

Introduction

The Corporate Income Tax Act of FBiH (“CIT Act”) entered into force on 5 March 2016 and the related Rulebook on Transfer Pricing (“Rulebook”) was expected to be published in the following months. The Rulebook was published within the legal deadline on 26 August 2016 in the Official Gazette of FBiH, no. 67/16. The Rulebook regulates in more details obligations related to transfer pricing in the Federation of BiH.

In general, there are many links between the Rulebook and the OECD Guidelines on transfer pricing, where the methodology of justifying that transactions between related parties are in accordance with the market principle is almost equal to OECD rules, with some locally specific elements. The Rulebook contains specific instructions related to the global tax project, known as BEPS.

Provisions of the Rulebook can be divided in two segments:

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

Related parties

Related parties are considered all individuals or legal entities that possess directly or indirectly 25% of a resident’s share capital or more than 25% of voting rights. The CIT Act and the Rulebook describe in more detail who, in addition, is considered as related party. However, the Rulebook defines that a person/entity shall be considered as related party in case where it is determined that this person/entity intentionally enters into business transactions with a taxpayer with the aim of profit shifting, whereby such transactions will be treated as related party transactions.
 

Transfer Pricing documentation

  • The Rulebook introduces preparation of two sets of documentation (“TP documentation”):
    • The documentation prepared for the FBiH residents (i.e. “local file”)
    • Documentation prepared on a group level (i.e. “master file”). This segment refers to group companies operating in two or more countries, realizing BAM 1.5 billion gross revenue on consolidated level.

The obligation of preparing transfer pricing documentation for companies operating within FBiH

Please find main regulations for FBiH residents:

  • Taxpayers prove with their TP documentation that they have performed a thoroughly assessment of their related party transactions according to transfer pricing rules, prior to or at the time of submitting their tax return. Thus, the taxpayer is obliged to analyze transactions and express the differences in appropriate corporate income tax forms. However, according to conclusions arising from the Rulebook and the CIT Act, the taxpayer is not obliged to submit the transfer pricing documentation together with the tax return to the FBiH Tax Authority of FBiH (except the standardized forms stipulated by the Rulebook). Nevertheless, the taxpayer is obliged to submit the transfer pricing documentation to the FBiH Tax Authority within the period of 45 days when officially requested by the FBiH Tax Authority.
  • Briefly, the transfer pricing documentation shall contain following (details of the binding sections may be found in the Rulebook):
    • General information about the taxpayer;
    • Description of the taxpayer’s business;
    • Description of transactions, including the functional analysis of assets, risks and functions;
    • Transfer pricing analysis (including selection of the transfer pricing method, selection of the tested party, details on comparable transaction and review of criteria that affected the selection, analysis of comparability of the transaction, detailed review of any adjustments, price/margin in accordance with the arm’s length principle, calculation method and other data);
    • Other transfer pricing relevant data.
  • TP documentation should be in one of the official languages of BiH, while the master file may be in English language. However, the FBiH Tax Authority reserves the right to request a translation of the TP documentation.
  • The Rulebook introduces a double taxation avoidance procedure within the territory of FBiH, if a group operates through two or more related parties within the FBiH territory and if certain criteria, stipulated in the Rulebook, are met. The most important criteria is that the companies cannot operate with losses or use tax incentives in order to be able to apply this possibility.
     

The obligation of preparing transfer pricing documentation at group level

Please find main regulations relating to obligations for international groups:

  • The parent legal entity is obliged to submit the annual report on controlled transactions of the international legal entity to the competent office of the FBiH Tax Authority using the CBC-901 form (new form that is an integral part of the Rulebook);
  • The CBC-901 form is submitted until 31 March of the current year for the previous year and it contains following information:
    • Overview of all group legal entities per jurisdictions and their functions within the group;
    • Overview of revenues, taxes and business activities per tax jurisdictions.
  • Please note that the form is in local language.
  • Rules related to international corporations apply as of 1 January 2018. Please note that detailed pre-work is required in order to collect all required related party information timely.

New forms

The Rulebook introduces three new forms as follows:

  • TP-900 form – Annual return for transfer pricing double taxation avoidance;
  • TP-902 – Annual report on controlled transactions between related parties (prepared by legal entity which transactions with related parties exceed BAM 500,000 during the financial year);
  • CBC-901 form – Annual report on controlled transactions of an international legal entity.

How may Deloitte assist you?

  • Preparation of transfer pricing documentation;
  • Analyzing whether you are required to prepare transfer pricing documentation;
  • Planning of future transactions with related parties;
  • Preparation of contracts and other supporting documentation with related parties for the purpose of adequate transfer pricing documenting;
  • Assistance in filling mandatory transfer pricing forms.

Contacts

If you have any questions concerning this publication, please do not hesitate to contact us:

Emir Ibišević
Manager | Tax & Legal Practice
Deloitte Advisory Services d.o.o.
Jadranska bb, 71000 Sarajevo, Bosnia and Herzegovina
Direct: +387 33 277 560 | Fax: +387 33 277 561 | Mobile: +387 61 396 047
eibisevic@deloittece.com | www.deloitte.com\ba

Haris Jašarević
Senior Consultant | Tax & Legal Practice
Deloitte Advisory Services d.o.o.
Jadranska bb, 71000 Sarajevo, Bosnia and Herzegovina
Direct: +387 33 277 560 | Fax: +387 33 277 561 | Mobile: +387 61 161 102
hjasarevic@deloittece.com | www.deloitte.com\ba

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