Swiss-Croatian tax treaty changes set for 2027 application

Transfer-pricing and PE adjustment periods

The protocol updates rules on associated-enterprise adjustments, permanent-establishment profit adjustments, exchange of information and entitlement to treaty benefits. Where one state taxes profits that the other state has already taxed, a corresponding adjustment is required if the profits would have accrued under arm's-length conditions. Certain associated-enterprise and permanent-establishment profit adjustments may not be made after six years from the end of the relevant tax year, except in cases of fraud, gross negligence or wilful default. Those adjustment provisions apply from the protocol's entry into force rather than waiting for 2027.^[2]

Treaty entitlement and information exchange

The new principal-purpose test denies a treaty benefit where, having regard to all relevant facts and circumstances, it is reasonable to conclude that obtaining that benefit was one of the principal purposes of an arrangement or transaction, unless granting the benefit accords with the object and purpose of the relevant provisions. The revised information-exchange article permits requests for foreseeably relevant tax information, including bank-held information, and specifies information the requesting authority should provide. The protocol does not itself introduce automatic or spontaneous exchange.^[2]

Application dates and action

For withholding taxes, the amendments apply to amounts paid or credited from 1 January 2027; other taxes follow tax years beginning on or after that date. The revised information-exchange article applies to information concerning tax years beginning in 2027 or later. Swiss and Croatian groups should review intercompany pricing, open adjustment years, PE profit positions and treaty-relief claims, distinguish the provisions already effective since 16 October from the 2027 rules, and retain evidence supporting arm's-length outcomes and the commercial purpose of treaty-reliant arrangements.^[1][2]