Croatia
This report analyses the implementation of the AEOI Standard in Croatia with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Croatia’s legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While Croatia’s international legal framework to exchange the information with all of Croatia’s Interested Appropriate Partners (CR2) is consistent with the requirements, Croatia’s domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has a deficiency in an area significant to the proper functioning of an element of the AEOI Standard. More specifically, a deficiency has been identified with respect to Croatia’s enforcement framework.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
Croatia’s implementation of the AEOI Standard is not compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While Croatia is on track with respect to exchanging the information in an effective and timely manner (CR2), there are fundamental issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Non-Compliant
General context
Croatia commenced exchanges under the AEOI Standard in 2017.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Croatia:
amended its Act on Administrative Cooperation in the Field of Taxation (OG 115/2016);
introduced an Ordinance on the Automatic Exchange of Information in the field of taxation (OG 18/2017, as amended by an Ordinance published in OG 1/2020); and
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.
Following the initial Global Forum peer review, Croatia made various amendments to its legislative framework to address issues identified, the last of which was effective from 3 January 2020.
With respect to the exchange of information under the AEOI Standard, Croatia:
is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017;
has in place European Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation, as amended by Directive 2014/107/EU; and
has in place European Union agreements with five European third countries.1
Table 1 sets out the number of Financial Institutions in Croatia that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially, because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Croatia requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Croatia’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Croatia in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Croatia’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Croatia:
the Croatian Tax Administration (the Tax Authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Croatia’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by developing a national application for the delivery of CRS data. In order for Financial Institutions to obtain access to the application they are required to sign and submit a form of authorisation of specified person(s) engaged in submitting the CRS data to the Tax Authority. The Tax Authority, when receiving a CRS file from a financial institution, performs two levels of validation (file validation and record validation); and
the Common Transmission System (CTS), and in the European Union (EU) the Common Communication Network (CCN), are used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Croatia’s legal frameworks implementing the AEOI Standard concluded with the determination that Croatia’s domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Croatia’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Croatia are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
Croatia’s domestic legislative framework is in place and contains most of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in one area relating to the framework to enforce the requirements (SR 1.4). More specifically, Croatia’s domestic legislative framework does not impose sanctions on Account Holders and Controlling Persons for providing a false self-certification.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Croatia has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Croatia has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Croatia has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Croatia has a legislative framework in place to enforce the requirements in a manner that is largely consistent with the CRS and its Commentary. However, a deficiency has been identified. More specifically, Croatia’s domestic legislative framework does not impose sanctions on Account Holders and Controlling Persons for the provision of a false self-certification. This is a key element of the required enforcement framework and is therefore material to the proper functioning of the AEOI Standard.
Croatia should amend its domestic legislative framework to include sanctions on Account Holders and Controlling Persons for the provision of a false self-certification.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Croatia’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Croatia’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Croatia and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Croatia has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Croatia put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Croatia’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Croatia are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Croatia’s implementation of the AEOI Standard is non-compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, there are fundamental issues in relation to Croatia ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with its exchange partners to ensure effectiveness (SR 1.6).
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Croatia implemented some of the requirements in accordance with expectations. However, fundamental issues were identified. The key findings were as follows:
Croatia has carried out communication and outreach activities to foster voluntary compliance and has begun to develop an overarching compliance strategy to ensure that Financial Institutions have correctly implemented the requirements under the AEOI Standard in practice, which will be based on a risk assessment taking into account a range of relevant information sources. However, the overarching compliance strategy (Business Plan) is only at its early stages of implementation and there does not appear to be any activity undertaken to ensure that Reporting Financial Institutions correctly apply the requirements of the AEOI Standard where these requirements are only included in Croatia’s non-binding guidance.
Croatia has plans to understand its population of Financial Institutions, utilising various relevant information sources (such as registers of Financial Institutions maintained by the financial regulators), but the corresponding activities are still in their very early stages with compliance forms having only recently been sent to potential Reporting Financial Institutions. Furthermore, the plan and activities do not sufficiently include the identification of non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
While the institution responsible for implementing Croatia’s compliance strategy appears to have the necessary powers to discharge its functions, the adequacy of its current resourcing is unclear. Three officials are dedicated to ensuring the policy and administrative implementation of the Business Plan. However, there are at present no auditors carrying out control and audit activities towards Financial Institutions. It is planned that three inspectors from the Audit sector will be assigned in the future to the control and audit activities.
More generally, no in-depth reviews, inspection of records held by Reporting Financial Institutions or other systematic AEOI-related compliance verification activities have yet been undertaken in practice.
Accordingly, Croatia has not carried out verification and enforcement activities to ensure that Financial Institutions have correctly implement the requirements under the AEOI Standard in practice. This includes a lack of activities in relation to ensuring self-certifications are collected as required, to address circumvention of the requirements where it is identified and to follow up on undocumented accounts. Croatia plans to keep its jurisdiction-specific list of Non-Reporting Financial Institutions under review to ensure it continues to pose a low risk of being used for tax evasion purposes.
It is noted that Croatia does not have a jurisdiction-specific list of Excluded Accounts for ongoing monitoring.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by Croatia, the presence of the key data points of the Tax Identification Numbers and dates of birth appeared to be in line with most other jurisdictions. More generally, many of the exchange partners that received a significant number of records from Croatia indicated that they achieved a success rate when matching the information received from Croatia with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Croatia was not able to confirm that it collects and monitors information on the number of undocumented accounts reported by its Reporting Financial Institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.
Based on these findings it was concluded that Croatia is not meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, fundamental issues have been identified, including with respect to the implementation of an effective verification and enforcement framework to address non-compliance by Reporting Financial Institutions. Croatia should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Croatia should further develop and implement an effective overarching compliance strategy, informed by a risk assessment, to underpin its compliance activities.
Croatia should further develop and implement effective procedures to identify Reporting Financial Institutions that do not register, including non-regulated entities that are Financial Institutions for the purposes of the AEOI standard, and ensure that they are classifying themselves correctly and reporting information as required.
Croatia should implement its plan to ensure that Reporting Financial Institutions are reporting complete and accurate information, including to ensure that the provisions contained only in non-binding guidance are applied effectively in practice.
Croatia should implement systems to collect and monitor information on the reporting of undocumented accounts to inform its compliance strategy.
Croatia should develop and implement a clearly defined policy to follow up where undocumented accounts are reported by the Reporting Financial Institutions.
Croatia should put in place a clearly defined policy that, where circumvention is identified, action is taken to address it.
Croatia should develop and implement effective procedures to enforce the requirements and to impose penalties and sanctions as appropriate.
Croatia should implement its policy to keep its jurisdiction-specific list of Non-Reporting Financial Institutions under review to ensure they continue to pose a low risk of being used for tax evasion purposes.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, Croatia has yet to develop the procedures to address issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. In particular, Croatia received notifications from one partner and it is processing it to resolve the issues raised. Croatia has developed a process to notify possible errors or non-compliance by Financial Institutions in the jurisdiction, but it is not yet operational.
Based on these findings it was concluded that Croatia is partially meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. More specifically, significant issues have been identified, including with respect to processing notifications received and making notifications where issues are identified. Croatia should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Croatia should continue to address the issue raised by its exchange partner.
Croatia should have in place effective procedures to address errors or suspected non-compliance by its Reporting Financial Institutions notified to it by its exchange partners.
Croatia should implement effective procedures to notify its partners of errors or suspected non-compliance by their Reporting Financial Institutions.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Croatia’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). Croatia is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Three exchange partners highlighted particular issues with respect to preparation and format of the information sent by Croatia (representing 3% of its partners). These generally related to already used values in the field DocRefIDs and other blocking errors. More generally, four (or 4%) of Croatia’s exchange partners reported rejecting more than 25% of the files received, of which none reported rejecting more than 50% of files received, due to the technical requirements not being met. This is a relatively high amount when compared to other jurisdictions and it has increased over time. It was noted that Croatia has already successfully addressed all of the issues.
Based on these findings it was concluded that, overall, Croatia is meeting expectations in relation to sorting, preparing and validating the information. It was also noted that there is room for improvement in this respect. Croatia is therefore encouraged to continue its implementation process accordingly, including in relation to the area highlighted.
Croatia should review its systems and procedures for sorting, preparing and validating the information to send to its exchange partners, to ensure they meet the requirements of the AEOI Standard.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Croatia linked to the CTS and the CCN, which is used exchanges within the European Union.
Based on these findings it was concluded that Croatia is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Croatia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from Croatia’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by Croatia and therefore with respect to Croatia’s implementation of this requirement.
Based on these findings it was concluded that Croatia is fully meeting expectations in relation exchanging information in a timely manner. Croatia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Croatia’s exchange partners did not raise any concerns with respect to Croatia’s use of the agreed transmission methods and therefore with Croatia’s implementation of this requirement.
Based on these findings it was concluded that Croatia is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Croatia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Three exchange partner highlighted delays in the sending of status messages by Croatia, representing 3% of its partners. This represents a relatively low proportion of partners. It was noted that Croatia appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.
Based on these findings it was concluded that, overall, Croatia is meeting expectations in relation to the receipt of the information. It was also noted that there is room for improvement with respect to always providing timely status updates. Croatia is encouraged to continue to ensure the ongoing effectiveness of its implementation, including in relation to the area highlighted.
Croatia should ensure that it sends CRS Status Messages to all of its partners in a timely manner.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
While it is unclear whether Croatia’s approach will ensure that corrected, amended or additional information is provided in a timely manner, it has not been tested and no such concerns were raised by Croatia’s exchange partners and therefore with respect to Croatia’s implementation of these requirements.
Based on these findings it was concluded that Croatia appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Croatia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Note
← 1. Andorra, Liechtenstein, Monaco, San Marino and Switzerland.