In the modern business environment, influenced by globalization and growing numbers of multinational connections, the topic of transfer prices is pronouncedly current and marked. The purpose of this graduate thesis is to elaborate the determination methodology and tax treatment of transfer pricing in the Republic of Croatia. Transfer prices are the prices achieved in transactions within affiliated companies. Accounting and tax aspects of transfer prices is particularly important when considering internationally related companies, since the transfer pricing system may sometimes have an effect on profitability and a reduction in tax profits. Therefore, world economic associations with various guidelines and recommendations seek to regulate this area on an international level. In order to prevent the occurrence of more suitable transactions and manipulation of profits it is important to establish a consistent regulatory framework in which all transactions between affiliated companies are conducted according to the principle of an independent market price. The transfer pricing area in the Republic of Croatia is governed by the Law on Profit Tax, the Profit Tax Regulations and General Tax Laws based on recommendations and guidelines of OECD. This graduate thesis presents the methods of determining the transfer pricing by the arm’s length principle, it also describes the transfer pricing documentation that the associated companies are obliged to put in for taxation control and transfer price control, and finally shows in detail how the tax administration carries out a revision of transfer pricing.