Latvia: New Transfer Pricing (TP) rules adopted by the Latvian Parliament

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published on 7 January 2019

 

After the fundamental tax reform that entered into force on January 1, 2018, among other significant changes to the Latvian corporate income tax system, new requirements for transactions with related parties are planned to come into force in the nearest future.

A draft law was adopted in the Latvian parliament Saeima on October 25, 2018. It is expected to come into force on January 1, 2019 and being effective for the taxation period of 2018. Furthermore, in this context more precise regulations will be adopted by the Latvian Cabinet of Ministers until December 1, 2018.

 

Current TP rules

Under the current regulations, a taxpayer is required to prepare a transfer pricing documentation if the following criteria are met: 
  • The taxpayer’s taxation year’s turnover exceeds 1,430,000 Euro, and
  • the transaction value with related entities exceeds 14,300 Euro


TP documentation shall be submitted within 30 days after authority’s request.

 
According to the general regulations of the Latvian tax law, each single transaction between related parties shall be carried out applying the arm’s lengths principle. The tax authority has a right to challenge applied prices even without requesting TP documentation. Therefore, in many cases, such documentation is serving more as a proof documentation to the company itself, rather than an obligation to have it.


New TP rules

There are planned amendments to the current TP regulations.

Tax payers have to submit a TP documentation to the Latvian State Revenue Service within a period of 12 month after the end of tax year:
  • A Master File if
  1.  the value of controlled transactions exceeds 15 Mio. Euro;
  2. the turnover exceeds 50 Mio. Euro and the value of controlled transactions exceeds
    5 Mio. Euro.
  • A Local File if the value of controlled transactions exceeds 5 Mio. Euro.

 

Tax payers have to prepare within 12 month after the end of the tax year and have to submit within 30 days upon the request by Latvian State Revenue Service:
 

  • A global documentation if the turnover is not more than 50 Mio. Euro and the value of controlled transactions is less than 15 Mio. Euro but more than 5 Mio. Euro.
  • A local documentation if the value of controlled transactions exceeds 250,000 Euro, but not more than 5 Mio. Euro.

 

If the value of controlled transactions exceeds 250,000 Euro and in case there are transactions with a related Latvian company while both Latvian companies are involved in one supply chain with a related foreign company or with a company from a no or low tax country, the tax payer has to prepare a local documentation or a part of a local documentation within 90 days after being requested by the Latvian State Revenue Service.

 

Conclusion

It must be noted that even if the preparation of such documentation is not required by law, it is highly advisable for taxpayers who carry out transactions with related parties to have such documentation for the case of a tax audit.


Rödl & Partner can help to prepare or update a transfer pricing documentation or review the prepared transfer pricing policies and processes.

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