It has been some time since Covid-19 changed our daily lives. The resulting changes to the business environment and especially employment have become a normal part of our daily lives, as the interest in remote and hybrid work grows. This way of working allows employees to choose the place or country where they carry out their job duties. Yet this unlimited mobility may create tax risks to the employer. In this article we explore whether a company may be exposed to permanent establishment (PE) risk under certain conditions if a member of its management team works remotely. We also look at how the tax authorities of other countries have responded, in order to identify the riskiest countries.
On 14 February 2023 the EU Council decided to add four jurisdictions to the EU blacklist, bringing the total to 16. This blacklist is coming up for review in October. The Latvian blacklist of 12 jurisdictions in the Cabinet of Ministers’ Rule No. 819 is based on the EU blacklist as updated by the EU Council on 4 October 2022. While no amendments are being proposed, companies should prepare themselves for any resulting changes in advance and estimate their business impact.
When it comes to performing a transfer pricing (TP) analysis of financial transactions, attention is usually paid to loans and cash pool transactions. Yet there are some other financial transactions between related parties that often fail to receive a proper assessment in the TP documentation: financial guarantees. The current market environment has more creditors such as banks asking for a guarantee before they lend to customers. In this series of articles we explore TP aspects of guarantees, compare different approaches to determining an arm’s length price of a guarantee, and analyse relevant case law.
In November 2022 the European Parliament officially approved the Corporate Sustainability Reporting Directive. The EU member states, including Latvia, now have 18 months to pass the directive into their national law. This enactment is intended to improve the quality of available non-financial information, meet the needs of various stakeholders, and promote Europe’s joint transition to a more sustainable economy.
Our professional experience suggests that paragraph 3.3.2 of the Cabinet of Ministers’ Rule No. 802, “Transfer Pricing Documentation and Procedures for Entering Into an Advance Pricing Agreement Between the Taxpayer and the Tax Authority for a Transaction or a Type of Transactions”, which states that the taxpayer’s transfer pricing (TP) documentation should include financial information and tables showing how the financial data used in applying the TP method is linked to the financial statements, has taxpayers confused as a maze of legal interpretation.
Over time, employment has gone through various stages of evolution. The EU is now standing in the doorway to the gig economy stage and has started drafting rules on platform work. While platform work in Latvia is mainly associated with the food delivery sector, technological advances are expected to make platform business relevant for manufacturing and services as well.
As Europe is pressing ahead with its Green Deal, the relevance of environmental taxation is growing rapidly in Latvia and across the EU. Our experience suggests that Latvian companies are much better informed about the natural resource tax (NRT) treatment than foreign persons doing business in Latvia. This article serves as a reminder of the NRT treatment for foreign persons. This information may also help Latvian companies identify cases where a foreign supplier has Latvian NRT obligations, which are either not discharged or wrongly shifted onto the Latvian company.
2022 brought more turmoil to the Latvian economy, businesses and people. When it seemed that we had overcome one crisis and learned to live in the post-pandemic world, another crisis arrived, one that is still difficult to grasp. The Russian war in Ukraine, the energy crisis and the fast-growing rate of inflation make Baltic CEOs more pessimistic than they were a year ago about global and Baltic economic prospects, but they are more optimistic about their companies’ own prospects. They see the need for change and they are also thinking about the steps they need to get there, according to PwC’s Baltic CEO Survey 2023, which interviewed 323 CEOs in Latvia, Lithuania and Estonia.
A board member’s liability covers many activities and may have various consequences, such as financial compensation, cash recovery, a ban on the conduct of business, and even a criminal penalty. This article explores areas where the board member may be held liable and looks at ways to mitigate this risk.
The public domain has recently contained information that highlights how the supplier’s behaviour affects competition. On the other hand, distortion of competition by the customer is not something that receives a detailed assessment. When it comes to making requirements for public procurement, the customer has discretion, but he often defines his requirements in a way that restricts bids or bidders, which generally distorts competition. This article explores how the customer’s behaviour can distort competition directly or indirectly by defining requirements or criteria in public procurement.
To ensure a company’s capital adequacy or business growth, its shareholders may decide to increase its share capital and later make a reduction. This article explores some corporate income tax (CIT) aspects that should be considered when it comes to changing the size of share capital.
Assessing compliance with the arm’s length principle in transfer pricing (TP) involves conducting a benchmarking study based on high-quality comparable data. While the taxpayer can use internally available data on his transactions with unrelated parties, it’s common practice to use external data obtained from commercial databases or other sources. Several comparable companies are selected from a database according to certain criteria to build a range of financial results. This often raises the question of which values in that range are acceptable to demonstrate that the taxpayer’s controlled transactions are arm’s length. This article explores how wide an arm’s length range may be used in Latvia and compares how this range is interpreted in Lithuania and Estonia.
Thanks to the considerable interest in PwC Academy’s introductory lecture in November, which offered an overview of the content of PwC’s Digital Academy (still available as a video recording), in January PwC’s Digital Academy Latvia launched a series of three webinars for managers, accountants, bookkeepers and everyone who works with data, reports and standard processes on a daily basis.
We are happy to share with our MindLink.lv readers the topics we discuss in our webinars.
In our article of 27 September 2022 we explored what Power Query is like and why we should use it, as well as giving a brief overview of what the tool offers. This article explores how we can benefit from using Power Query to compare data, because participants of PwC Digital Academy Latvia’s upcoming webinar on 23 February will have the opportunity to find out how they can set up templates in practice for comparing various types of data.
Cashback is one of consumer incentive programmes that are currently popular with manufacturers and wholesalers. This could involve a manufacturer (or a wholesaler) refunding a certain amount of money to the end consumer for buying goods they have manufactured (distributed). The refund may be a fixed price for a particular product or expressed as a percentage of the purchase value. A cashback may also occur as a discount coupon distributed by the manufacturer, which the end customer uses with the retailer, who then seeks reimbursement from the manufacturer. This procedure directly stimulates the end consumer’s choice because the manufacturer’s discount reaches him directly instead of being accumulated in the chain of traders. With many companies expanding their business beyond Latvia, a discount may also be granted to customers in other member states. This article explores whether a cashback made by the manufacturer (wholesaler) to the end customer affects the VAT payable by the manufacturer (wholesaler).
On 19 January 2023 the Cabinet of Ministers met to debate and approve proposals for amending the Company and Consolidated Accounts Act (CCAA), which provide for extending the time limits set for small companies to file their financial statements (FS). The amendments are to cover FS prepared for the year ended on 31 December 2022 and later. The proposed extension is one month.
