Multinational enterprise groups tend to centralise their functions, such as support functions in a region that is economically important and advantageous. Particularly interesting cases of transfer pricing (TP) determinations and valuations involve a group’s distributors (intermediaries) that make centralised purchases of goods from the group manufacturers and sell them on to the group wholesalers. This article looks at TP challenges in such economically linked transactions within the same global supply chain.
Several sections of the Taxes and Duties Act define a taxpayer’s obligations. Section 15.2 requires the taxpayer to prepare a local transfer pricing (TP) file within 12 months after the end of the financial period and, depending on the circumstances, to submit it to the State Revenue Service (SRS) for the financial period:
Situation 1 – within 12 months after the end of the financial period; or
Situation 2 – within one month after receiving a request from the SRS.
This article is meant just for you if you are interested in learning more about a crucial relief in Situation 2. The taxpayer has the right to revise his local TP file every three years if he satisfies a certain condition and meets one annual requirement.
Amendments to the Taxes and Duties Act that require taxpayers to prepare and file a specified form of transfer pricing (TP) documentation with the State Revenue Service (SRS) took effect back in 2018, yet we had not seen any active enforcement steps from the SRS until the end of this summer, when several Latvian companies received an informational report on the submission of TP documentation via the SRS’s e-filing system (“EDS”). These reports imply that the SRS is checking the companies’ obligation to file TP documentation for 2020 and urging them to do so by the deadline stated in the report or to explain why they should not file TP documentation. This article reminds you of the TP documentation preparation and filing requirements and of the SRS’s activities in enforcing them, and we also suggest steps your company might take after receiving such a report.
Our experience suggests that the State Revenue Service (SRS) has recently focused on checking how Latvian corporate taxpayers fulfil their obligation under transfer pricing (TP) legislation, i.e. (1) whether they have prepared TP documentation in the prescribed form by the statutory deadline and (2) whether their documentation gives all the required information to verify that their controlled transactions are arm’s length.
With the financial year nearing its end, section 15.2 of the Taxes and Duties Act requires many companies to prepare, or to prepare and file with the State Revenue Service (SRS), their transfer pricing (TP) documentation. Since determining related-party status often confuses taxpayers and authorities, this article reminds you who is considered a related party for TP purposes and what transactions require the taxpayer to prepare TP documentation.
In statutory cases, the taxpayer is liable to prepare transfer pricing (TP) documentation and file it with the State Revenue Service (SRS). An examination of TP documentation helps the SRS monitor the correctness of corporate income tax (CIT) payments because the difference between a controlled transaction’s value and market price must be included in the taxable base under the CIT Act. If the taxpayer defaults on the obligation to prepare and file TP documentation, then in addition to the opportunity to start an audit and assess the correctness of the CIT calculation, the SRS may start a data assesment in the field of tax revenue risks and charge a hefty fine on the company if an offence is found. This article explores what offences relating to TP documentation permit the taxpayer to be fined outside an audit and how the SRS should evaluate and justify the size of fine.
In our previous article, we looked at ESG cost categories and said it’s not always right to bear expenses according to the principle of ownership and split them evenly between all companies forming a group. This article continues to examine the reasons.
Cross-border business is currently undergoing a huge transformation. Along with taking care of the environment, multinational groups are radically changing their strategy, setting sustainable development goals, and undertaking to considerably reduce their carbon footprint and to develop a socially responsible business according to the best governance practice. The inclusion of environmental, social and governance (ESG) criteria in a business development strategy gives cross-border companies a competitive advantage. In an unprecedented transition to the Green Deal, multinational groups are investing significant amounts and seeing their cost base rise. This article explores which of the companies in a group should cover costs incurred in planning, adopting and implementing their ESG strategy and related measures, looked at from a transfer pricing perspective.
Launched by the State Revenue Service (SRS) in 2018, the taxpayer rating system started out with five dimensions of analysis to determine a taxpayer’s individual assessment in the tax authority’s eyes. After hearing suggestions from the business community in February 2020, the rating system (dubbed “tax speedometer”) was expanded to include another two analysis dimensions with five new business assessment indicators. This article explores the system’s objectives, taxpayer groups, key analysis dimensions and assessments, as well as the taxpayer’s benefits from being rated.
On 1 December 2021 the European Parliament published the approved directive on the preparation of a public country-by-country report (“PCbCR Directive”). It states that any multinational group with consolidated revenue exceeding EUR 750 million for each of the last two financial years has to publish certain information (including revenue, headcount, and taxes paid) on their operations in each EU member state and certain third countries. This information has to be posted on the group’s website by December 2026 relating to subjects governed by the Directive if the financial year ends on 31 December 2025.
We have written before about a taxpayer’s duty to file with the State Revenue Service (SRS) a multinational enterprise group’s country-by-country (CbC) report under section 15(9) of the Taxes and Duties Act or a statement of the reporting company and its tax residence. This article explores how to correctly disclose information in the statement in the case of a non-standard fiscal period.
Our experience suggests that taxpayers carrying out the obligation to submit transfer pricing (TP) documentation to the State Revenue Service (SRS) may suddenly find themselves in an awkward situation, as the functionality of the Electronic Declaration System (EDS) prevents them from uploading a screenshot file that supports their benchmarking study because of its size. So the document fails to reach the SRS and puts the taxpayer at risk of defaulting on statutory requirements for information to be included in TP documentation. This article offers a solution to this problem.
We have written before about significant differences in measuring total transactions made with related parties during the financial year, to be reported on line 6.5.1 of the corporate income tax (CIT) return, and controlled transactions that determine whether the taxpayer becomes liable to prepare and file transfer pricing (TP) documentation with the State Revenue Service (SRS).
For many years, challenging the receipt of intragroup services and commercial benefits has been among the most popular grounds for corporate income tax (CIT) assessments made by the State Revenue Service (SRS). Our analysis of one of the latest publicly available transfer pricing court cases leads to the conclusion that such a taxpayer dispute with the SRS has not lost its relevance. This article looks at an example from the Latvian court case – the taxpayer’s dispute with the SRS over missing evidence that the taxpayer has actually received management services from a related foreign company.
A taxpayer assessing his transfer pricing (TP) compliance might find that a transaction with a related party is not arm’s length according to a preliminary comparability analysis. When analysing each case separately, however, we sometimes find that the taxpayer has failed to take all necessary preventive measures to mitigate TP risk. One of those measures involves assessing the need to make comparability adjustments.
When starting a new business, it can be a challenging task to establish a sustainable financial infrastructure from the very beginning. For the investors focusing on start-ups, one of the most difficult tasks is determining how to price the investment.