Our customers often ask us if transfer pricing adjustments affect VAT. This is an issue that remains unresolved by the VAT directive, the Latvian VAT Act, the Cabinet of Ministers’ rules, or guidelines issued by the State Revenue Service (SRS). Even the Court of Justice of the European Union (CJEU) has never dealt with this issue in its rulings. This article explores an opinion expressed by the European Commission’s VAT committee.
In last week’s article on the guidance issued by the State Revenue Service (SRS), we looked at the first two of five key factors the SRS highlights as noteworthy in transfer pricing (TP) determinations for periods affected by the pandemic. This article explores the remaining three factors that are no less important.
The world and things keep changing, and this change is affecting the environment significantly – both positively and negatively, allowing and even forcing us to revise various processes and activities to make them consistent with the reality. These factors are also affecting transfer pricing (TP).
Related companies sometimes make loans to each other, and those must be arm’s length just like any other transaction between related parties. A benchmarking study can use both internal and external comparable data, yet it is not always clear what period those should be selected for. This article explores various types of loan analyses with benchmarking examples based on external sources of information.
The global tax scene has undergone some historic changes and keeps changing. This has caused multinational enterprise (MNE) groups to revise their global business models and take steps to stay competitive. Facing the evolution of technology, environmental changes and the impact of the pandemic, MNEs are beginning to revise and transform their value chains to make their business even more efficient and profitable.
Our Flash News editions of 14 May 2019 and 21 May 2019 looked at the significance of working capital in a company’s business. This article explores when and why we need to assess working capital in a transfer pricing analysis.
To compute the price of a controlled support service transaction, we state the total cost incurred in providing the service then add a markup. But some costs are merely recharged without a markup. This article offers an overview of how service fees are set, focusing on so-called flow-through costs that have no element of profit.
High quality comparables are crucial when it comes to setting an arm’s length price in a transfer pricing (TP) analysis. A key factor in this process is making an informed choice about the dataset size, i.e. using comparable financials for one year or multiple years. This article explores key risks and factors to consider in setting an arm’s length price of transactions and using comparables for one or more years. We will be referring to the general rules of Latvian law and the TP guidelines issued by the OECD, with an example from case law.
Transfer pricing (TP) rules laid down by section 15.2 of the Taxes and Duties Act effective from 1 January 2018 require that a taxpayer’s master file and local file, or only his local file, provide evidence that the TP applied in a related-party transaction (the “controlled transaction”) is arm’s length. Although there is no publicly available information about amounts the State Revenue Service (SRS) has charged for the lack or incompliance of TP documentation/ analysis of controlled transactions over the last three years, we are aware that those are being evaluated, mainly as part of the “Advise First!” principle, as we have written earlier. This article explores common substantial errors in TP documentation pointed out by an SRS official who attended a seminar the Latvian Chamber of Commerce and Industry organised in May 2021.
In July 2021 the OECD released Latvia’s Stage 2 Peer Review Report findings obtained in peer-reviewing its progress with implementing the Minimum Standard of BEPS Action 14 for improving tax dispute resolution mechanisms. Stage 2 aims to monitor the implementation of recommendations arising from Latvia’s Stage 1 Peer Review Report. Overall the Stage 2 report finds that Latvia has eliminated most of the flaws found in the Stage 1 report.
We have recently written about the OECD Inclusive Framework proposals for taxing the digitalised economy that will help OECD members find a common basis for agreeing on taxation of global enterprises that is acceptable to all OECD members and jurisdictions. Despite the large number of participating members (139 members and jurisdictions pursuing different interests and representing various sizes of economy), all stakeholders understand the significance of this reform and are interested in agreeing on the urgent issues and implementing the common taxation of the digitalised economy as soon as possible. This article explores the ambitious goals of this agreement and the deadlines for concluding and implementing it, which are even more ambitious.
As the tax system evolves, the regulatory authorities have been rearranging their priorities around transfer pricing risks and focusing on increasingly complex cases in recent years. The transfer pricing aspects of intangible assets are climbing up the agenda, so we will be posting a few articles to explain the significance of related-party transactions involving the use of intangibles, as well as looking at transfer pricing trends, common risks, and relevant case law.
The legal form, meaning the contract between related parties and its provisions, has always been among the factors that come into play when assessing whether prices applied in controlled transactions are arm’s length. This article discusses why the legal form of a transaction is important, looks at a common approach to preparing intragroup contracts, and explores some rules that should be followed when drafting those contracts to mitigate transfer pricing risks.
Section 15.2 of the Taxes and Duties Act requires a taxpayer to meet requirements for the timeliness of information included in their transfer pricing (“TP”) documentation and for regular updates to reflect the present situation. During a period of calm in preparing and filing TP documentation, we asked the State Revenue Service (“SRS”) to answer some confusing questions about updating comparable data and revising financial data, including the scope for taking the roll forward approach.