Flash News offers the latest information on current tax, accounting, legal and other business issues.
On 18 April 2023 the Supreme Court ruled on case No. A420131521 concerning the classification of non-business expenses for corporate income tax (CIT) purposes, application of the concept of labour lease, and additional taxes charged by the State Revenue Service (SRS) in the construction sector, where subcontracted labour was used. By its ruling the Supreme Court refused the company’s request for reversal of the SRS’s decision, which remains unchanged and has taken effect. We feel MindLink subscribers should become familiar with this decision by which the SRS charged CIT and national social insurance (NSI) contributions, as well as a late fee and a penalty. For personal income tax (PIT) purposes, only a penalty was charged.
On 20 April 2023 the Court of Justice of the European Union (CJEU) ruled on case C‑282/22 concerning the VAT treatment of services supplied by EV charging stations that offer charging equipment and software in addition to the charging service. This article explores the CJEU’s interpretation.
One EU individual on average discards 11 kg of textiles a year. Globally, a consignment of textiles is buried or incinerated every second. The global production of textiles almost doubled over the period from 2000 to 2015. Clothing and footwear consumption is expected to grow by 63% by 2030. In this article we’ll be looking at some of the EU’s proposed measures to address the problem of textile waste, as well as discussing what’s being done in Latvia and what we can expect in taxation.
On 27 April 2023, Parliament approved amendments to the Corporate Income Tax (CIT) Act in their final reading. The amendments set a higher threshold for luxury executive vehicles – EUR 75,000 instead of EUR 50,000 (excluding VAT). The new threshold will apply to company cars acquired after 1 June 2023.
This statement does not seem to make sense and is contrary to what the law says about capital gains tax being payable only on income that results from a disposal of real estate (RE). However, a certain taxpayer had to fight in court for his right to be exempt from a tax liability on an RE disposal.
Our previous article looked at the need for a taxpayer’s transfer pricing (TP) file to support his guarantee transactions, and explored a general approach to assessing whether a guarantee transaction is arm’s length. In this article we are discussing aspects to consider when the substance of guarantee transactions is analysed, and we are taking a closer look at methods used in analysing such transactions.
During the pandemic, Latvian companies faced unprecedented challenges around remote working, when the entire corporate culture came up for overhaul. The biggest challenges arose from the need for flexibility as the traditional eight-hour working day at the office was upgraded with the option to connect remotely at the employee’s convenience. Some companies cancelled the full-time office presence requirement altogether and set up alternative working arrangements with variable hours, places and conditions. Flexibility became a key aspect in keeping employees motivated and loyal. This article explores the rapid development of flexible reward schemes.
To trace related-party transactions and particular steps they include, as well as the initiator of those transactions, the State Revenue Service (SRS) uses a variety of methods for obtaining information. We have discovered that as part of tax controls, silent administrative cooperation appears to occur in how information on the actual existence of transactions is exchanged. To obtain objective arguments and evidence and to identify the actual proceedings of transactions, the SRS requests explanations from persons named in documents supporting the transactions, including from the taxpayer’s former employees. In this article we explore how this cooperation takes place.
Artificial intelligence (AI) has recently aroused interest in most people. Some are depicting end-of-the-world scenes with AI taking over people’s jobs and later ruling the whole world. Others believe there is no reason to fear AI tools. As always, the truth lies somewhere in between. One of the most popular AI tools today is ChatGPT, which everyone can try out and see what it’s capable of, as we wrote in our recent Flash News. But why are the data protection authorities of European countries beginning to raise the alarm?
People often confuse the terms “public benefit organisation” and “social enterprise”, and there is no readily available explanation about advantages of having either status when it comes to attracting donations and grants. How a public benefit organisation operates makes it different from a company in the classic sense and from an entity with social enterprise status. This article explores the differences between these forms of business and how they can attract financial and other support.
To continue the fight against money laundering and sanctions breaches, members of the European Parliament sitting on the Committee on Economic and Monetary Affairs and on the Committee on Civil Liberties, Justice and Home Affairs called attention on 28 March to the need for tighter conditions in combating money laundering, terrorism and proliferation financing (“AML”) as well as sanctions breaches. These committees have drawn up a package of documents containing three draft laws, which the European Parliament is to debate in April.
Neither the Corporate Income Tax (CIT) Act nor the Ukrainian Civilians Support Act (“Ukraine Act”) laid down any special procedures or easy terms for the CIT treatment of donations intended to help victims in Ukraine until the Ukraine Act was amended with effect from 7 April to add a new section, 11.4: Corporate Income Tax Relief for Donors. This article explores the special rule and how it’s supposed to be applied.
Today’s understanding of sustainable growth is based on the idea expressed in “Our Common Future”, a 1987 report from the UN World Commission on Environment and Development: Sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs. This means that countries globally must plan their development in a way that not only boosts their economic development rates but also maintains the quality of life and prevents environmental degradation and overexploitation of natural resources.
On 5 July 2022 the Regional Court passed ruling No. A420275316 on whether interest rates charged on loans between related parties are arm’s length. The ruling emphasises the significance of the economic substance approach and strengthens the understanding of whether the Bank of Latvia (BOL) statistics are suitable for analysing transfer prices (interest rates).
Technologies, especially artificial intelligence (AI), seem to be evolving faster than people are able to perceive their significance. This is still a hot topic not only in Hollywood but also in everyday life. AI tools are now being widely used by students and entrepreneurs who recognise potential uses of this technology. This growing interest has led to the creation of many tools of this kind, such as ChatGPT, Bing ChatGPT, Jasper, and Google Bard. This article explores the most popular and capable AI tool, ChatGPT, and its newest version, GPT-4, as well as looking at what it’s capable of doing and what its limitations are.
Outsourcing certain business processes is no longer a novelty when it comes to helping companies to secure flexibility while keeping costs predictable. Carefully evaluating our core processes and separating responsibilities can help us assess what the best sourcing mix will be. Companies are already used to the outsourcing of, for example, accounting or information technology (IT) services. But extending the XaaS strategy to other areas is also gaining traction, for example, by analysing all of your company’s present and future competence requirements to help you achieve your goals.
The VAT Act has imposed reverse-charge VAT on construction services since 2018. But is it clear in what cases a service, especially one that doesn’t involve technical construction works, is governed by the VAT rules on construction services? Practice shows it’s not clear.
On 15 December 2022, the Administrative Division of the Supreme Court passed ruling No. SKA-68/2022, which formulates a finding that’s apparently logical yet relatively rarely heard: “A drop in monetary value caused by inflation is treated as a type of financial loss, and the person is entitled to claim compensation for that loss.” While such an understanding can be found in earlier court decisions, a repeat confirmation in the Supreme Court ruling may turn out to be especially significant and become relevant not only in private persons’ disputes with government agencies but also in disputes between individuals and entities over issues typical of debt recovery cases, because in February 2023, for example, the annual inflation rate was 20.3%, as opposed to the statutory interest rate of 6% per annum.
There is now more talk of how to live green. Companies, too, are trying to take the green path, thinking about their sustainability, more efficient use of resources and ways of cutting costs. Demand for electric vehicles (EVs) has recently grown, as confirmed by the Latvian Road Traffic Safety Office’s data for 1 January 2023 – the number of EVs has risen by 81% since the beginning of 2022. This article explores the corporate income tax (CIT) implications of buying an EV.
Two or more individuals or entities may combine forces or funds under a partnership agreement to achieve a common goal. Each partner should make a contribution (cash, property or work) to the partnership and any assets acquired through the joint business of the partners are their joint property. The partners share in profits that are essentially due to them.
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.
Sole traders were exempt from making advance personal income tax (PIT) payments in 2020, 2021 and 2022 after tax aid measures were adopted under section 6 of the Covid-19 Act. According to the current rules and the information published by the State Revenue Service (SRS), sole traders would have been required to resume advance PIT payments in 2023, with the first payment due on or before 23 March. However, proposals were submitted on 3 March to extend the deadline for another year.
