Flash News offers the latest information on current tax, accounting, legal and other business issues.
Latvian transfer pricing (TP) rules provide that a company’s transactions with related parties must be arm’s length, whether the parties are Latvian or foreign tax residents. The arm’s length principle dictates that a company making comparable transactions under comparable conditions must receive comparable revenue, whether the transaction is with a related or an unrelated party. Basically companies know and understand this, yet there are various facts and circumstances that make this requirement difficult to enforce in real time. This is because before or during the transaction, companies often lack sufficient information on arm’s length prices that unrelated parties apply in comparable transactions. This is where companies can use a TP adjustment, which is not always so painful as it might originally seem. This article explores what TP adjustment a company can make by adjusting its taxable base for corporate income tax (CIT) purposes.
Family disputes are often a complicated emotional process affecting several areas of law. One of the questions that parents living separately often disagree on is who is eligible for statutory tax allowances for a child in their custody. The answer is not so clear-cut, yet the case law sheds light on criteria to be assessed.
The European Commission (EC) has been working for a long time to develop the idea of a capital markets union (CMU) aimed at creating a single capital market across the EU and promoting collaboration between the member states, as well as securing the EU economy’s growth and competitiveness. The EC began to work on this more actively in 2015 and developed its first CMU action plan, which has now largely been completed. The EC announced its second action plan on 24 September 2020, given the adverse effects of Covid-19 on the CMU.
A new year, a new beginning! As usual, this article summarises the provisions of tax laws and other legislation affecting the calculation of national social insurance (NSI) contributions, solidarity tax (ST) and personal income tax (PIT) on wages and salaries in 2023.
Taxpayers involved in cross-border transactions with related parties widely use globally recognised methods of analysis to show that their prices match market values. Selecting the most accurate method depends on the economic substance of a transaction and on the availability of credible information. Having limited access to a comparable data set often becomes an insurmountable obstacle to applying a particular method. This article explores some problems with data use, as well as international practice and potential solutions where the comparable uncontrolled price (CUP) method is used.
The last decade has seen a considerable increase in regulatory requirements in the governance and non-financial reporting space. At the same time, various stakeholders (shareholders, employees, customers etc) are expecting reliable, high-quality and standardised information from companies on their governance practices and non-financial performance. Both of these factors affect companies in Latvia as well.
On 13 December 2022 the Cabinet of Ministers passed amendments to Rule No. 656 of 24 November 2015, setting a new monthly minimum wage for normal working hours and laying down procedures for calculating the minimum hourly tariff rate. The amendments are coming into force on 1 January 2023.
We are fast approaching the year end and the time to prepare our annual reports. As you may know, the last two years saw a 3-month filing extension, which allowed us more time to prepare our financial statements. Based on currently available information, no extension is expected this year. This article will remind you of things to consider when it comes to preparing your annual report, including whether it requires a statutory audit or a limited review.
There are various programmes out there aimed at increasing a company’s sales by raising the productivity of its employees joining the programme, by increasing customer loyalty etc. Cross-border programmes are also implemented in Latvia, and their tax issues are very topical as well as complicated. This article explores employee incentive programmes in the light of a recent VAT ruling from the Court of Justice of the European Union (CJEU).
In November the OECD published the 2021 statistics for the mutual agreement procedure (MAP) covering 127 jurisdictions and practically all MAP proceedings around the world. This article explores global MAP trends in 2021, looks at Latvian statistics and analyses how last year’s statistics in Latvia compare to global trends.
Council Regulation on an emergency intervention to address high energy prices came into force on 8 October 2022. Its purpose is to prescribe a set of measures that will contribute to the member states’ energy supply and mitigate the impact of high energy prices on consumers and the member states’ economies. This article explores several groups of measures the member states are required to adopt under the Regulation.
The Personal Income Tax (PIT) Act has been amended with effect from 14 November 2022. This is a follow-up to our article “Personal Income Tax Act to be amended in 2022”. Changing the PIT Act affects some other pieces of legislation, so amendments to the National Social Insurance (NSI) Act were sent to the Ministry of Finance and the Ministry of Justice for approval on 10 November 2022.
Section 5(1) of the Corporate Income Tax (CIT) Act lists payments made to non-residents that are taxable at source. Section 2(2) lists persons that are not subject to CIT. In practice this raises the question of whether non-CIT payers are liable to withhold it on payments made to non-residents. This article answers the question.
Dropping all the hype about the Great Resignation and stiff competition for talent, we invite you to look at investing in your people from a few rational down-to-earth perspectives. Based on a number of PwC surveys, you might end up finding a good argument in your budgeting process in favour of investment initiatives targeting your people.
When it comes to drawing up non-financial statements or sustainability reports, there are a variety of guidelines and standards that prompt companies to identify and approach their various stakeholders in order to work with them in the course of preparing non-financial statements. It’s even more important to build collaboration in order to accommodate your stakeholder views and visions when your company is setting its key directions of sustainable development and goals it wants to achieve.
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.
The business community keeps asking questions about restrictions imposed by the sanctions and how this affects doing business with existing and new clients in the future. The EU has adopted a number of sanctions packages since Russia invaded Ukraine on 24 February 2022. This article explores the eighth package launched on 6 October.
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.
In March 2021 the European Commission passed a proposal for a new directive aimed at putting mechanisms in place that will help employers provide equal pay for men and women. According to the draft directive, the pay disparity is still about 14%. Inequality becomes evident when we convert this percentage into days: compared to men, women actually have to work 51 days a year without pay. The main aim of the new rules is to minimise gender inequality in pay. While gender equality is a topic that has been discussed in public at length, statistics do not give us a reason to believe a balance has been achieved on the issue of pay. To achieve this, the European Commission has come up with new solutions that will mean new statutory obligations for employers.
The Excise Act was amended on 13 October 2022 with effect from 13 February 2023. The amendments are primarily made to transpose Council Directive (EU) 2020/262 of 19 December 2019 laying down the general arrangements for excise duty (recast) (the “new directive”), which will replace Council Directive 2008/118/EC of 16 December 2008 concerning the general arrangements for excise duty and repealing Directive 92/12/EEC (the “old directive”). More amendments stem from the CJEU’s ruling of 13 January 2022 concerning Mono SIA vs the State Revenue Service (SRS). The court disallows a situation where the ability of diplomatic and consular offices to claim an excise exemption is subject to the condition that payment for goods be made by bank transfer. This article summarises some of the key amendments to the Excise Act.
To measure the taxable income of businesses and individuals correctly, we need to assess whether self-employed expenses are associated with the conduct of business. In applying personal income tax (PIT), self-employed persons should follow the rules of the PIT Act and the Corporate Income Tax (CIT) Act, which in certain cases may cause disagreement with the State Revenue Service (SRS). This article explores some of the self-employed expenses the SRS may challenge if they are deducted as business expenses.
Amendments to the Personal Income Tax (PIT) Act were announced on 31 October 2022. The outgoing government has managed to introduce a number of important legislative changes. This article explores changes to the special rules of section 11.13, governing how income from an investment account is determined.
In one of our previous articles we looked at a Latvian-registered branch paying profits to a Lithuanian company and examined the corporate income tax (CIT) implications. This article explores the CIT implications of income (profit) that a Latvian company receives from its foreign branch.
Deducting input VAT, particularly on capital goods, is based on their intended use for taxable supplies. Intentions sometimes fail to materialise, raising the question of whether the taxable person becomes liable to repay the VAT deducted earlier. This question was handled by the Court of Justice of the European Union (CJEU) in Ruling C-293/21 of 6 October 2022. This time the CJEU examined the need for adjustment if the taxable person did not use the acquired goods and services for making taxable supplies because the shareholder decided to liquidate the company. This article explores the CJEU’s findings and their practical implications.
We informed our MindLink.lv subscribers some time ago that the State Revenue Service (SRS) is increasingly exercising its statutory power to demand that a company’s overdue taxes be recovered from its board member if the tax debt cannot be recovered from the company. This article explores how we successfully resolved a court case to release a construction company’s former CEO (a client of ours) from the company’s tax debt of close to EUR 150,000.
To alleviate the consequences of the Covid-19 pandemic, the government has introduced various tax reliefs, including for excess interest charges. This article explores the corporate income tax (CIT) treatment of excess interest charges and what else can be done this year to avoid CIT implications in 2023.
Under the transitional provisions of the Corporate Income Tax (CIT) Act, companies may use their pre-2018 tax losses to offset the CIT charge on dividends, yet this relief has to be taken by the end of 2022. This article explores the finer points you need to know.
