The term “deposit system” is fast becoming a household name. A mandatory deposit system for single-use and reusable drinks packaging became operational on 1 February 2022 in an attempt to prevent environmental pollution. The new deposit system applies to all beverage retailers and their outlets, filling stations, public catering companies selling bottled drinks etc. This article explores the accounting treatment for a retailer who is required to install a deposit system collection point close to his outlet.

We are inviting you to listen to a PwC tax podcast about the accounting control system, about the plans of the State Revenue Service to introduce penalties for delays in submitting mandatory declarations and reports, as well as about current issues related to the company's transfer.

Four years of work have been crowned with amendments passed to the VAT directive concerning a reduced rate of VAT on 5 April 2022. The new provisions will give the governments of the EU member states greater flexibility in applying the rates and will ensure transnational equality. The reduced rates clearly point to EU shared priorities, such as protection of public health, fight against climate change, and support for the European Green Deal, while preparing to phase out the current preferential regime for environmentally damaging supplies.

This article completes what we wrote last week.

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.

Council Directive 2020/284 of 18 February 2020 amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers (the “Directive”) states that these providers (credit institutions, payment institutions, electronic money institutions, and post office giro payment institutions) operating in the EU will have to keep electronic records of cross-border payment data and exchange those records with a newly formed Central Electronic System of Payment information (CESOP) database as from 1 January 2024.

The Covid-19 pandemic has thrown the global economy into recession. However, the warning issued by the industry experts and backed by the authors of a World Bank study  that the economy will experience a rapid increase in the number of insolvency proceedings and legal protection proceedings (LPP) at the end of Covid-19, has not come true as yet. This is because the financial difficulties brought on by the pandemic were countered with an unprecedented government intervention in the market and a huge package of financial aid, including working capital grants and idleness benefits. The economic downturn is now being aggravated by Russia’s invasion of Ukraine, as the consequences of the war are pushing up energy prices and fuelling price rises in general, inevitably leading to debt crises. Latvia seems likely to face an inevitable wave of insolvencies and LPP, so this article aims to introduce companies to Latvian LPP and out-of-court workouts in simple terms in order to highlight the characteristics of these debt restructuring tools, as well as the role of the debtor, the creditors and the supervisor within these proceedings.

The European Commission has published proposals for a directive on rules to prevent shell companies from being used for tax evasion and to amend Directive 2011/16/EU on administrative cooperation. ATAD3 is the short title of the proposed directive. It mandates minimum business indicators for companies established in member states and rules on the tax regime for companies falling short of those indicators. The proposed directive would apply to all companies that are considered tax residents, including partnerships, trusts, and other legal arrangements. If adopted, the directive will come into force on 1 January 2024.

On 9 December 2021 the Commission on Public Administration and Local Government urged Parliament to amend the Personal Income Tax (PIT) Act so that the exempt income types would include proceeds from a piece of land that is sold under the Termination of Forced Shared Ownership in Privatised Apartment Blocks Act after being held for more than 60 months. The proposed amendments were backed in their first reading on 20 January. More proposals for amending other sections of the PIT Act have been submitted for the second reading, including ones that seek to promote the development of the Latvian capital market. This article summarises what we see as key proposals.

On 24 February 2022 the Court of Justice of the European Union (CJEU) ruled on a dispute over the VAT treatment of costs the customer had recharged to the supplier of goods under the contract during the warranty period. This article explores what the CJEU found and how those findings can be put into practice.

The Labour Act does not prohibit employers from hiring part-time workers under the cumulative scheme. This issue has been settled by case law, yet we can still see some part-timers employed on a cumulative basis. This article explores the potential consequences of such action.
 

Every two years the Ministry of Welfare prepares an informational report on the operation and development of social enterprises (SEs) for submission to the Cabinet of Ministers. The latest report on SE development, with information relevant to companies seeking SE status, was submitted on 30 March 2022. This article explores what SE status is and what aid measures it offers, as well as providing an overview of the information included in the report and of proposals for amending the SE Act.

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.

We have written before about the statutory personal income tax (PIT) scheme for income from investment accounts effective from 1 January 2018. We have looked at steps the account owner – an individual – must take to qualify for the tax-favoured treatment. This article explores a letter from the State Revenue Service (SRS) explaining whether a non-Latvian tax resident earning income from dealings in financial instruments is eligible for the investment account scheme.

The preparation of annual accounts is relevant to each company, and this process often involves making multiple changes that have a direct effect on the numerical information presented in the company’s financial statements. Accounting software mostly ensures automatic preparation of the balance sheet and the profit and loss account, yet companies, depending on their size, may have to produce a number of notes that tend to take a long time to prepare. In this article we share recommendations for accelerating the technical preparation of financial statements.

On 15 March 2022 proposals for amending the Employment Act were endorsed by the Cabinet of Ministers and submitted to Parliament for approval. The amendments are being made in order to transpose two EU directives that Latvia must pass by August 2022 and to implement the Constitutional Court’s ruling No. 2019-33-01 of 12 November 2020, which recognises that section 155(1) of the Employment Act, giving a childbirth leave entitlement to the father, is not consistent with the first sentence of the Constitution’s section 110 insofar as it offers no protection or support for a female partner of the child’s mother due to the birth of the child. This article explores key changes and how they affect workers and employers.

The State Revenue Service (SRS) is increasingly exercising its statutory power to have a company’s board member pay an overdue tax liability if that debt cannot be collected from the company. For the board member this often means thousands of euros to pay, private accounts blocked, and properties seized. This article explores the legal grounds for such actions and outlines substantial errors in decisions made by the SRS.

This article looks at the principles of tax treatment when a Ukrainian national provides services to individuals or entities in Latvia.

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.

A foreign company planning to do business in Latvia can choose between registering a subsidiary or operating through a branch. This choice is commonly dictated by the group’s governance strategy and long-term plans in Latvia. A foreign company going for a simplified arrangement can register either a branch with the Enterprise Registry or a permanent establishment (PE) with the State Revenue Service (SRS) only for paying Latvian corporate income tax (CIT). This article outlines some CIT and accounting issues relevant to PE activities in Latvia.

Since war broke out in Ukraine, many people have been eager to help Ukrainian people with various donations. Last week we wrote about the Latvian VAT treatment of donations and how the tax rules should be changed to cover various cases. This article explores the corporate income tax (CIT) treatment of donations.

Looking for shelter from the war, Ukrainian civilians are emigrating en masse. Several thousands of refugees have entered Latvia, and some Latvian companies have already come forward to employ them. This article explores the tax treatment of these persons being employed in Latvia.

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.

As the war in Ukraine goes on, many companies have unselfishly donated to Ukrainian residents and to Ukrainian refugees having crossed the EU border. Does the current tax regime encourage donations? And how has the Latvian government responded to the present situation?

Latvian tax residents are also taking the opportunity to work abroad. A Latvian tax resident meeting certain criteria may become a tax resident in the foreign country where he is employed. Selling real estate (RE) located in Latvia or other assets may raise the question of which country’s personal income tax (PIT) is payable on the profit you make on the transaction.

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).

After the Russian Federation decided on 23 February 2022 to recognise the Donetsk People’s Republic and the Luhansk People’s Republic as independent states, followed by the invasion of Ukraine on 24 February, the EU, the UK, the US and Canada as well as other countries have launched wide-ranging sanctions aimed at changing Russia’s behaviour and eliminating the current threats in Ukraine and CEE.

From 1 March it is possible to prepare the annual income tax return for 2021 through the Electronic Declaration System (EDS) of the State Revenue Service (SRS). This article explores what situations mandate this filing and what time limits apply, as well as other related issues.

This article completes what we wrote last week.

When it comes to applying the corporate income tax (CIT) provisions for penalties and donations in practice, we have to deal with the terms “state institution,” “government-funded establishment” and “state-owned company,” which are not defined in the CIT Act or in the rules explaining its application. In this article we explain these terms for CIT purposes.