We have written before about how the new CIT Act treats prepayments for goods or services. This article explores differences in this treatment depending on when payment is made, and suggests steps to take after a bad debt is written off.

The rapid evolution of digital financial services has led to virtual currency (“VC”) being increasingly used in everyday payments. In July 2021 the State Revenue Service issued guidance on the tax and accounting treatment of virtual currency transactions, offering insights into the practical application of laws and regulations to income people earn from VC dealings. This article explores the personal income tax (“PIT”) treatment where an individual buys and sells VC.

This article explores changes to the royalties scheme effective from 1 July 2021 and applicable throughout 2021, as well as other ways in which authors can receive royalties. This article summarises the practicalities and administrative obligations facing the payer of income and the Latvian tax-resident payee.

On 6 July 2021 Parliament amended the Taxes and Duties Act to give the State Revenue Service (“SRS”) the right to publish information on SRS decisions of public importance from 5 August 2021. This article explores the goals of the amendments and the nature of information the SRS will be allowed to publish.

To pick up where we left off, this article explores the concept of “hard-to-value intangibles” and a court case dealing with intangible assets.

Retailers and consumers have been recently forced to change their product distribution and shopping habits. The online marketplace is evolving and gaining unprecedented momentum. PwC’s June 2021 Global Consumer Insights Pulse Survey shows that the Covid-19 pandemic has created new consumer groups. Their creation is driven by consumer attitudes and behaviours, which have a great potential to significantly impact how consumers choose their shopping channels, goods, and brands.

On 10 May 2021 the State Revenue Service (“SRS”) posted on their website an update to “Bad Debts” offering guidance on how VAT and corporate income tax should be applied. This article explores the VAT treatment of debt assignment.

On 15 June 2021, Parliament adopted amendments to the Anti Money Laundering and Counter Terrorism and Proliferation Financing (“AML/CTPF”) Act, which, among other things, makes it easier for persons that are subject to the Act to report suspicious transactions taxwise and creates a common customer due diligence tool. The amendments relating to reporting procedures are coming into force on 1 October 2021, and the tool is to be used from 1 January 2022.
 

Every company must have an accounting policy in place that specifies its accounting principles, as well as laying down rules for how its financial statements should be prepared and how its internal documents should move around. The accounting policy must fit the nature of the company’s business.

If an individual is considered to be tax resident simultaneously in two treaty countries (e.g. Latvia and Lithuania) according to their national law, the dispute over the person’s tax resident status will be resolved by treaty article 4(4), which provides for consecutively assessing the following criteria:

We have written earlier about the corporate income tax (“CIT”) treatment of payments made to a non-resident company on which tax must be withheld under section 5 of the CIT Act. This article explores the legal framework, examples and supporting documents for the most common type of payment: management and consulting fees.

To pick up where we left off in our earlier article Ways of reducing tax on profit distribution, which discusses how to minimise your corporate income tax (“CIT”) liability when distributing “new” profits, this article explores some personal income tax (“PIT”) relief an individual can take even if the company has already claimed one of the available CIT reliefs according to the current practice.

To deal with the Covid-19 crisis in 2020 and 2021, the governments have imposed tight restrictions, including travel restrictions, to contain the pandemic. Various exit and entry restrictions forced many people to stay in Latvia or another country. If you are performing your job duties in Latvia then you may need to consider tax treatment aspects. This article explores how Covid-19 affects the way tax residence is determined under Latvian law.

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.
 

Having the status of a public benefit organisation (“PBO”) not only demonstrates that the organisation is working for the public good but also motivates the PBO to raise donations and receive various tax and other advantages. Donations are a key source of various PBO public benefit projects, while donors can claim tax advantages. The Ministry of Finance (“MOF”) has issued an informative report on the activities and development of PBOs. This article offers a brief summary and looks at what companies think about this relief and whether it has promoted PBO operations.

On 22 March 2021 the EU Council adopted Directive (EU) 2021/514 (“DAC7”) amending Directive 2011/16/EU on administrative cooperation in the field of taxation, to extend the EU tax transparency rules and reporting obligations to digital platforms and platform operators. Digital platforms and platform operators are required to provide information on the income of sellers using digital platforms from 2023. These rules impose a reporting obligation on digital platforms operating within and outside the EU.

Latvia has adopted minimum mandatory national social insurance contributions (“NSIC”) from 1 July 2021. The parliamentary opposition as well as several business organisations and industry associations asked the MPs in an open letter to postpone adoption of the minimum NSIC scheme until the economy recovers from the Covid-19 restrictions. Despite public criticisms, the new regime came into force on 1 July. This article explores cases where a self-employed person is permitted not to apply minimum NSIC to their income after filing a written request with the State Revenue Service (“SRS”).

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.

The power of the State Revenue Service (“SRS”) to adjust the amount of tax due is primarily laid down by section 23(1) of the Taxes and Duties Act. The period open to review is limited to three years, and it is generally accepted that a person’s tax burden cannot be revised outside this period. Yet the SRS takes the view that a person’s obligation to pay taxes is not limited in time and is not really covered by the statute of limitations. We have encountered a practice in which, on finding an incorrect tax payment for a period outside the three years, the person was given the option of voluntarily filing the relevant tax returns and paying additional taxes. To stimulate this voluntary action, the person was warned that the SRS might pass their information to the Finance Police in order to decide on starting a criminal prosecution. This practice is now developing in such a way that a taxpayer’s mistake in filing tax returns for earlier periods is interpreted as voluntary performance of their obligation and an action that cannot be rectified.
 

This article completes what we wrote a couple of weeks ago.

The Import One-Stop Shop (“IOSS”), a special VAT scheme for distance sales of goods imported from third countries or third territories, will be implemented across the EU from 1 July 2021 as part of extensive amendments to the VAT rules for e-commerce companies. This article explores an intermediary’s obligations and liability under the IOSS.

The G7 finance ministers announced an agreement on 5 June in which the participating countries committed to new taxing rights allowing countries to reallocate some portion of large multinational companies’ profits to markets (i.e. where sales arise – “Pillar One”) as well as enacting a global minimum tax rate of at least 15% (“Pillar Two”). The meeting marked an early test of whether the US position on the OECD Inclusive Framework’s “Taxation of the Digitalising Economy” project would provide momentum to finding a common base for agreement.

Latvian companies often approach foreign organisations or individuals to draw on their expertise and receive advice on matters that are crucial for the Latvian company’s growth. This assistance is best received from a group company in the form of management services or consulting services but the Latvian company may have to hire an unrelated foreign company or personal consultant. This article explores Latvian tax implications (including for the Latvian company) and how to tell whether it is personal income tax (“PIT”) or corporate income tax (“CIT”) that is chargeable primarily.

As the vacation season is approaching, so is the implementation of the controversial minimum income subject to mandatory national social insurance (“NSI”) contributions, which might affect many companies from 1 July 2021. On 24 May, however, the Parliamentary Presidium presented proposals for amending the NSI Act to a committee, urging a deferral of the effective date of the earlier amendments. This article describes the basic principles for applying the minimum NSI income and offers practical examples in case the bill is not approved and the new rules come into force from 1 July.

Increasingly more companies have distributed their profits accrued before 2018 without paying corporate income tax (“CIT”) on the dividends under the new CIT regime. When it comes to distributing “new” profits, the shareholders may wonder about ways of cutting the tax charge on dividends. This article explores some of the possibilities, suggestions, and the latest developments.

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.

The summer is rolling on and has all companies thinking about vacations and staff replacements. Accounting is one of the departments expected to promptly handle various enquiries and confirmations to ensure business continuity. Everyone who works in the accounting field is aware of situations where an accountant cannot take a vacation during the monthly closing, when filing reports, and during the payroll calculation. When is the accountant supposed to go on vacation? This article explores possible solutions.

When doing a transfer pricing analysis of financial transactions, we need to assess the borrower’s creditworthiness before setting an interest rate. To evaluate the risk associated with an intragroup financial transaction and determine an arm’s length interest rate for taking credit risk, the lender should evaluate the likelihood of the borrower defaulting, i.e. creditworthiness, and the probability of recovering the loan. This article explores a credit rating model that multinational enterprises often create to determine the creditworthiness of particular units.

On 27 May 2021 a meeting of state secretaries heard the announcement of draft rules to be issued by the Cabinet of Ministers, which provide for adopting the minimum and maximum income that is subject to voluntary national social insurance (“NSI”) contributions and to mandatory contributions for self-employed persons. This article explores the new draft rules, which are to replace Cabinet Rule No. 1478 of 17 December 2013.

Effective from 1 January 2018 the Latvian tax system has undergone important changes affecting the taxation of personal income, including dividends. This article examines some of the changes in the tax treatment of dividends from Latvian sources and their impact on Latvian, Estonian and Lithuanian taxpayers.