The market economy operator principle (also known as the ‘private investor test’) is an analytical tool the European Commission uses to prevent companies from obtaining advantages through the State intervening in a particular market. This requires a complex economic analysis and legal justification to assess whether a hypothetical private investor would make a comparable intervention in the particular market on the same conditions as the State. If the answer is yes and the transaction is consistent with the market, this is unlikely to be considered state aid because the other party (company) has not obtained an economic benefit it would not have obtained under normal market conditions.

On 9 September 2024 the State Revenue Service (SRS) reminded Latvian taxpayers about the opportunity to apply for an automatic refund of personal income tax (PIT) without filing the annual tax return (ATR). Persons wishing to receive into their bank account any PIT overpaid in the previous tax year are asked to apply for this service by 30 September 2024. In August 2024 the SRS added Smart-ID to the array of tools for signing in to the Electronic Declaration System (EDS), offering taxpayers an easier method of authentication.

To pick up where we left off last week, in this article we look at proposals for amending the VAT Act, which include a move to direct application of 0% VAT to diplomatic and consular offices, update the conditions for registering a fiscal representative with the State Revenue Service (SRS) and ease the terms of the special VAT scheme for imports. We will also look at the margin scheme for second-hand goods and exemptions available to non-domestic taxable persons suppling goods in temporary storage.

When adopting a supplier management model, companies look for the most efficient ways to optimise relationships with their suppliers, make their supply chains more efficient and cut their costs to continue receiving the best goods and services within the most appropriate time frames.

Proposals for amending the Taxes and Duties Act were released for a public consultation over the period from 21 August to 4 September 2024. Expected to come into force on 1 January 2025, the proposals caused a wide public resonance. They aim to improve tax compliance by restricting the circulation of hard cash and to encourage contactless payments. This article explores what we see as key changes.

As you may know, approval of the national medium-term tax policy guidelines, which was supposed to take place by 1 April 2024, has been delayed considerably. It’s not known for sure yet whether and how this will affect VAT treatment in future. However, the Ministry of Finance has drafted proposals for amending the VAT Act, aimed at passing the EU directive to ease the administrative burden on small and medium enterprises (SMEs) and to improve the rules for applying 0% VAT and the margin scheme for second-hand goods, works of art, antiques and collectors’ items. The amendments are to come into force on 1 January 2025. This article explores what we see as key changes.

Estonia has drawn up new taxation plans that will considerably change the financial landscape for businesses and people from 2025. This article looks at the proposed defence tax and motor vehicle tax, as well as other significant tax increases affecting various sectors.

Much of the acquisition cost in a share deal tends to be financed externally, i.e. by borrowing. Repayment of a shareholder’s loan is typically exempt from corporate income tax (CIT) under Latvian law (more details in our article CIT reform: lending to related parties). Also, if interest paid on the shareholder’s loan complies with Latvian thin capitalisation rules and transfer pricing rules and is used for business purposes, i.e. it qualifies as a business expense, the interest charges are exempt from Latvian CIT.

The end of the summer saw the Supreme Court rule on cases concerning the tax treatment of income from various entertainment services. Just like income from live streaming of video games, winnings from participation in games of chance are high on the agenda when it comes to interpreting the relevant tax rules, which is causing disputes with the tax authority. One of these disputes involved the State Revenue Service (SRS) deciding to charge personal income tax (PIT) and late fees on an individual’s unreported winnings from a company organising games of chance. The taxpayer sued the tax authority, and his appeal eventually landed in the Supreme Court. This article continues our MindLink series on Supreme Court rulings concerning the tax treatment of income from recreational activities and looks at a recent Supreme Court ruling.

Since the current Latvian transfer pricing (TP) rules came into force back in 2018, companies are used to preparing and submitting a TP file in the second half of the current year. For most taxpayers, the financial year is the calendar year, which in conjunction with the TP rules means a TP file for the previous financial year must be submitted by 31 December of the current year.

Last week we wrote about proposals for amending the Taxes and Duties Act and looked at the proposed changes in taxation and administration. This article continues exploring changes expected to tidy up administrative and data sharing processes.

In many companies summer is the time when staff performance is being appraised, potentially leading to promotions and bonus payments. Yet the employer has discretion in paying bonuses – it’s not an obligation but a choice. There are several preconditions to consider when it comes to setting up and running a bonus system. The case law says a bonus shows appreciation for an employee’s good work, so it’s up to the employer to determine the amount of a bonus. However, this decision-making power should not be interpreted as the employer’s unilateral opportunity to pay bonuses inconsistently and with no legal justification.

The State Revenue Service (SRS) has drawn up a plan for dealing with situations where individuals have not reported their income in full. This year the SRS has identified about 70,000 individuals with a difference of at least EUR 20,000 between their bank account turnover and reported income. In September the SRS plans to send out notices asking those individuals to review their income and report it in full. Sending such letters is not a new practice – the SRS has used them for several years to check that a person reports all taxable and non-taxable transactions. A letter arrives through the SRS’s electronic reporting system. The SRS has 30 days to wait for a response from the person giving reasons for the discrepancy or adjusting their annual tax return if they find the discrepancies between the bank account turnover and the tax return arise from unreported income.

If we are to successfully integrate artificial intelligence (AI) in society, first of all we need to cross our moral threshold. We can see a common attitude that “the technology is not ready, it’s not capable of doing what I need”. However, we often expect AI to act independently like a human. The technology can do a lot of things, yet we need to find out if we are able to see its added value. The computer does what we tell it to do, rather than what we want it to do.

In early June, the Finance Ministry proposed amending the Taxes and Duties Act to improve the general tax administration rules and held a public consultation on the proposed changes. The proposals have been approved by the Cabinet of Ministers and are being prepared for submission to Parliament. This article explores what we see as key changes.

This series of articles offers information on the nature of state aid, and this time we will look at a set of state aid rules that is used very widely: de minimis aid. This aid is particularly attractive because its conditions are simplified and it is more accessible than other types of aid. This article explores key changes to these rules, where you can sign up for this aid and what conditions apply.

The live streaming of video games has become a popular form of entertainment attracting millions of global viewers on streaming platforms. The creators of video game livestreaming often encourage viewers to make voluntary payments supporting the gamer, which in certain cases may be his only source of income. This income has attracted the attention of the State Revenue Service (SRS). Having examined a person’s activities of creating video game streams and receiving money from viewers, the SRS found an unregistered economic activity and charged personal income tax (PIT). The person challenged this decision, and the case ended up in the Latvian Supreme Court. This article explores the background to the case and the Supreme Court’s opinion on the PIT treatment of income received from viewers during the live streaming of video games.

Latvian law lays down different principles for including employment periods and periods equivalent to employment in the insurance period for Latvian nationals and foreign nationals, including EU nationals receiving an old-age pension. This has caused disputes between pension recipients and the National Social Insurance Agency (NSIA), as well as building the case law based on interpretations of the Latvian Constitution, EU law and international agreements.

Today’s rapid technological advances have considerably changed the way business processes are organised. Integrating electronic invoices (e-invoices) with enterprise resource planning (ERP) systems has become a key strategy in companies looking to improve their operational efficiency and to simplify their financial processes. This integration not only accelerates invoice processing but also significantly improves data accuracy and governance capabilities, marking significant changes in financial transactions.

In a previous article, we used a tax gap example to explain why taxation is a key pillar of ESG. Tax transparency and tax governance in the context of ESG are relevant topics in the PwC network – last year PwC published a study ‘Tax transparency and sustainability reporting in 2023’. The study looks at the sustainability reports of 269 listed companies (Australia, Brazil, Germany, Ireland, South Africa, Spain, Switzerland and the UK), i.e. whether their reports address tax aspects and how. The study examined what sustainability frameworks (i.e. documents and guidelines) companies use the most often to disclose tax aspects in their sustainability reports. In this article we have summarised information from the study to explain what tax details should be included in a sustainability report.

Communicating with the State Revenue Service (SRS) is certainly the safest way to make sure the interpretation of law we use daily complies with how it was originally intended. Most of the guidelines published by the SRS explain clearly how statutory requirements should be applied. Yet the 2019 guidelines on transfer pricing (TP) documentation offer a formula for computing the amount of a controlled credit-line or cash-pool transaction made in the financial year that gives the taxpayer much more room for interpretation. This alternative formula became the subject of debate again in recent communication between TP professionals and the SRS.

Inheritance tax is payable by individuals that receive property or money from a testator. Rates and exemptions may vary from country to country according to the degree of relationship between heirs, the inherited value and other criteria. Latvia has not introduced inheritance tax. This article explores the Finance Ministry’s proposal for introducing inheritance tax in Latvia, as identified in the report ‘An assessment of the current workforce cost situation and proposals for future action’, a tax policy planning document.

In early July 2024, the European Commission (EC) published its annual report on tax policies across the EU. Value added tax (VAT) is one of the most important taxes in the EU accounting for about 7.5% of GDP and 18.6% of total EU tax revenue in 2022. This article explores the EC’s VAT findings.

A system of artificial intelligence (AI) can make your day-to-day work increasingly more efficient, competitive and productive in both the private and the public sector. There are various AI system models on the market you can put in place, tailor to your company’s needs and use in your day-to-day work. Remember that, for instance, a company using an AI system for its professional purposes under EU Regulation 2024/1689 (the ‘AI Act’) faces various obligations for AI system maintainers.

Electronic structured invoices (e-invoices) are becoming increasingly widespread globally between businesses (B2B) as well as between businesses and government agencies (B2G). E-invoices are gradually replacing old-fashioned paper invoices and PDF invoices. Recent years have seen the member states working hard to implement e-invoicing. Latvia is set to legislate on mandatory e-invoicing in the B2G segment from 2025 and in the B2B segment from 2026.

A claim for damages and litigation expenses totalling EUR 212,040.63 was fully satisfied in a civil case where a PwC Legal client was seeking damages, including lost profits, from a certain private company. The plaintiff’s interests were represented by Natalja Purina, an attorney-at-law with PwC Legal.

The first year of audit has ended since insurance and reinsurance companies and foreign insurers’ branches started preparing their accounts and consolidated accounts according to International Financial Reporting Standard No. 17, Insurance Contracts (IFRS 17) with significant amendments. The new approach to measuring income from insurance contracts has transformed taxpayers’ accounting records and affected their transfer pricing (TP) policies. As the deadline for submitting TP files for FY23 is approaching, it’s time to assess how IFRS 17 affects insurers’ transactions with related parties.

The media have been actively using the term ‘cyber warfare’. At this year’s ‘Lampa’ Conversation Festival, I took part in ‘Are we ready for cyber warfare?’, a discussion held by the Ministry of Defence. At the moment we are unable to draw a clear line between the kind of cyber warfare that calls for a military response and the sort of cyber warfare that qualifies as an attack under the Criminal Code. Yet cyber warfare is definitely going on in Latvia and companies should be monitoring their cyber security carefully.

Sustainability has become a salient feature in today’s business landscape, with companies having to adapt to the growing pressure for operating responsibly and transparently. The European Union (EU) has taken significant steps to improve corporate sustainability reporting standards by implementing the Corporate Sustainability Reporting Directive (CSRD). It lays down a wider range of reporting requirements and offers more detailed guidelines helping companies make accurate and complete disclosures on their ESG impacts, as well as outlining criteria for companies liable to report on their sustainability practices.

In this article, we will explore how the courts ruled on a tax audit where the State Revenue Service (SRS) claimed the company under audit had wrongly deducted input VAT and misapplied a ratio. Although the SRS did not approve the company’s adjustments to its VAT returns and did not refund the VAT it had overpaid, the courts found the penalty and interest charged by the SRS to be justified. This case highlights important lessons for companies to avoid similar problems in the future.