Taxpayers sometimes report an operating loss at the end of the financial year. The State Revenue Service (SRS) perceives this as a key risk that gives grounds for launching a control measure, particularly for taxpayers within a multinational group, citing the transfer pricing (TP) impact on profitability as the main cause of the loss. This article discusses the idea that losses may have an objective economic justification and other legitimate business strategy reasons, with associated risks materialising in the financial year, as well as looking at ways to offer explanations and dispel the myth that TP is the cause of the taxpayer’s operating loss.

On 8 May 2024, the EU Council published updated proposals for amending the VAT directive (known as VAT in the Digital Age – ViDA). The amendments are to be passed at an ECOFIN meeting on 21 June 2024. It’s likely that the original deadlines will be postponed and the member states will have to pass some of the amendments into their national laws by 1 July 2027, some by 1 July 2028 and some by 1 July 2030. This article explores key changes and the timeline.

Coming into force on 1 July 2024, the Latvia–Moldova social security agreement will help the two countries work together in this field by defining how pensions, government benefits and insurance claims can be awarded and paid to persons living in Latvia and Moldova. The agreement also governs the payment of national social insurance contributions on income arising in these countries and dispenses with the need to contribute in both. This article describes how the agreement was reached and explores its key terms that are relevant to every Latvian individual that has economic or social ties with Moldova, as well as to Latvian businesses employing or planning to employ workers from Moldova after June 2024.

Today’s business environment sees many companies entering into contracts with foreign partners that often involve the agreed work being carried out abroad. PwC Latvia tax director Vita Sakne and senior associate Elizabete Lizete Lapsina explain the circumstances and issues arising when a company doing a long-term construction or installation project across several jurisdictions may be liable to register a permanent establishment.

This article explores a court ruling that was issued after a review by the State Revenue Service (SRS) found that invoices a company had expensed in its books did not meet requirements of the Accounting Act. A tax audit found the invoices do not qualify as supporting documents because no services were provided in exchange and the invoices were prepared incorrectly. The company faced an additional corporate income tax (CIT) liability of more than EUR 5 million.

Many taxpayers that have wrongly paid some taxes into the single tax account, made an overpayment or adjusted their liabilities will see an amount under ‘Unallocated Payments’ in the Electronic Declaration System. We asked the State Revenue Service (SRS) when such unallocated amounts expire.

Whistleblowing is not a novel concept in the European Union (EU) so it’s not related to sustainability alone. However, the latest sustainability legislation enhances the significance of whistleblowing and the need to protect whistleblowers. This article explores how a whistleblowing system can drive sustainable growth in organisations.

Every five years or so, each information technology (IT) officer looks back at performance and builds a new corporate IT strategy. A benchmarking study that involves comparing your current IT governance parameters with similar companies is an integral part of strategic planning. Comparable parameters (e.g. IT costs per user or per euro earned, the percentage of technology maintenance costs in total technology costs, or the number of computer hardware units to be serviced per specialist full-time equivalent) depend on the database you’re using, they’re easy to understand, and selecting them raises no questions.

Whether a taxable person transfers a business or makes a contribution in kind in exchange for shares, this is typically treated as a transaction outside the scope of VAT. However, the Latvian VAT Act does not resolve this issue conclusively, and this assumption comes from a logical assessment of the rules that require adjustment to input VAT deduction. The latest case law of the Court of Justice of the European Union (CJEU) has weakened the impression that a contribution to share capital is always a supply outside the scope of VAT. This article explores a recent CJEU ruling.

One day I tried out Copilot for Microsoft 365 and realised this GenAI tool isn’t going to replace me at PwC but it will certainly change my daily life. PwC Latvia has been a Microsoft partner since last Christmas, and I’ve been encouraging Latvian companies to test Copilot’s capabilities. Each company can come up with its own scenario and see how it can benefit from using GenAI. It’s important that your company has its own task where it expects added value from GenAI. It wouldn’t be right to use the technology ‘unattended’ and laugh about images it generates with two-headed persons or about Neil Armstrong being hailed as the first astronaut. Below I offer my scenario and findings.

We have written earlier about the State Revenue Service (SRS) pointing out significant errors in transfer pricing (TP) files and focusing on the lack of financial data segmentation, the tested party or its financial data, and the benefit test (i.e. evidence of services). This article explores some other common breaches.

The Ministry of Finance has drafted proposals for amending the Cabinet of Ministers’ Rule No. 336 of 31 July 2001, ‘Allowable Expenses on Education and Medical Services’. The proposals mainly deal with the need to clearly define expenses that taxpayers may claim as allowable expenses.

Generative artificial intelligence (GenAI) has become an essential business tool that helps companies optimise their processes, improve efficiencies and cut costs. However, to better understand GenAI’s impact on finances, it’s important to consider the cost of this tool from different aspects.

A civil lawsuit involving a PwC Legal client’s dispute with an insurer over who owns a cash deposit has ended in payment of the full claim, with recovery of cash and interest on arrears and reimbursement of litigation costs, totalling EUR 115,029.32. The claimant’s interests were represented by Nataļja Puriņa, an attorney-at-law with ZAB PricewaterhouseCoopers Legal SIA.

Cross-border work done remotely has become very popular among digital nomads after the Covid-19 pandemic. However, an employer accepting or offering this option may face administrative obstacles and tax risks, one of which is the risk of having a permanent establishment (PE). This article explores the reasons for the growing popularity of remote work and the inherent PE risks.

Electrical vehicles (EVs) are gaining traction. According to the Auto Association, Latvia set a record in new EV registrations in 2023: 8.8% of total registered new passenger vehicles were electrical. Episode 41 of our podcast features Viktorija Lavrova, a PwC tax manager, and Aleksandrs Afanasjevs, a tax consultant, explaining what tax aspects should be considered if a company buys an EV, and whether the employer can reimburse EV charging costs if it’s being used for private as well as business purposes.

In this article we explore Ruling C-606/22 from the Court of Justice of the European Union (CJEU) on the entitlement to a refund of value added tax (VAT) where the taxable person has applied a higher rate of VAT than what the law prescribes. This ruling is important because it explains how the VAT directive’s principles should be applied in practice where a cash-register receipt has been issued to the customer, which is practically impossible to amend in order to show the correct rate of VAT and to refund the overpaid tax to the customer.

It’s been a while since the Organisation for Economic Co-operation and Development (OECD) drafted its Pillar I report dealing with various issues around the growing economic globalisation and digitalisation. It’s also increasingly difficult to determine countries’ rights to charge corporate income tax on the profits of multinational enterprise groups. While the project is basically geared towards digital business, one of the solutions the OECD offers may simplify transfer pricing (TP) for a particular group of transactions: baseline marketing and distribution activities.

One of the signals indicating an organisation needs diversity management is a high level of subjective feelings of discrimination or injustice among its staff. Low innovation capacity or high staff turnover can also suggest its diversity and inclusion (D&I) practices are not successful. Yet these are just a few of the reasons why organisations turn to diversity management as a key priority.

In today’s competitive job market, the battle to attract and retain the best talent is more challenging than ever before. An effective employer branding strategy that is aligned with your corporate values, culture, work environment and benefits will help you stay ahead of your competitors. Not only are organisations with a strong employer brand attracting more applicants but the pool they get to choose from is higher quality, leading to better hires and lower turnover rates.

In late 2023 the Ministry of Finance (MOF) drew up an informational report on plans to improve the operations of the State Revenue Service (SRS). The report suggested appropriate measures, including changes to the SRS organisational structure and revising the types of subordination. The guidelines and the goal of the reform are consistent with the SRS long-term strategy, which provides for improving its operations to become a more efficient tax and customs authority with the emphasis on encouraging cooperation with taxpayers.

The Green Deal aims to make Europe the first climate-neutral continent. We have undertaken to reduce our greenhouse gas (GHG) emissions by at least 55% (compared to the 1990 levels) by 2030 and achieve climate neutrality by 2050. To meet these targets and mitigate the impact on climate change, countries and businesses need to cut down their GHG emissions significantly.

Over 70% of 3,522 business and information technology leaders say they have made significant cybersecurity improvements since 2020, according to PwC’s 2023 survey “Global Digital Trust Insights”. They have done all the right things: re-evaluated their cyber-risks, revised their security documentation, improved their ability to defend against ransomware, and enhanced their user awareness of information security. However, the two years of war, 2022 and 2023, have changed the nature of cybercrime. There were not many complaints about politically and ideologically motivated attacks in 2021, yet such attacks have represented a significant percentage since the war broke out in 2022. The activity of threat actors using their knowledge for political or ideological reasons has remained high and compares with the activity of ransomware and other commercially motivated attackers.

The peculiar procedure for calculating and paying solidarity tax (ST) often has taxpayers wondering about its link with other Latvian taxes: personal income tax (PIT) and mandatory national social insurance (NSI) contributions. Confusion about ST’s essence and mechanism may lead to a dispute with the tax authority and even litigation. This article explores one of the latest cases heard by the Latvian Supreme Court regarding an ST payer’s request for a refund of PIT wrongly paid by making ST payments in Latvia.

All kinds of things happen in life, for example the original document has gone missing. A person used to hold the signed original of a contract that was entered into ten years ago and is still valid. It was scanned at some point in time and retained in readable form but for some reason is no longer available.

While rules on platform work have yet to be passed, the legal frameworks of the EU lawmaker and of the Court of Justice of the European Union (CJEU) are living parallel lives. March 2024 saw new yet converging reference points from both directions, and the sharp-eyed reader can start wondering whether platform workers (food delivery couriers) are employees or self-employed.

On 22 February 2024 the European Parliament Committee on Economic and Monetary Affairs (ECON) published a draft report that includes proposals for a transfer pricing (TP) directive drafted by the European Commission. The ECON draft report generally supports the Commission’s proposal to align the TP requirements across the EU, yet it recommends a number of crucial amendments. This article explores the ECON amendments that could affect Latvian TP requirements, too.

Looking at the ever-changing financial management space, you might think that traditional tools such as Excel should gradually become obsolete and be replaced with advanced software solutions that rationalise processes and build efficiencies. However, despite a whole range of financial technologies being readily available and optimally applied, organisations keep using Excel in their day-to-day work.

Recent years have seen the State Revenue Service (SRS) increasingly focus on transfer pricing (TP) risks, particularly management services and business support services rendered within a multinational enterprise (MNE) group. These services between related companies aim to promote a group member’s business, to cut costs it would have incurred in performing the particular functions on its own, or to offer some other comparable benefit from the synergy of doing business together. Yet there is also the other side of the coin – TP and corporate income tax (CIT) risks may arise if the recipient of services is unable to prove they were actually received and the fee was justified.

The Value Added Tax (VAT) Act prescribes a special scheme for charging VAT on supplies of second-hand goods. These include a variety of tangible items, such as cars, machinery, office equipment, furniture and other goods that are fit for future use in the same form with no modification or after repairs and that are not works of art, collectors’ items or antiques. A taxable person selling second-hand goods will normally charge VAT on the full price. However, certain supplies of second-hand goods can be exempt from VAT or taxable under a special scheme on the difference between the acquisition cost and the selling price (a margin scheme for second-hand goods as per section 138 of the VAT Act). This article explores what conditions have to be met before section 138 can be applied and when an exemption is available.