High quality comparables are crucial when it comes to setting an arm’s length price in a transfer pricing (TP) analysis. A key factor in this process is making an informed choice about the dataset size, i.e. using comparable financials for one year or multiple years. This article explores key risks and factors to consider in setting an arm’s length price of transactions and using comparables for one or more years. We will be referring to the general rules of Latvian law and the TP guidelines issued by the OECD, with an example from case law.
 

The payroll tax gap has tended to diminish slowly but surely since 2016, according to a 2020 national social insurance (NSI) and personal income tax (PIT) gap assessment recently carried out by the State Revenue Service (SRS).

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.