Our experience suggests that the State Revenue Service (SRS) has recently focused on checking how Latvian corporate taxpayers fulfil their obligation under transfer pricing (TP) legislation,  i.e. (1) whether they have prepared TP documentation in the prescribed form by the statutory deadline and (2) whether their documentation gives all the required information to verify that their controlled transactions are arm’s length.

With the financial year nearing its end, section 15.2 of the Taxes and Duties Act requires many companies to prepare, or to prepare and file with the State Revenue Service (SRS), their transfer pricing (TP) documentation. Since determining related-party status often confuses taxpayers and authorities, this article reminds you who is considered a related party for TP purposes and what transactions require the taxpayer to prepare TP documentation.

In statutory cases, the taxpayer is liable to prepare transfer pricing (TP) documentation and file it with the State Revenue Service (SRS). An examination of TP documentation helps the SRS monitor the correctness of corporate income tax (CIT) payments because the difference between a controlled transaction’s value and market price must be included in the taxable base under the CIT Act. If the taxpayer defaults on the obligation to prepare and file TP documentation, then in addition to the opportunity to start an audit and assess the correctness of the CIT calculation, the SRS may start a data assesment in the field of tax revenue risks and charge a hefty fine on the company if an offence is found. This article explores what offences relating to TP documentation permit the taxpayer to be fined outside an audit and how the SRS should evaluate and justify the size of fine.