Transfer pricing services

Our transfer pricing team is willing to discuss emerging transfer pricing issues and promote brave solutions in transfer pricing practice

“Transfer pricing is not, in itself, illegal or necessarily abusive. What is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing,” says the Tax Justice Network.

In recent years, TP has become a key area of international taxation facing multinational enterprises and tax administrations.

TP requirements mainly apply to cross-border transactions. If a multinational group enters the Latvian market, e.g. by establishing, merging or acquiring a Latvian subsidiary or creating a permanent establishment (PE) in Latvia, and that subsidiary or PE makes transactions with other group companies (or with any other persons such as family members or significant individual shareholders), the prices applied in those transactions may directly affect how the profit or loss of related parties is measured, and it is important to disclose how those prices are set in practice.

So the transfer prices of a multinational group with a taxable presence in Latvia are governed by Latvian tax laws.

 

 

Latvia has relied on the arm’s length principle in protecting its direct tax base since 1995. Amendments made to the Latvian legislation governing related-party transactions in financial periods starting in 2018 and later differentiate the scope for defining related parties and lay down special administrative requirements for TP documentation:

  • In general, the new CIT rules require that a taxpayer’s CIT base should include not only his profit distributions but also deemed distributions. Section 4(2)(2)(e) of the CIT Act lays down the principle that any income gained from related-party transactions must not be below market and relevant expenses must not be above market. Any resulting deficit or surplus is a deemed distribution and must be included in the CIT base.
 
  • The revised standard of TP documentation in section 152 of the Taxes and Duties Act includes new TP documentation rules and lists taxpayers (residents or PEs) that are required to prepare TP documentation in specified cases to prove that their controlled transactions are arm’s length.

A practical guide to Transfer pricing

We encourage taxpayers to use a guide put together by PwC that offers handy tips for documenting and reporting related-party transactions for CIT purposes. The below instructions for reporting and documenting transfer prices are designed mainly to help your staff responsible for the technical side of interpreting TP issues. These instructions do not provide a final interpretation in assessing your related-party transactions or TP issues.

Step 1 checks whether the taxpayer has any related parties.

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Step 2 indicates an obligation to check whether related parties have made any transactions or entered into commercial or financial relationships. If so, the total value of related-party transactions should be reported on the CIT return.

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Step 3 finds out whether the CIT base will include any deemed distributions arising from related-party transactions (TP adjustment). If an adjustment is required, the difference between the amounts of related-party transactions should be reported on the CIT return.

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Step 4 checks whether the taxpayer is required to prepare and file TP documentation to prove that the prices are arm’s length.

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We offer a functional support tool “Identifying TP requirements” where the taxpayer can answer a set of questions (e.g. assessing whether the company has any related-party transactions and what amounts are involved) to work out the total value of related-party transactions to be reported on the CIT return and understand whether the taxpayer is required to prepare any particular form of TP documentation and file it with the SRS.

Please download the document if you would like to make entries in it and receive automated calculations using the embedded formulas.

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We offer:

Preparing TP documentation

TP documentation is a special file prepared by the taxpayer and/or his consultants. Its purpose is to provide information necessary to identify TP risks and assess the taxpayer’s compliance with TP legislation. Much of the information usually included in the TP documentation is intended to describe the taxpayer’s business activities and the nature of related-party transactions.

The TP documentation shows that the taxpayer’s related-party transactions are arm’s length, and its findings may be used in handling any question or dispute with related parties, minority shareholders, or third-party beneficiaries.

Preparing a high-quality and timely TP documentation takes a longer time than one month, which the SRS usually allows the taxpayer when asking to see TP documentation.

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Conducting benchmarking studies

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Preparing an Advance Pricing Agreement request

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Preparing a country-by-country report

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Segmenting the taxpayer’s financials

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Assessing the taxpayer’s TP risks

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Advising the taxpayer on how to adjust the legal form of controlled transactions

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Representing the taxpayer in negotiations with the SRS

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Contact us

Tatjana Koncevaja

Transferpricing Director, PwC Latvia

Tel: +371 67094400

Zane Smutova

Transferpricing project manager, PwC Latvia

Tel: +371 67094400

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