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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Transfer pricing - latest news

 

13/12/2019

New tax opinion on amount of related party loan for current year 

We have written about the burning question of how to calculate the value of a related-party loan for the current year. This is crucial in determining whether the taxpayer is required to prepare and submit transfer pricing (TP) documentation to the State Revenue Service (SRS) within 12 months after the end of the financial year. As the deadline for 2018 is almost upon us (31 December 2019), PwC approached the Ministry of Finance and the SRS for comment. This article explores the opinion shared by the two bodies and PwC’s understanding of their comment...

29/11/2019

Submission of transfer pricing documentation

As the calendar year 2019 is nearing its end, some taxpayers are facing a deadline for filing their transfer pricing (TP) documentation. This article explores the deadline and some technical challenges that are likely to prevent taxpayers from meeting it...

22/11/2019

Transfer pricing documentation for share purchase and sale: SRS comment

Under Latvian transfer pricing (TP) rules, a taxpayer reaching a statutory threshold for controlled transactions must prepare and file TP documentation with the State Revenue Service (SRS) within 12 months after the end of the financial year. The SRS has recently issued a crucial interpretation stating that the acquisition and disposal of assets includes acquiring shares in another company and is therefore considered a transaction for TP purposes...

02/11/2019

Cash pool: transfer pricing aspects

To complete our series of articles on the transfer pricing (TP) aspects of a cash pool, this article explores what data and sources are used in practice for setting fees (interest rates) for cash pool members depositing and borrowing cash...

25/10/2019

Proposed penalty for failure to file country by country report

On 1 October 2019 the Cabinet of Ministers debated and supported proposals for amending the Taxes and Duties Act to impose a new penalty for failure to duly file a country-by-country report. The amendments are intended to pass certain provisions of Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information (AEOI) in the field of taxation in relation to reportable cross-border arrangements (commonly known as DAC6)...

 

11/07/2019

Fellow subsidiaries as related parties in transfer pricing

Some of the substantial changes made to Latvia’s transfer pricing (TP) rules effective from 1 January 2018 prescribe how corporate income tax (CIT) payers should identify related parties before reporting and analysing their mutual transactions in their TP documentation. This article explores whether fellow subsidiaries are treated as related parties and offers a practical example of identifying this status...

Contact us

Tatjana Koncevaja

Tatjana Koncevaja

Transferpricing Director, PwC Latvia

Tel: +371 67094400

Zane Smutova

Zane Smutova

Transferpricing project manager, PwC Latvia

Tel: +371 67094400

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