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Text consolidated by Valsts valodas centrs (State Language Centre) with amending regulations of:

17 September 2013 [shall come into force on 1 January 2014].

If a whole or part of a paragraph has been amended, the date of the amending regulation appears in square brackets at the end of the paragraph. If a whole paragraph or sub-paragraph has been deleted, the date of the deletion appears in square brackets beside the deleted paragraph or sub-paragraph.


Republic of Latvia

Cabinet
Regulation No. 16
Adopted 3 January 2013

Procedures for the Conclusion of an Advance Ruling for the Determination of the Arm's Length Price (Value) for a Transaction or Type of Transactions Between a Taxpayer and the Tax Administration

Issued pursuant to
Section 16.1, Paragraph three of
the Law On Taxes and Fees

1. This Regulation prescribes:

1.1 the procedures by which the tax administration shall conclude an advance ruling with a taxpayer, which performs or commences a transaction with a related foreign undertaking (hereinafter - taxpayer), the arm's length price (value) for the particular transaction or type of transactions (hereinafter - advance ruling) shall be determined;

1.2 the fee for the conclusion of the advance ruling and the procedures by which the fee shall be collected.

2. A taxpayer shall submit to the State Revenue Service an application for an advance ruling. The following shall be indicated in the application:

2.1 the name, registration number and legal address of the taxpayer;

2.2 a related foreign undertaking with which the taxpayer performs or commences a transaction;

2.3 the transaction or type of transactions to which the advance ruling will apply;

2.4 the method selected for the determination of the arm's length price (value) of the transaction;

2.5. the time period to which the advance ruling will apply (not exceeding three years from the date of conclusion of the advance ruling);

2.6 the legal basis for the selection of the method for determination of the arm's length price (value) of the transaction and for the submission of the application.

3. The submission referred to in Paragraph 2 of this Regulation shall be accompanied by the documents providing the following information:

3.1 a general description of the field of activities of the taxpayer - a short summary of activities of the taxpayer during the past years, which includes:

3.1.1 information on the field (development trends, most characteristic features) in which the taxpayer operates;

3.1.2 the main types of commercial activity or entrepreneurial activity of the taxpayer;

3.1.3 locations of commercial activity or entrepreneurial activity of the taxpayer;

3.1.4 the analysis of such economic and legal factors which affect the price determination for the products and services of the taxpayer;

3.1.5 a characterisation of the respective commercial activity environment (competition, implementation opportunities and other market factors);

3.1.6 a description of intangible investment, which may have a potential impact on the transaction between the taxpayer and the related foreign undertaking;

3.1.7 key transaction flows between the participants of the organisational structure of the world group of related persons, which may have an impact on the transaction or type of transactions referred to in Sub-paragraph 2.3 of this Regulation;

3.1.8 information regarding the functions carried out in transactions, risks taken and assets used (involved);

3.2 the organisational and legal structure of the taxpayer and the world group of the related persons and their correlation;

3.3 information regarding the related foreign undertaking, with which the transaction is performed or commenced and which is the subject to the advance ruling: the name of the person, legal address and address of units, telephone number, taxpayer identification number, taxation period and the given name, surname, identification code and authorisation basis of the authorised representative of the related foreign undertaking;

3.4 identifying characteristics of the relations between the taxpayer and the related foreign undertaking: the ratio of mutual participation in capital and the characterisation of control;

3.5 the financial and tax data reflecting the activities of the parties to the transaction, including:

3.5.1 the enterprise income tax (or similar tax) declarations, financial statements and annual reports of the related foreign undertaking, with which the transaction is performed or commenced, for the last three years;

3.5.2 the existing rulings between related undertakings and individuals on the price determination or cost-sharing;

3.5.3 a characterisation of accountancy organisation of undertakings;

3.5.4 if it can affect the conformity of the transaction price (value) with the arm's length price (value) - also the marketing and financial studies, draft budgets, commercial activity or entrepreneurial activity plans and the report of global product line or commercial activity (entrepreneurial activity) segment;

3.6 information regarding the taxpayer's business strategy (market strategy, product (service) distribution, sales strategy and management strategy) that can affect the determination of the price (value) for a transaction with a related foreign undertaking;

3.7 a description of the transaction, which is subject to an advance ruling, including:

3.7.1 a description of the transaction relating to the particular transaction, which is subject to the advance ruling;

3.7.2. flow of goods, services, products and transaction product, cash flow, and currency used;

3.7.3 the functional analysis of each party to the transaction (includes a description of the functions carried out by each party, assets involved, risks taken and economic costs utilised);

3.7.4 part of remuneration of each party to the transaction from investment of intangible property, the method for calculation thereof and justification, if the costs performed for ensuring the transaction are related to the use of intangible property;

3.7.5 contractual conditions of the transaction;

3.7.6 economic conditions that affect the transaction prices, and the specifics of the strategy of commercial activity (entrepreneurial activity);

3.8 the description of the selected method for determination of the conformity of the transaction price (value) with the arm's length price (value), motivation of the method selected and comparison with the method applied during past three years, materials justifying the rationality of the selected methodology for determination of the arm's length price (value) of the transaction;

3.9 depending on the method selected - an analysis of comparable financial indicators of unrelated merchants or analysis of comparable transaction price (value) of unrelated merchants and corresponding transaction price (value) applied, which include:

3.9.1 detailed selection criteria used to identify the potential comparable transactions, or data on comparable unrelated undertakings (commercial companies or co-operative companies), as well as a description of the potential comparable transactions or unrelated undertakings;

3.9.2 a detailed description of any necessary correction factors relating to the selected comparable unrelated undertakings (commercial companies or co-operative companies) or transactions, as well as the application of such correction factors and the results thereof;

3.10 assumptions on the factors affecting the determination of the arm's length price (value) and on the potential consequences of such changes;

3.11 a copy of the advance ruling between a foreign related undertaking and its national tax administration (if such ruling is concluded) and copies of the documents appended thereto, if the referred-to ruling is concluded for similar transactions or affects this transaction, and a brief summary of such documents in Latvian;

3.12 a list of advance rulings concluded between a foreign related undertaking and its tax administrations if they are concluded for similar transactions or affect this transaction;

3.13 if a foreign related undertaking is under tax inspection or it participates in an appeal case or appeal process in relation to persons connected with a transaction on determination of the arm's length price (value), - the description of these events;

3.14 other information supporting the conformity of the price (value) of a transaction or type of transactions of related undertakings with the arm's length price (values).

4. The State Revenue Service shall assess the taxpayer's application for an advance ruling by examining the information provided in the application and the documents appended thereto, as well as, if necessary, requesting additional information from the taxpayer, and take a decision within the time period and in accordance with the procedures laid down in the Administrative Procedure Law:

4.1 to initiate the conclusion of an advance ruling;

4.2 to refuse to initiate the procedure of conclusion of an advance ruling.

5. The State Revenue Service shall notify the taxpayer, in accordance with the procedures laid down in the Notification Law, on the decision referred to in Sub-paragraph 4.1 or 4.2 of this Regulation.

6. The State Revenue Service shall take a decision to refuse to initiate the procedure of conclusion of an advance ruling if the taxpayer:

6.1 does not provide the information referred to in Paragraph 3 of this Regulation;

6.2 has indicated false information in the application for an advance ruling or in the documents appended thereto.

7. If the State Revenue Service takes a decision to commence the procedure of conclusion of an advance ruling, it shall notify the taxpayer of the date when the procedure is commenced and the responsible official of the State Revenue Service.

8. If, after exchange of information and arguments with the taxpayer, the State Revenue Service agrees to conclude an advance ruling with the taxpayer, the following information shall be included therein:

8.1 the name, registration number and address of the taxpayer;

8.2 the facts, transactions and financial years which are subject of the advance ruling;

8.3 the method for the determination (description thereof) of the arm's length price (value), which is accepted by the State Revenue Service, the amount of the comparable objects and the criteria for selection thereof, the expected result of application of the selected method;

8.4 the information important for the calculation related to the method of determination of the arm's length price (value) (e.g., cost mark-up, profit margin);

8.5 significant assumptions which justify the method;

8.6 the circumstances which should lead to declaration of amendments to the advance ruling;

8.7 a notification that the advance ruling is repealed if laws and regulations are modified;

8.8 conditions which lead to repealing the advance ruling;

8.9 the term of operation of the advance ruling (not exceeding three years from the date of conclusion of the previous ruling);

8.10 the tax consequences which arise from the advance ruling;

8.11 other conditions on which the parties agree.

9. The taxpayer is entitled to declare amendments to the advance ruling until the moment when an annual report must be submitted for the accounting year, to which the respective amendments apply.

10. When considering the application for amendments to the advance ruling, the State Revenue Service within the time limits and in accordance with the procedures laid down in the Administrative Procedure Law shall take a decision:

10.1 to initiate the procedure of amending the advance ruling;

10.2 to refuse to initiate the procedure of amending the advance ruling.

11. The State Revenue Service shall notify the taxpayer, in accordance with the procedures laid down in the Notification Law, on the decision referred to in Sub-paragraph 10.1 or 10.2 of this Regulation.

12. Amendments to the advance ruling shall be performed if the State Revenue Service accepts them after exchange of information and arguments with the taxpayer.

13. If within one year from initiating the procedure of conclusion of an advance ruling the State Revenue Service and the taxpayer do not agree on the conditions of the advance ruling and the subsequent performance of the procedure of conclusion is not useful, the State Revenue Service shall terminate the procedure of conclusion of the advance ruling.

14. The fee for the conclusion of an advance ruling shall be 7 114 EUR and it shall be paid into the State budget in the State Revenue Service budget programme account of the Treasury.

[17 September 2013]

15. The taxpayer shall pay a part of the fee for the advance ruling:

15.1 in the amount of 20 per cent prior submission of the application referred to in Paragraph 2 of this Regulation;

15.2 in the amount of 80 per cent after the notification of the decision referred to in Paragraph 4.1 of this Regulation.

16. When making a payment for the advance ruling, the payment order must indicate the purpose of the payment: fee for the procedure of conclusion of the advance ruling.

17. Until receipt of the part of the fee referred to in Sub-paragraph 15.1 or 15.2 of this Regulation, the State Revenue Service shall not examine the application referred to in Paragraph 2 of this Regulation or shall not continue the procedure of conclusion of the advance ruling accordingly.

18. This Regulation shall apply from 1 January 2013.

Prime Minister V. Dombrovskis

Minister for Finance A. Vilks

 


Translation © 2014 Valsts valodas centrs (State Language Centre)

 
Document information
Status:
No longer in force
no longer in force
Issuer: Cabinet of Ministers Type: regulation Document number: 16Adoption: 03.01.2013.Entry into force: 11.01.2013.Applicability: 01.01.2013.End of validity: 21.12.2018.Publication: Latvijas Vēstnesis, 7, 10.01.2013. OP number: 2013/7.1
Language:
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