OECD basics
Transfer pricing refers to the prices and other terms applied in transactions between companies that are under common ownership or control, for example, the price a subsidiary pays its parent for goods, services, financing or the use of intangibles. Because the parties are not independent, these prices are not set by market forces, so tax authorities require them to reflect what unrelated parties would have agreed. Otherwise profit could be shifted between jurisdictions purely for tax reasons.
Legal source OECD TP Guidelines, Ch. I; likums "Par nodokļiem un nodevām" (NuN) 1. p. ("transfertcena")
The arm's length principle requires that the conditions of a transaction between related parties (price, payment terms, risk allocation etc.) should not differ from those that independent parties would have agreed in comparable circumstances. If they do differ, the tax authority may adjust the taxable result as if arm's length terms had applied. It is the international standard set out in Article 9 of the OECD Model Tax Convention and is embedded in Latvian corporate tax law.
Legal source OECD Model Tax Convention Art. 9; UIN likuma 4. p. 2. d. 2. pk. e) apakšpunkts
The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (current consolidated edition 2022) explain how to apply the arm's length principle: choice of method, comparability analysis, documentation (Master File / Local File / CbC), intangibles, intra-group services, financial transactions and business restructurings. Latvia is an OECD member and its regulations refer to the Guidelines as the interpretative source. In practice both the State Revenue Service (VID) and the courts rely on them where Latvian law is silent.
Legal source OECD TP Guidelines (2022); MK noteikumi Nr. 677 (14.11.2017.)
Five methods are recognised both by the OECD and by Latvian regulations: the comparable uncontrolled price (CUP) method, the resale price method, the cost plus method, the transactional net margin method (TNMM) and the profit split method. The taxpayer must select the most appropriate method for the facts, taking into account the functional profile of the parties, the availability of reliable comparable data and the nature of the transaction. Latvian rules expect the choice to be explained and justified in the documentation; in practice TNMM is the most frequently applied method.
Legal source OECD TP Guidelines, Ch. II; MK noteikumi Nr. 677, 3. nodaļa
A comparability analysis compares the controlled transaction with dealings between independent parties in order to determine an arm's length price or margin. It looks at five comparability factors: the characteristics of the goods or services, the functions performed, assets used and risks assumed by each party (the functional analysis), contractual terms, economic circumstances and business strategies. The functional analysis is the backbone of the exercise: it identifies which entity creates value and bears risk, and therefore which entity should earn the higher or lower return and which party should be tested.
Legal source OECD TP Guidelines, Ch. I un III; MK noteikumi Nr. 802, 3.2. pk.
BEPS Action 13 introduced a standardised three-tier structure: (1) the Master File, a group-level overview of the business, value drivers, intangibles, financing and transfer pricing policies; (2) the Local File, detailed information on the local entity and its material controlled transactions, including the economic analysis; and (3) the Country-by-Country report, an annual breakdown of revenue, profit, tax and activity by jurisdiction for groups with consolidated revenue of EUR 750 million or more. Latvia has implemented all three tiers: the Master File and Local File are called global and local transfer pricing documentation, and the CbC report is governed by Cabinet Regulation No. 397.
Legal source OECD TP Guidelines, Ch. V; NuN 15.2 p.; MK noteikumi Nr. 802 un Nr. 397
Latvian compliance
Yes. The Corporate Income Tax (CIT) Law requires that transactions between related parties be priced at market value. If a Latvian company sells to a related party below market value, or buys above it, the difference is added to the CIT base as deemed distributed profit. The methods for establishing market value are set out in Cabinet Regulation No. 677, which mirrors the five OECD methods and refers to the OECD Guidelines for interpretation.
Legal source UIN likuma 4. p. 2. d. 2. pk. e) apakšp.; MK noteikumi Nr. 677
The definition is in Section 1 of the Law on Taxes and Fees and is broad. Companies are related where one holds more than 50% of the capital or voting rights in the other, or where more than 50% of both is held by the same person, including that person's relatives up to the third degree, spouse and in-laws up to the second degree, or by the same group of up to ten persons. A 20-50% holding is also sufficient in certain cases (e.g. where a foreign company is involved or where combined with decisive influence). Companies are further related if the same individuals hold the majority of board seats or can otherwise control decisions. Individuals are related to a company where they, together with their relatives, hold more than 50%. Entities wholly owned by the state or a municipality are excluded.
Legal source NuN likuma 1. p. 18. pk. ("saistītas personas")
Partly. The arm's length requirement in the CIT Law applies to every related-party transaction, including deals between two Latvian companies, and the amounts must be disclosed in the CIT return. However, the documentation obligation (and, from 2026, the controlled transactions report) is limited to "controlled transactions" in the narrower statutory sense: transactions with a related foreign company, with a related individual, with an entity in a low- or no-tax jurisdiction, between a company and its permanent establishment, and with a related Latvian company only where that transaction forms part of a chain that also involves one of the above counterparties. A transaction solely between two Latvian group companies therefore requires market pricing but no formal Local File, although VID may still ask how the price was set, and its methodological material notes that a taxpayer who prepares no supporting information bears the risk of proving its CIT position.
Legal source UIN likuma 4. p.; NuN 15.2 p. 2. d.; VID metodiskais materiāls "Transfertcenu dokumentācija" (akt. 01.01.2026.)
The framework consists of: (a) the Law on Taxes and Fees, Section 1 (definitions of related parties and transfer price), Section 15.2 (documentation and controlled transactions report obligations, thresholds, deadlines and fines) and Section 16.1 (advance pricing agreements); (b) the CIT Law, Section 4, which brings related-party price differences into the tax base; (c) Cabinet Regulation No. 677 of 14 November 2017 on application of the CIT Law: transfer pricing methods, comparability and the arm's length range; (d) Cabinet Regulation No. 802 of 18 December 2018: the content of global, local and simplified documentation and the APA procedure; and (e) Cabinet Regulation No. 397 of 4 July 2017 on Country-by-Country reporting. VID has also issued methodological guidance on documentation (latest edition December 2024) and guidelines on calculating documentation fines (2023).
Legal source NuN 1., 15.2, 16.1 p.; UIN likuma 4. p.; MK noteikumi Nr. 677, 802, 397
Yes. In the CIT return for the last month of the financial year the taxpayer reports the total value of transactions with related non-residents on line 6.5.1 and with related Latvian residents on line 6.5.2 (net of VAT). For loans, the reported value includes both the principal received or granted in the year and the interest recognised. Any difference between the actual transaction value and market value, i.e. the transfer pricing adjustment, is entered on line 6.5 and forms part of the taxable base as deemed distributed profit. These lines are a key data source for VID's risk assessment, so they should reconcile with the documentation and, from 2026, with the controlled transactions report.
Legal source UIN deklarācijas 6.5., 6.5.1., 6.5.2. rinda; MK noteikumi Nr. 677; VID metodiskais materiāls par UIN deklarācijas aizpildīšanu
Documentation
Amendments to Section 15.2 of the Law on Taxes and Fees, in force from 1 January 2026 and applicable to financial years beginning in 2025, replaced the former three-band system. Now: (1) if controlled transactions exceed EUR 250,000 in the year, the taxpayer must prepare a Local File within 12 months after year-end and must also file a controlled transactions report with VID within the same 12 months; (2) if controlled transactions exceed EUR 20 million, a Master File must additionally be prepared within 12 months after year-end; (3) neither the Local File nor the Master File is filed automatically any more. They are submitted only at VID's request, within 30 days of the request (90 days where the documentation concerns chain transactions with a related Latvian company). Two further points from VID's methodological material: transactions with persons in low- or no-tax jurisdictions must be documented irrespective of the thresholds, and a taxpayer below EUR 250,000 who keeps no supporting information bears the risk of being unable to defend its CIT position. The previous rule requiring automatic annual filing of the Local File above EUR 5 million, and the Master File tests based on EUR 15 million of transactions or EUR 50 million of consolidated turnover, no longer apply. For years before 2025 the old thresholds continue to govern.
Legal source NuN 15.2 p. (red. no 01.01.2026.); NuN pārejas noteikumu 249. pk.; VID informācija par 15.2 panta grozījumiem
The controlled transactions report (kontrolēto darījumu pārskats) is a new structured-data form filed electronically through VID's EDS system. It must be submitted by every CIT payer whose controlled transactions exceed EUR 250,000 in the financial year, within 12 months after year-end. For a calendar-year 2025 the deadline is 31 December 2026. For each category of controlled transaction the report shows the type and direction of the transaction, the total amount, the counterparty and its country, the transfer pricing method applied, the tested party, the comparables source and the resulting arm's length indicator or price. It replaces the automatic filing of the full Local File and allows VID to run semi-automated risk analysis before opening any control measure. A corrected report may be filed if errors are found.
Legal source NuN 15.2 p. 9.1 un 13. d.; ifinanses.lv, PwC, KPMG skaidrojumi par 2026. g. grozījumiem
The threshold is applied to the aggregate value of all controlled transactions of the taxpayer in the financial year, with all related counterparties together, not per counterparty and not per contract. Both income and expense transactions count (sales and purchases of goods, services received and rendered, royalties, etc.). For loans the value is the principal received or granted during the year plus the interest recognised in that year; in a year with no new drawdown only the recognised interest counts. For credit lines and cash-pool accounts with many movements VID's methodological material allows an alternative formula: opening balance + amounts drawn in the year − amounts repaid in the year + interest recognised (mirrored on the debtor side for a facility granted). VID also stresses that for loans not only the interest rate but also the size of the amount lent is examined. Amounts are taken without VAT. Only transactions that qualify as controlled transactions are counted. A transaction with a related Latvian company outside a chain is excluded, whereas a transaction with an unrelated entity in a low-tax jurisdiction is included.
Legal source NuN 15.2 p.; VID metodiskais materiāls "Transfertcenu dokumentācija" (akt. 01.01.2026.); mindlink.lv par kontrolēto darījumu summas aprēķinu
Yes. Even when the taxpayer is above the EUR 250,000 documentation threshold, a transaction (or category of similar transactions) whose total value in the financial year does not exceed EUR 90,000 need not be analysed in the Local File or reported in the controlled transactions report. The limit was EUR 20,000 for years up to 2024 and was raised to EUR 90,000 by the amendments applicable from the 2025 reporting year. Excluded transactions must still be priced at arm's length and disclosed in the CIT return.
Legal source NuN 15.2 p. 11. d. (būtiska darījuma slieksnis 90 000 EUR)
Cabinet Regulation No. 802 (point 3) prescribes three blocks. (1) Taxpayer and group information: organisational and legal structure, management reporting lines, business description and strategy, restructurings or transfers of intangibles, main competitors. (2) For each material controlled transaction: description and context, amounts by counterparty and country, copies of contracts, functional and comparability analysis, choice and justification of the method and of the tested party, key assumptions, the comparables search (databases, screening criteria, accepted and rejected companies), any comparability adjustments, the arm's length range calculation and a conclusion that the terms are at arm's length, plus copies of any APAs or foreign rulings. (3) Financial information: annual report, tables reconciling the segmented data used in the analysis to the statutory accounts, and the data sources for comparables. Since 1 May 2025 the Local File may be prepared in Latvian or English; VID may request a Latvian translation.
Legal source MK noteikumi Nr. 802, 3. pk.; OECD TP Guidelines, Ch. V, Annex II
The Master File describes the whole multinational group: legal and ownership structure, the main business lines and supply chains for the five largest products or services, important service arrangements, key markets, the group's intangibles strategy and ownership, intra-group financing arrangements, the consolidated financial statements and existing APAs and rulings. Its purpose is to let VID see the Latvian entity in the context of the group's value chain. The Local File, by contrast, is entity-specific: it documents the Latvian company's own controlled transactions, the method applied to each and the benchmarking evidence. In Latvia a Master File is required only above EUR 20 million of controlled transactions; a group Master File prepared abroad is acceptable in Latvian or English, with a Latvian translation on VID's request.
Legal source MK noteikumi Nr. 802, 2. pk.; NuN 15.2 p.
The Local File must be reviewed each year, but a full rewrite is not always necessary. Under Section 15.2 (as amended from the 2025 reporting year) the documentation, including the comparables search, may be refreshed only once every three years provided the business model, the functional profile and the methodology have not materially changed. In the two intervening years the financial data of the accepted comparables must be rolled forward and the tested party's own results must be updated and tested against the range annually. Any significant change (a restructuring, a new type of transaction, a change in counterparty) triggers a full update earlier.
Legal source NuN 15.2 p. (dokumentācijas atjaunošana reizi trijos gados)
Latvia applies the OECD threshold: a CbC report is required for multinational groups whose consolidated revenue in the preceding financial year was at least EUR 750 million. If the ultimate parent is a Latvian tax resident, it files the report with VID within 12 months after the end of the reporting year. A Latvian subsidiary of a foreign-parented group normally does not file locally, because the report is exchanged automatically under the EU directive and OECD agreements, but it must notify VID (by the end of the reporting year) which group entity files the report and in which country. Secondary local filing may be required if the parent's jurisdiction does not exchange reports with Latvia.
Legal source MK noteikumi Nr. 397 (04.07.2017.); Padomes direktīva (ES) 2016/881 (DAC4)
Since 1 May 2025 the language rules have been relaxed. Both the Local File and the Master File may be prepared in Latvian or in English, and an English version may be submitted to VID when requested. If VID needs a Latvian version it may ask for a translation, which the taxpayer must provide within 30 days of the request. Before that date the Local File had to be in Latvian (and VID's 2023 fine guidelines still list a non-Latvian Local File as a serious breach. That criterion is now superseded for the Local File). The controlled transactions report is completed in the structured EDS form itself. The Local File and Master File are submitted electronically through EDS in unstructured form, but the text must be searchable; accepted formats are ODT, ODS, DOCX, XLSX, PDF, JPG/JPEG, TIF/TIFF, PNG, EDOC and ASICE, up to 50 files of 50 MB each per submission. The controlled transactions report is filed in EDS under "Uzņēmumu ienākuma nodokļa dokumenti". Since 2026 documents lodged via EDS are legally valid without a separate signature. Groups that document in English should nevertheless keep the possibility of a 30-day translation request in mind when planning resources.
Legal source NuN 15.2 p. (red. no 01.05.2025.): dokumentācijas valoda un tulkojums 30 dienu laikā; NuN 15.2 p. 13. un 13.1 d.; VID metodiskais materiāls (akt. 01.01.2026.)
Completing the KDP
Each transaction with each group company is entered as a separate transaction with a separate counterparty. The point of the report is that an arm's length price exists with every single group company, so a combined net result cannot be reported as one line.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kontrolēto darījumu norādīšana kontrolēto darījumu pārskatā"
B takes over all of A's rights and obligations and A ceases to exist without liquidation, so B includes all of A's 2025 transactions with related foreign persons in its own report. Where both companies carried out transactions identical in economic substance and functions, in the same direction and with the same counterparty, those may be combined for reporting purposes.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kontrolēto darījumu norādīšana kontrolēto darījumu pārskatā"
No. Under Section 15.2, paragraph 3 of the Law on Taxes and Fees the report is not filed for transactions with a related resident within one supply chain, unless that resident is a natural person within the meaning of Section 1, point 18 of the same law.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kontrolēto darījumu norādīšana kontrolēto darījumu pārskatā"
Within 12 months after the end of that financial year. For a year running from 1 May 2025 to 30 April 2026 the report is due by 30 April 2027. The amendments apply to controlled transactions from the reporting year that begins during calendar 2025 (transitional provisions, point 249).
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kontrolēto darījumu pārskata iesniegšana un būtiskums"
Either form is accepted: "0" as a value point, or "from 0 to 0" as a range. In a mixed transaction the range is given for the part that carries a profit element, and the Local File states clearly that the third party costs were excluded from the mark-up base.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Trešo pušu izmaksu pārdales darījumi"
The field is mandatory, so "external comparable data" is chosen from the classifier.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Trešo pušu izmaksu pārdales darījumi"
No. The transaction type follows the economic substance of the transaction, so a service that passes through third party costs without a mark-up and at the same time includes internal costs with a mark-up stays one transaction type.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Trešo pušu izmaksu pārdales darījumi"
Yes, for one counterparty. Controlled transactions of one kind, with the same functional profile, the same method, profit indicator and profit level, may be combined into a single transaction even where the cost base of each service is built on different allocation keys. Transactions with several counterparties may never share one entry.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Darījumu grupēšana"
Yes. Where services with one counterparty in one direction are justifiably grouped into a single service type, the combined range may be entered in the market price range field.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Darījumu grupēšana"
The arithmetic average of the indicators is recommended, and the approach taken is described in the Local File.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Finanšu darījumi"
Grouping is acceptable only as far as the report still reflects the economic substance of the transactions and the pricing methodology applied. Where product categories use different methods, profit indicators or ranges, for example because the risk profile differs, they go into separate entries.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Finanšu darījumi"
The arithmetic average is recommended as the applied indicator, while the range field may carry the minimum and maximum market price of the whole group, that is the combined range. The approach is described in the Local File.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Finanšu darījumi"
The range may carry the combined applied interest rate range, base rate plus margin, with the base rate fixed at the start date. Where loans with one counterparty in one direction are grouped and their rate ranges differ, the arithmetic average interest rate is recommended as the applied indicator.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Finanšu darījumi"
Yes, provided the transactions are with one counterparty and each currency was converted into euro at the transaction date.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Finanšu darījumi"
Values entered with more than two decimals are rounded mathematically to two. Where the technical format cannot carry the actual price, VID suggests stating it in thousands of euro, choosing "other" as the market price indicator and writing, for example, "exchange rate in thousands of euro" in the free-text indicator field.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Finanšu darījumi"
Where the price rests on the target's internal data together with external data from an independent valuation, the source is external data, either comparable transactions or comparable company financials. Combined methods are reported under the primary method, so where comparable transaction data dominates the method is the comparable uncontrolled price method. The indicator is the equity value in euro, entered either as a price per unit of currency or as "other" with "equity value" written in.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kapitāldaļu darījumi"
The comparable uncontrolled price method. A discounted cash flow model is not a pricing method of its own but an economic analysis technique used inside a method: where no directly comparable transaction exists, it is what projects the arm's length price. The indicator is the equity value in euro, and the comparables source is chosen as external or internal data, with external recommended for a discounted cash flow case.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kapitāldaļu darījumi"
On the total. Where the transactions share one economic substance, what is tested is the total value of those services in one direction with that counterparty for the year. Where the total with each related party is above EUR 90,000 but below EUR 250,000, and the total with all of them together exceeds EUR 250,000, the report is prepared and filed.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kravu ekspedīcijas pakalpojumi"
Per direction. Both the services provided and the services received are reported, each with its type, direction, total and counterparty, and two different directions are never added together.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kravu ekspedīcijas pakalpojumi"
Yes. What decides the category is the economic substance, the functional profile of the party, the direction and the pricing method, not the features of an individual trip. Where every transaction is the same service in one direction with one counterparty, priced with the same method, indicator and range, they form one category.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kravu ekspedīcijas pakalpojumi"
That every controlled transaction meeting the criteria is identified, that the figures agree with the accounting records, that the entries agree with each other and with the Local File, that the type, direction, value, method and the rest match the economic substance of the transaction, that the filing deadline is met and that nothing required by law is left out. Where a technical limit prevents the substance from being shown in full, the detail belongs in the Local File.
Legal source VID vadlīnijas KDP aizpildīšanai (17.09.2026.), sadaļa "Kam jāpievērš uzmanība"
Audit risk
The general limitation period for tax audits in Latvia is three years from the statutory payment deadline, but for transfer pricing matters, i.e. adjustments to transactions between related parties, the Law on Taxes and Fees provides a longer period of five years. VID may therefore open an audit and adjust the CIT base for the five preceding financial years. Documentation, benchmarking files and intercompany agreements should be retained for at least that long; in practice groups keep them for the full period during which the related CIT return can be reviewed.
Legal source NuN 23. p. 1. d. (noilgums transfertcenu jomā: pieci gadi)
VID uses risk-based selection, increasingly fed by the CIT return lines 6.5.1-6.5.2 and, from 2026, by the controlled transactions report. Typical red flags are: persistent losses or margins well below the industry range in a company with substantial related-party dealings; large management fee, royalty or interest charges from abroad; interest-free or unusually priced loans, including loans from shareholders; transactions with entities in low- or no-tax jurisdictions; business restructurings that move functions, assets or risks out of Latvia; inconsistency between the declared transaction amounts and the documentation; and failure to file the report or documentation on time. Large multinational groups are classified as higher-risk by default.
Legal source VID riska analīzes prakse; NuN 15.2 p.; OECD Handbook on TP Risk Assessment
Two layers apply. First, a documentation fine under Section 15.2 of the Law on Taxes and Fees: for failing to submit the Local File, Master File or controlled transactions report on time, or submitting materially deficient documentation, VID may impose a fine of up to 1% of the value of the controlled transactions concerned, capped at EUR 100,000. VID's methodological material explains that a breach is "material" when so many prescribed components are missing that it is impossible to verify whether the transaction price is at arm's length. VID's 2023 guidelines grade breaches: serious breaches (no Local File, late filing, missing critical components such as the functional analysis or benchmarking) start at 0.75% and range from 0.5% to 1%; less serious breaches (Master File issues) 0.1-0.5%; minor omissions up to 0.05% with a EUR 15,000 cap; mitigating and aggravating factors adjust the rate. Second, if an audit results in a transfer pricing adjustment, the additional CIT is charged together with late-payment interest (0.05% per day) and a tax fine of generally 20-30% of the underpaid tax under Section 32 of the same law.
Legal source NuN 15.2 p. 14. d.; NuN 29. un 32. p.; VID vadlīnijas par soda naudas piemērošanu transfertcenu dokumentācijas pārkāpumos (11.09.2023.)
The most effective measures are: prepare the Local File contemporaneously and keep it consistent with the CIT return and the controlled transactions report; run a fresh benchmarking search at least every three years and roll the financial data forward annually; make sure intercompany agreements exist, are signed before the transaction and reflect actual conduct; monitor the tested party's margin during the year and make year-end true-up adjustments before the accounts close rather than waiting for an audit; document the benefit received from intra-group services; price shareholder and intra-group loans on a credit-rating basis rather than leaving them interest-free; and, for large or unusual transactions, consider an advance pricing agreement with VID. Being able to answer a VID information request within the 30-day window is itself a strong risk mitigant.
Legal source OECD TP Guidelines; NuN 15.2 un 16.1 p.; VID prakse
Payments to, and transactions with, persons located in the jurisdictions listed in the Cabinet's regulation on low-tax and no-tax states and territories are treated as controlled transactions even if the counterparty is unrelated. VID's methodological material goes further: for such transactions the Local File (and, where relevant, the Master File) must be prepared and submitted on request irrespective of the EUR 250,000 threshold, and they must be included in the controlled transactions report. The list follows the EU list of non-cooperative jurisdictions and is updated periodically; Russia has been included since 1 July 2023, which brought many previously unregulated trade flows within the documentation regime. In addition, the CIT Law applies withholding tax (generally 20%) to most payments to such jurisdictions unless VID grants an exemption, and expenses may be challenged as not economically justified.
Legal source NuN 15.2 p.; MK noteikumi par zemu nodokļu vai beznodokļu valstīm un teritorijām; UIN likuma 5. p.
Advanced topics
An APA is a written agreement between a taxpayer and the tax authority fixing in advance the transfer pricing method and key assumptions for specified transactions, so that VID will not challenge prices set in accordance with it. Latvia offers unilateral APAs under Section 16.1 of the Law on Taxes and Fees and Cabinet Regulation No. 802; bilateral APAs are possible through the mutual agreement procedure under tax treaties. An application may be made for transactions with a related foreign company whose annual value exceeds EUR 1.43 million. The fee is EUR 7,114 (20% payable on application, 80% once VID agrees to open the procedure), the agreement may cover up to five years and, unusually, may also be concluded for past years. If no agreement is reached within a year, VID may close the procedure. Applications are handled by VID's transfer pricing unit and take several months in practice.
Legal source NuN 16.1 p.; MK noteikumi Nr. 802, 5. līdz 20. pk.
MAP is the treaty mechanism under which the competent authorities of two states negotiate to eliminate double taxation, for example where VID increases a Latvian company's profit but the foreign tax authority does not grant a corresponding decrease. A Latvian taxpayer may request MAP under the relevant tax treaty (Article 25 of the OECD Model), under the EU Arbitration Convention, or under the EU Tax Dispute Resolution Directive as implemented in Latvian law, which provides binding arbitration if the authorities fail to agree within two years. Requests are filed with VID (or the Ministry of Finance as competent authority) generally within three years of the first notification of the adjustment. MAP does not suspend the obligation to pay the assessed tax in Latvia, so taxpayers usually pay and seek a refund once agreement is reached.
Legal source Nodokļu konvenciju 25. p.; Konvencija 90/436/EEK; Padomes direktīva (ES) 2017/1852; NuN VII nodaļa
Latvia has no safe-harbour margins for loans, distribution or manufacturing. Every transaction must be supported by an arm's length analysis. Two simplifications exist. (1) Low value-adding intra-group services (routine support such as accounting, HR, IT support, legal and administrative services that are not part of the group's core business) may be charged at cost plus a 5% mark-up without a benchmarking study, using a reasonable allocation key; only the simplified documentation in point 4 of Cabinet Regulation No. 802 is then required, provided such services do not exceed 5% of the recipient's turnover. (2) Compliance simplifications: the EUR 90,000 materiality limit per transaction category, the three-year benchmarking cycle, and submission of the Local File only on VID's request.
Legal source MK noteikumi Nr. 677 (zemas pievienotās vērtības pakalpojumi); MK noteikumi Nr. 802, 4. pk.; NuN 15.2 p.
Where a benchmarking study yields several comparable results, Latvian regulations (Cabinet Regulation No. 677) follow the OECD approach of using a statistical range: results between the first and third quartile, the interquartile range, are regarded as reflecting market value, and any result of the tested party within that range is accepted. If the tested party's indicator falls outside the range, VID adjusts the taxable result to the median of the range, not merely to the nearest edge. For this reason many Latvian groups target the median in their pricing policies and perform a year-end true-up if the actual margin drifts outside the range.
Legal source MK noteikumi Nr. 677 (tirgus cenu intervāls); OECD TP Guidelines 3.55-3.62
Financing is the most frequently examined transaction type in Latvia. A loan from a related foreign company or from a related individual (e.g. a shareholder) is a controlled transaction; its value for threshold purposes is the principal received or granted in the year plus the interest recognised. An interest-free loan granted by a Latvian company to a related party is treated as a transfer pricing issue. VID imputes market interest and taxes the difference as deemed distributed profit. An interest-free loan received by a Latvian company from its shareholder does not by itself reduce Latvian profit, but it must still be disclosed in the CIT return and, above the thresholds, documented and reported. Interest actually paid to related parties is additionally subject to the thin-capitalisation and EUR 3 million / 30% EBITDA interest limitation rules in Section 10 of the CIT Law, and loans to shareholders may be reclassified as deemed dividends under Section 11.
Legal source UIN likuma 4., 10. un 11. p.; VID metodiskais materiāls "Transfertcenu dokumentācija" (aizdevumu vērtība)
Latvian regulations contain no separate rules on intangibles and rely on Chapter VI of the OECD Guidelines. The key concept is DEMPE: the return from an intangible should follow the entities that perform and control the Development, Enhancement, Maintenance, Protection and Exploitation functions and bear the related risks, not merely the legal owner. In practice VID scrutinises royalties paid by Latvian companies to foreign IP owners (is there real value, is the rate benchmarked, does the Latvian entity itself develop or enhance the IP locally?) and challenges royalty payments to entities with little substance. Conversely, a Latvian company that develops software or brands for the group should be compensated for those DEMPE contributions rather than receiving a routine cost-plus return only.
Legal source OECD TP Guidelines, Ch. VI; MK noteikumi Nr. 677 (atsauce uz ESAO Vadlīnijām)
Since 2018 Latvia taxes corporate profit only on distribution. A transfer pricing adjustment (the amount by which the Latvian company's income is understated, or its expenses overstated, compared with market value) is added to the tax base as deemed distributed profit in the return for the last month of the financial year. The base is grossed up by dividing by 0.8 and taxed at 20%, which equals an effective 25% charge on the adjustment itself; for example a EUR 100,000 adjustment produces EUR 25,000 of CIT. The tax is due even though no dividend was actually paid, so mispricing cannot be used to defer tax indefinitely. Taxpayers may make the adjustment voluntarily in their own return; if VID makes it in an audit, late-payment interest and fines are added.
Legal source UIN likuma 4. p. 2. d. 2. pk. e) apakšp., 3. p. (likme 20 %, koeficients 0,8); UIN deklarācijas 6.5. rinda
Yes. Latvian practice accepts that a taxpayer whose actual margin has drifted outside the arm's length range may correct it before the financial statements are closed, by issuing a credit or debit note to the related party (a genuine price adjustment, with VAT and customs consequences considered) or, failing that, by increasing the CIT base voluntarily on line 6.5 of the return. VID prefers adjustments that are foreseen in the intercompany agreement and applied consistently in both jurisdictions; a downward adjustment that reduces Latvian profit is examined more critically than an upward one and should be supported by documentation showing that the original price was above market. Voluntary correction before an audit avoids the tax fine, though not the CIT itself.
Legal source UIN likuma 4. p.; MK noteikumi Nr. 677; OECD TP Guidelines 4.38-4.39
VID does not prescribe a database but expects the comparables search to be reproducible and documented: the database used, the search date, every quantitative and qualitative screening step recorded in sequence with a fixed date (screenshots or downloaded extracts), the list of accepted and rejected companies with reasons, and whether comparability adjustments were applied to the tested party, to the comparables or to both. The arm's length analysis must rely on information that was available within the reporting year; if an adjustment is made in a later year, the data available at the time of the correction is used. In practice commercial pan-European databases (e.g. Orbis/TP Catalyst, Amadeus) are used for TNMM searches, supplemented by Lursoft and the Latvian register of annual reports for local comparables, and by loan and royalty databases for financial and licensing transactions. VID itself has access to the same commercial databases and may re-run the search. Regional (Baltic or Central-Eastern European) comparables are preferred; pan-European sets are accepted where the regional sample is too small, ideally with an explanation of market differences.
Legal source MK noteikumi Nr. 802, 3.2. un 3.3. pk.; VID metodiskais materiāls "Transfertcenu dokumentācija"
Only partly, and the distinction matters. A Latvian permanent establishment of a non-resident is itself a CIT payer, so VID's methodological material treats it as a documentation subject: if the PE transacts with related foreign legal entities, related individuals or entities in low-tax jurisdictions above the EUR 250,000 threshold, it must prepare a Local File and file the controlled transactions report like any Latvian company. However, VID's position is that the transfer pricing documentation regime covers transactions between separate legal persons. Internal dealings between a head office and its own branch (cost allocations, notional interest or fees) are not "controlled transactions" in the sense of Section 15.2, because both sides are the same legal entity, so they are neither counted towards the threshold nor documented. The amount of profit attributable to the PE is instead governed by the CIT Law and Article 7 of the applicable tax treaty, which still require an arm's length attribution of income and expenses, so head-office charges to the branch should be supported by an allocation key and evidence of benefit even though no Local File is required for them.
Legal source VID metodiskais materiāls "Transfertcenu dokumentācija" (akt. 01.01.2026.): dokumentācijas sagatavotājs; NuN 15.2 p. 2. d.; UIN likuma 4. p.; nodokļu konvenciju 7. p.
Abbreviations: NuN, the Law on Taxes and Fees · UIN, corporate income tax · VID, the State Revenue Service · MK, the Cabinet of Ministers · EDS, the Electronic Declaration System · OECD, the Organisation for Economic Co-operation and Development.
