Latvia’s adoption of the Country-by-Country Reporting framework reflects its commitment to enhancing global tax transparency and combating base erosion and profit shifting. Multinational enterprises that meet the revenue threshold must ensure they comply with the CbCR requirements by submitting timely and accurate reports. Non-compliance can result in significant penalties, making it essential for MNEs to maintain robust tax reporting processes. Engaging with local tax professionals and staying informed of updates from the State Revenue Service will help MNEs navigate the complexities of CbCR in Latvia effectively.

Latvia, as a member of the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD), has implemented the Country-by-Country Reporting (CbCR) requirements in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13. These regulations are part of Latvia’s broader commitment to enhancing tax transparency and ensuring that multinational enterprises (MNEs) pay their fair share of taxes. This guide is designed to provide Chief Financial Officers (CFOs) and financial executives in Latvia with a comprehensive overview of the CbCR obligations, detailing applicability, reporting processes, penalties for non-compliance, and key resources for ensuring compliance.

Applicability of CbCR in Latvia

Criteria for Reporting:

• CbCR obligations in Latvia apply to multinational enterprise (MNE) groups with consolidated annual revenues of €750 million or more in the preceding fiscal year.
• The ultimate parent entity of the MNE group is required to file the CbC report if it is tax resident in Latvia.
• If the ultimate parent entity is based in a jurisdiction that does not require CbCR or does not exchange CbC reports, a surrogate parent entity in Latvia may be required to file the report.

Relevant Legislation:

• Latvia implemented the CbCR requirements through the Law on Taxes and Duties and further refined them to align with the EU’s Council Directive (EU) 2016/881, which amended Directive 2011/16/EU regarding the mandatory automatic exchange of tax information.
• The legal framework ensures that Latvia’s CbCR rules are consistent with international standards set by the OECD.

Reporting Requirements

Information to be Reported:

• The CbC report must include key financial data for each tax jurisdiction in which the MNE operates, such as:
  • Total revenues (distinguished between related-party and unrelated-party revenues)
  • Profit (or loss) before tax
  • Income tax paid and accrued
  • Stated capital
  • Accumulated earnings
  • Number of employees
  • Tangible assets other than cash or cash equivalents
• The report must also list all constituent entities in the MNE group, along with their tax jurisdictions and main business activities.

Form and Submission:

• The CbC report must be submitted electronically in XML format, consistent with the OECD’s standard template.
• Submission is made through the Electronic Declaration System (EDS) of the State Revenue Service (SRS) in Latvia.
  • Detailed submission guidelines and formats are available on the State Revenue Service (SRS) website.

Filing Deadlines

• The CbC report must be submitted within 12 months following the end of the MNE group’s fiscal year. For instance, if the fiscal year ends on 31 December 2023, the CbC report is due by 31 December 2024.
• MNEs in Latvia that are not the ultimate parent entity but are part of a group subject to CbCR must notify the SRS regarding which entity will file the report and in which jurisdiction it will be filed. This notification must be submitted by the last day of the fiscal year.

Penalties for Non-Compliance

Penalties:

• Latvia imposes strict penalties for non-compliance with CbCR obligations:
  • A fine of up to €7,100 may be imposed for failure to file the CbC report, filing it late, or submitting incorrect or incomplete information.
  • Repeated non-compliance can result in higher fines and increased scrutiny by tax authorities.

Defences:

• In cases of non-compliance, MNEs may present reasonable cause or technical difficulties as a defence, which may mitigate penalties. However, such cases are evaluated individually by the SRS.

Confidentiality and Use of Information

Data Protection:

• Latvia adheres to the OECD’s guidelines on data confidentiality and the secure handling of information. The CbC report data is shared with other tax jurisdictions only under established competent authority agreements (CAAs).
• The primary purpose of the data is to assist tax authorities in risk assessment, identifying BEPS risks, and enhancing the transparency of MNEs’ global activities. The data is not disclosed to the public.