Transfer Pricing

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PwC has been named the 2010 Baltic Transfer Pricing Firm of the Year by International Tax Review. More...

International Transfer Pricing 2011 - This publication demonstrates that transfer pricing is a matter of fundamental importance to multinationals. 

The primary objective of transfer pricing (‘TP’) rules is to ensure that the price applied to a transaction between two related parties (two companies or a company and an individual) matches the arm’s length price, i.e. a fair market price that would be applied to a similar transaction between two unrelated parties in similar circumstances.

The TP rules enable the revenue authorities to ensure that:

• Related parties resident in different countries do not transfer their income to a jurisdiction with a more favourable tax regime, and double taxation is avoided;
• Several Latvian related parties do not transfer their profits to a company that is eligible for tax relief or has accrued tax losses.

If the price applied to goods or services purchased from a related party exceeds the market price or if the price applied to goods or services supplied to a related party is below market, then the difference between the transfer price and the market price must be added back to the company’s taxable income.

In recent years, the Latvian revenue authorities have increased their competence and resources available to identify any TP discrepancies during a tax audit. This prompts taxpayers to think about their TP policy and documentation to be able to prove that their transfer prices have been calculated by statutory methods and are arm’s length.

PricewaterhouseCoopers has been advising its clients on TP matters for several years, including the development of corporate TP policy and documentation according to Latvian and international statutory requirements, and we have accumulated both knowledge and practical experience in these matters.