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New transfer pricing obligations in Latvia starting from 2026

The team of professionals at TaxLink Latvia provides consulting services in several areas, one of which is Transfer Pricing. In the latest article, Krists Ansons, Head of the Transfer Pricing Department in collaboration with Ralfs Zīlmanis, Transfer Pricing Project Manager at TaxLink Latvia, provides insight into the recent changes of Latvian Transfer Pricing regulation.

What was the regulation until now?

From the beginning of the 2018 financial year until the end of the 2024 financial year, Latvian companies that engaged in transactions with related parties and whose transaction volume exceeded certain thresholds were required to prepare transfer pricing documentation — master file, local file or country-by-country report of a multinational enterprise group. Within the scope of this article, country-by-country report of a multinational enterprise group will not be further analysed.

In a local file, the taxpayer must provide information on the transactions it has carried out with related parties (purchase/sale of goods, provision/receipt of services, granting/receipt of loans and other transactions) and must substantiate that the price applied to the transactions corresponds to the arm’s length principle.

If the value of controlled transactions exceeds EUR 250,000 in the reporting year, a local file must be prepared; if the value of controlled transactions exceeds EUR 5 million in the reporting year, a local file must not only be prepared but also submitted to the State Revenue Service via the Electronic Declaration System.

In a master file, the taxpayer must provide information on the geographical distribution of the entities within the multinational group, market analysis, the risks, functions and assets of the entities, the intangible assets used and a description of intra-group financial activities.

A master file must be prepared if the company’s turnover does not exceed EUR 50 million and the value of controlled transactions exceeds EUR 5 million but does not exceed EUR 15 million. If the company’s turnover exceeds EUR 50 million and the value of controlled transactions exceeds EUR 5 million, as well as in cases where the value of controlled transactions exceeds EUR 15 million regardless of turnover, the master file must not only be prepared but also submitted to the State Revenue Service via the EDS system.

How has the regulation changed, starting from the 2025 reporting year?

1. The amendments which entered into force on 1 January 2026 provide the removal of the criteria for the automatic submission of local and master files to the State Revenue Service via the EDS system. Accordingly, local file and master file will have to be submitted only upon request from the SRS.

A local file must be prepared if the value of controlled transactions in the reporting year exceeds EUR 250,000.

A master file must be prepared if the value of controlled transactions in the reporting year exceeds EUR 20 million.

2. The amendments introduce a new obligation to prepare a controlled transactions report for all Latvian CIT residents if the total amount of their controlled transactions in the relevant reporting year exceeds EUR 250,000. In other words, the report must be prepared and submitted to the SRS via the EDS system by all entities that are required to prepare a local file.

Essentially, the controlled transactions report is not a summary of the local file but rather a summary of each individual controlled transaction. It includes only transaction-specific information and does not contain general, company-level information.

The components of the controlled transaction report are as follows:

• Transaction partner – name, registration number, country of residence, address;
• Type of transaction – services, goods, financial instruments, fixed assets, low value-adding services, other;
• Direction of the transaction – received, provided, purchased, or sold;
• Total amount, in euros;
• Transfer pricing method applied – comparable uncontrolled price method, resale price method, cost-plus method, transactional net margin method, profit split method;
• Source of comparables – internal comparables, external comparables;
• Tested party to the transaction;
• Arm’s-length range – minimum, maximum, point;
• Selected arm’s length indicator – operating margin, cost markup, Berry ratio, other;
• Applied arm’s length result – actual profit indicator.

3. The threshold for non-material transactions has been increased — controlled transactions whose value does not exceed EUR 90,000 within the reporting year are recognised as non-material. Accordingly, these transactions are not required to be included in the local transfer pricing documentation.

4. The amendments essentially expand and clarify the existing relief that is applied to companies whose controlled transactions ranged from EUR 250,000 to EUR 5,000,000. Until now, such companies could perform a benchmarking study once every three years and update the financial data of the selected comparables during the following two years. With the amendments, the upper threshold of EUR 5,000,000 is eliminated, meaning that all companies required to prepare a local transfer pricing file will be able to conduct a benchmarking study once every three years and update the financial data of the selected comparables during the following two years.

TaxLink Latvia conclusions

Although the aim of the amendments was to reduce the administrative burden for taxpayers while simultaneously improving the management of transfer pricing risks, in practice only the latter objective will be achieved. The amendments do not reduce the administrative burden for taxpayers in any way; on the contrary, in addition to the existing obligation to prepare local transfer pricing documentation, they introduce a new obligation to prepare a controlled transactions report. Furthermore, we anticipate an increased administrative burden on in-house accountants and outsourced accounting service providers. Until now, these individuals typically only submitted transfer pricing documentation in the EDS system (when required), whereas now they will have to manually input all the information necessary for the controlled transactions report. It should be noted that company accountants and outsourced accountants generally do not prepare transfer pricing documentation, nor can they, without support, verify and mitigate potential risks related to it. It is unlikely that accountants—either internal or external—will be able to prepare and submit the controlled transactions report independently without involving transfer pricing professionals, particularly in cases where transfer pricing documentation has not in fact been prepared.

The purpose of the controlled transactions report marks a shift toward automated identification and analysis of transfer pricing risks. Until now, only general company-level transfer pricing risks were subject to automatic checks, while risks related to specific controlled transactions were identified manually. With the introduction of the controlled transactions report, the SRS will be able to automatically import information for a broad range of companies on specific transaction-level risk criteria and assign risk scores accordingly. As a result, the SRS’s capacity to analyse taxpayers’ transfer pricing risks is expected to increase.

Additionally, since the amendments stipulate that the controlled transactions report is considered part of the transfer pricing documentation, Article 15.² (14) of the Law “On Taxes and Duties” are applicable to the report. This means that for failure to submit the controlled transactions report or for submitting it in poor quality, the SRS will be entitled to impose a fine of up to 1% of the value of the controlled transaction (but not more than EUR 100,000 in total that must be included in the transfer pricing documentation).

Therefore, particularly in light of the SRS’s enhanced capacity to analyse taxpayers’ transfer pricing risks, we strongly encourage exercising the highest level of diligence with respect to the obligation to prepare the local transfer pricing documentation and completing the controlled transactions report.