Transfertcenu politika un dokumentācija

Accounting agency “Kamelota” provides professional transfer pricing documentation development and offers consulting to companies that conduct transactions with related parties. “Kamelota” experts help create legally substantiated and economically justified transfer pricing policies that comply with OECD guidelines, the requirements of Latvian legislation and provide protection in the event of tax audits.

Transfer pricing regulation is becoming increasingly strict, and the State Revenue Service (SRS = VID – Valsts ieņēmumu dienests) is paying heightened attention to transactions between related parties. Timely and professional preparation of transfer pricing documentation is not only compliance with legal requirements, but also a strategic instrument for reducing tax risks and optimising the structure of a corporate group.

The essence and importance of transfer pricing policy

Transfer prices are the prices at which companies within a group sell goods, provide services or transfer intellectual property. Correctly determined transfer prices ensure that profit is allocated among group companies according to the functions they perform, the assets they use and the risks they assume. This forms the basis for fair taxation in each jurisdiction where the corporate group operates.

Latvian legislation stipulates that transactions between related parties must take place at market prices, meaning such prices and conditions as would be applied in comparable transactions between unrelated parties. This principle, internationally known as the “arm’s length principle”, is the foundation of global transfer pricing regulation. Its application requires not only price-setting aligned with market levels but also the ability to substantiate it with appropriate documentation and economic analysis.

The development and documentation of transfer pricing policy becomes particularly relevant in the context of the BEPS (Base Erosion and Profit Shifting) initiative, aimed at countering aggressive tax planning. Latvia, following OECD recommendations, has implemented strict requirements for transfer pricing documentation, which include Local File requirements, and in certain cases, the preparation of a Master File and a Country-by-Country Report.

Companies that require a transfer pricing policy

Mandatory for companies exceeding specific thresholds

annual net turnover above 5 million EUR or related-party transactions exceeding 250,000 EUR per year. However, even smaller companies that carry out regular intra-group transactions benefit significantly from developing a transfer pricing policy as a valuable tool for risk mitigation and process standardisation.

International corporate groups,

in which the Latvian entity conducts transactions with the parent company or other group companies abroad. In such cases, transfer pricing documentation serves as a bridge between different tax administrations, ensuring a consistent and well-argued position across all jurisdictions.

Holding structures with multiple subsidiaries

in Latvia or the Baltic region face the need to ensure a consistent transfer pricing approach across the entire group. This includes not only pricing of goods and services, but also substantiation of management services, financing and intellectual property usage fees.

Manufacturing companies,

that sell products to related distributors or purchase raw materials from group entities, often encounter challenges in determining the appropriate profit margin at each step of the value chain. Professional transfer pricing analysis helps allocate total profit according to each company’s added value.

Types of transactions that require transfer pricing analysis

Purchase and sale of goods between group companies

is the most common type of transaction requiring thorough transfer pricing analysis. This includes transactions involving finished goods, raw materials and semi-finished products. Price determination must consider not only direct costs but also market conditions, the competitive environment and the functions performed by each company in the supply chain.

Provision of services within the group

covers a wide spectrum – from administrative and IT services to specialised consulting and technical assistance. A particular challenge is the substantiation of management services, where both the actual provision of services and their value to the recipient must be demonstrated. Marketing services, centralised procurement functions, quality control – each of these service types requires a specific approach in transfer pricing.

Financial transactions, including loans and guarantees between group companies,

require careful justification of interest rates and guarantee fees. Not only market rates must be analysed, but also the borrower’s creditworthiness, collateral and other factors that would influence financing terms in a transaction between unrelated parties.

Intellectual property transactions

are becoming increasingly important in the modern economy. Royalty payments for the use of trademarks, technologies or know-how require an in-depth analysis of the value of the intellectual property and its contribution to the company’s profit generation. Research and development service agreements, which often include risk allocation and ownership of results, are among the most complex aspects of transfer pricing.

Transfer pricing documentation development process

“Kamelota” structured approach to developing transfer pricing documentation begins with an in depth analysis of the group structure and the transactions carried out within it. In the first stage, all transactions between related parties are identified, and their nature, volume and regularity are analysed. In parallel, a functional analysis is carried out, in which the functions performed by each involved party, the assets used and the risks assumed are evaluated in detail.

The next step is the identification and analysis of comparable transactions. Using specialised databases and publicly available information, experts search for similar transactions between unrelated parties that serve as a basis for determining market prices. In this process, it is critically important to correctly define comparability criteria and make the necessary adjustments to ensure an objective comparison.

The choice of transfer pricing method is a crucial decision that determines the entire subsequent analysis. Traditional transaction-based methods are evaluated in combination with transactional profit methods, including the comparable uncontrolled price method, the resale price method and the cost plus method. The suitability of each method depends on the type of transaction, the available information and the company’s specific circumstances.

The economic analysis involves detailed calculations and comparisons to determine the market price range for specific transactions. This may include analysis of financial indicators of comparable companies, industry studies and processing of statistical data. The result is a price or profit margin range that complies with the arm’s length principle.

Content and requirements of transfer pricing documentation

Local File

is the core document that provides a detailed description of the Latvian company’s transactions with related parties. It includes a description of the company’s organisational structure, business description and strategy, main competitors and significant reorganisations. The document must describe each material controlled transaction in detail, indicating the parties involved, the financial terms of the transaction, the functional and risk analysis, as well as the economic justification for the chosen transfer pricing policy.

Financial information section

includes the company’s financial statements for the reporting period, financial data used in the transfer pricing analysis and financial information of comparable companies. All relevant concluded contracts and agreements related to controlled transactions must be attached, as well as any previously concluded transfer pricing agreements with tax administrations, if such exist.

Quality of documentation

is crucial in the event of a tax audit. It must not be formal but must reflect the real economic substance and business logic. Every statement must be supported with facts and evidence. Regular updates of the documentation ensure that it reflects the current situation and market conditions.

Risks and consequences of insufficient documentation

State Revenue Service (SRS = VID – Valsts ieņēmumu dienests) audits

in the field of transfer pricing are becoming more frequent and more detailed. During an audit, the tax administration evaluates not only the existence of documentation but also its quality and justification. Insufficient or non-compliant documentation can result in a tax reassessment where the SRS determines transfer prices based on its own calculations, which are often less favourable for the company.

Financial consequences

can be significant. In addition to the reassessed tax amount, the company may have to pay interest for the entire period being reassessed. Administrative fines for failure to submit documentation or submitting incomplete documentation can reach several thousand euros. Even more critical is the problem of double taxation, where one country increases the tax base while the other country does not reduce the corresponding deduction.

Reputation risk

is an aspect companies often underestimate. Transfer pricing disputes can negatively affect relations with the tax administration, create negative publicity and complicate further business development. Investors and creditors increasingly pay attention to tax risks, and transfer pricing issues can affect the company’s valuation and access to financing.

“Kamelota” expertise in the field of transfer pricing

The “Kamelota” team consists of experts with in depth understanding of transfer pricing regulation and practical experience in developing transfer pricing documentation for companies across various industries. The agency keeps up with the latest OECD guidelines, SRS (VID – Valsts ieņēmumu dienests) practice and international trends to ensure that client documentation meets current requirements.

The approach of the accounting agency “Kamelota” is based on deep business understanding. The experts do not limit themselves to formal compliance but seek to understand each client’s business model, strategy and specific circumstances. This allows the development of a transfer pricing policy that not only meets regulatory requirements but also supports the company’s business goals.

An international perspective is a key advantage of “Kamelota.” Working with companies operating in multiple jurisdictions, the agency ensures that transfer pricing documentation is aligned and consistent across all countries. “Kamelota” collaborates with tax consultants in other countries to provide a coordinated approach and avoid double taxation.

Transfer pricing policy