On 11 February 2020, Latvia published the Law of 30 January 2020 on Amendments to the Corporate Income Tax Act in the official gazette. The law includes the provision for the implementation of the hybrid mismatch measures of the EU Anti-Tax Avoidance Directive as amended (ATAD2).
The hybrid mismatch rules will apply to Latvia companies, as well as permanent establishments (PEs) of non-resident companies. A hybrid mismatch will be limited to situations arising (i) between associated enterprises, (ii) between a taxpayer and an associated enterprise, (iii) between a head office and its PE, (iv) between two or more PEs of the same company, or (v) under a structured arrangement (as defined).
In general, a hybrid mismatch is resolved by either denying a deduction or requiring income to be included. However, a deduction is permitted if income from the double inclusion accrues in the current or subsequent business period.
The law entered into force on 12 February 2020, although as per the Directive, the measures should generally apply from 1 January 2020.
