On 26 July 2021 the OECD published the stage 2 peer review report on Latvia in relation to making dispute resolution mechanisms more effective under action 14 of the action plan on base erosion and profit shifting (BEPS).

The minimum standard under BEPS action 14 aims to make tax dispute resolution more effective, and member countries of the OECD’s Inclusive Framework are being reviewed and monitored in the peer review process in relation to their compliance with the minimum standard.

Latvia has a relatively large double tax treaty network with more than 60 tax treaties; and has signed the EU Arbitration Convention. Latvia has a small mutual agreement procedure (MAP) programme with only three cases pending on 31 December 2019.

The outcome of the stage 1 peer review process under BEPS action 14 was that Latvia met more than half of the elements of the minimum standard, and most of the identified deficiencies have since been resolved.

All of Latvia’s tax treaties contain a provision relating to the MAP. The treaties generally follow paragraphs 1 to 3 of Article 25 of the OECD Model and are mostly consistent with the requirements of the Action 14 minimum standard, with some exceptions.

Almost 10% of Latvia’s tax treaties do not include the equivalent of the second sentence of Article 25(3) of the OECD Model allowing the competent authorities to consult for the elimination of double taxation in cases not provided for in the relevant tax treaty.

Latvia has signed and ratified the Multilateral Instrument (MLI) to implement the tax treaty related BEPS provisions by amending its bilateral tax treaties. Some of the tax treaties have been or will be modified to comply with the Action 14 minimum standard. Where treaties are not covered by the MLI, Latvia intends to enter bilateral negotiations to update the treaties and bring them in line with the requirements under the minimum standard. Bilateral negotiations have already commenced, or are being planned, for those treaties.

Latvia has in place a bilateral advance pricing agreement (APA) programme that enables taxpayers to request roll-back of bilateral APAs as required by the minimum standard, and roll-backs to prior years are granted in practice.

Latvia provides access to the MAP in all eligible cases but does not have in place a documented bilateral consultation or notification process for situations where the competent authority considers the issues raised in a MAP request are not justified.

No guidance has yet been published on the availability of the MAP and its application in practice although Latvia has issued detailed procedural rules on the conduct of a MAP with other member states of the EU under the Directive on tax dispute resolution mechanisms in the EU.

During the years 2016 to 2019, MAP cases were on average closed within a timeframe of 24 months, which is the targeted time period, the average time taken being 6.54 months. However, the average time taken to resolve cases involving the attribution and allocation of profits was higher than 24 months and Latvia should therefore consider whether the resources are sufficient to ensure that pending and future MAP cases are resolved in a timely and effective manner.

Latvia’s competent authority operates independently from the audit function in the tax authority and adopts a pragmatic approach to resolving MAP cases in an effective and efficient manner. Latvia meets the minimum standard as regards the implementation of MAP agreements and the competent authority monitors such implementation.