Survival of the Richest

Latvia
Transparency
Public country by country reporting
Latvia has, in accordance with the legal requirements of the
EU, introduced public CBCR for the financial industry. 518 The
government is planning to introduce non-public CBCR for
multinational corporations with a turnover of a minimum of
€750 million by the end of 2016. 519
The government supports the European Commission’s
proposal to require big multinational corporations (with
an annual turnover of €750 million) to publish country by
country reports on their operations in EU Member States
and so called “non-cooperative jurisdictions” (but not from
all countries where they do business). The government
does not support a lower threshold for which companies
should be required to report, nor does it support the
proposal for full public country by country reporting (which
would require multinational corporations to report from all
countries where they operate). 520
Ownership transparency
Latvia is planning to transpose the EU’s 4th Anti Money
Laundering Directive into national legislation by the end
of 2016. The government is planning to establish a lower
threshold (than the 25 per cent shareholding mentioned in
the Directive) for the definition of ‘beneficial owner’, and
to list the beneficial owner regardless of the ownership
percentages in the company. However, the government
also plans to include very limited access to the register
of beneficial owners, allowing only “persons who have an
obligation under the law to carry out State administration
tasks” to see the information. Given that the Directive
specifies that everyone who can document a ‘legitimate
interest’ should be given access to the information, 521 it
is not clear that the Latvian access requirement is wide
enough to be in line with the directive.
In addition, Latvia has no plans to make amendments to the
regulatory framework on trusts. 522
Latvia’s position regarding the European Commission’s
proposal on public registers of beneficial owners of
companies and some trusts is unclear, but taken the
government’s current plans, it seems unlikely that Latvia
would support public access.
According to the 2015 Financial Secrecy Index, Latvia has
the twelth highest level of financial secrecy out of the 18
countries included in this report (ranked at number 59 at the
global level). 523
Taxation
Tax treaties
When negotiating tax treaties with developing countries,
Latvia uses the OECD Model with individual provisions of
the UN model. Anti-abuse clauses have been included in
some treaties, namely with India, Kuwait and United Arab
Emirates. There are currently plans to negotiate a new
treaty with Bahrain. 525
According to the government, Latvia takes into consideration
that any treaties signed, or planned, with developing
countries should align with the contracting country’s
priorities. For example, the treaty with Pakistan, as well
as others, retains the option of withholding taxes in the
country of source from income such as royalties, interest
income and dividends. Latvia has not, however, conducted a
spillover analysis of the potential effects of its tax treaties on
developing countries, nor does the government plan to do so.
In total, Latvia has 22 tax treaties with developing countries,
which is significantly below the average (42 treaties) among
the countries covered by this report. The average reduction
of developing country tax rates within those treaties – 4.4
percentage points – is, however, significantly above the
average (3.8 percentage points) among the countries
covered by this report. 526 This means that the relatively few
tax treaties which Latvia has with developing countries have
a relatively high negative impact on the tax rates of those
countries. While the average reduction of tax rates is high,
Latvia does not have any tax treaties that stand out as ‘very
restrictive’. 527
Harmful tax practices
According to a study on aggressive tax planning structures,
Latvia exhibits 13 indicators of such structures, which
makes it the country with the fifth highest number of
indicators in the EU. 528 Latvia does not have a patent box and
no other active indicators were found.
Latvia is known for its favourable holding regime, in
force since January 2013. Certain income from European
subsidiaries, such as dividends, can be paid to a Latvian
holding company without being taxed at all. Dividends can
also be paid out to a foreign parent company, again with zero
per cent tax. 529 This contributes to making Latvia an attractive
destination for multinationals looking to cut their tax bills.
Latvia offers advance pricing agreements (or ‘sweetheart
deals’) to multinational corporations, although at the end of
2015, there was only one such agreement in force. 530 The
government does not support making essential elements of
tax rulings public. 531
76 • Survival of the Richest