DAC6 – obligation to notify the SRS about cross-border schemes
On 20 April, we gave an account of some fresh Cabinet Regulations (No 210 of 14.04.2020) on our Facebook tax page in relation to introduction of the EU Directive in Latvia. These regulations impose a new obligation on any company to notify the SRS if the company has received any tax advice on a cross-border scheme or has introduced such a scheme since 25.06.2018. Here, I would like to comment on some aspects regarding our account.
You may have an initial automatic reaction: ‘But I don’t have any cross-border schemes to be notified’. Nevertheless, let’s have a look at some practical examples: what does a scheme imply? In simple words, a scheme is a transaction or company structure.
The SRS has to be notified about a cross-border scheme if at least one of the notification indicators is present. These indicators, in turn, have two categories: (1) one of the main benefits of transactions or structure is taxes, (2) a scheme that has to be notified irrespective of whether one of the main benefits of transactions or structure is taxes.
Among the indicators as to one of the main benefits being taxes, the EU especially highlights the desire to attack consultants who have ready-made standard solutions/schemes to hand and who sell them “in bulk”. An indicator that would trigger notification also includes a consultant’s “success fee” that depends on the company’s tax savings.
Indicators where it is not important whether tax is one of the main advantages, would be cross-border payments between related companies where, for example, payment is completely exempt from taxes in the country or territory where the payee is a tax resident, or payment is subject to a tax benefit regime in a country or territory where the payee is a tax resident. Having read about the indicators related to transfer pricing in this category, I can conclude that related companies should be especially careful about the notification obligation.
If you read, for example, the guidelines from the German tax administration for this new directive, it becomes clear that they apply a more detailed interpretation that distribution of dividends without withholding tax comprises a cross-border scheme that needs to be notified if these dividends are exempt from taxes in the payee’s country. It is common knowledge that Latvia does not have a withholding tax on dividends paid in Latvia (except payments to offshores). So, many companies will have to check whether their dividends are taxed or remain exempt in the payee’s country and take a decision about notifying the SRS.
They should start with an algorithm to determine whether the transaction or structure comprises a cross-border scheme according to the definition mentioned. If so, they need to check whether the transaction or structure reveals any of the indicators that trigger the notification obligation under Section 3 of the new Cabinet Regulations. Some of the indicators may require notification even if the company has not gained any tax benefit from the scheme.
Amendments to the Cabinet Regulations on application of the CIT Law
On 5.5.2020, Cabinet Regulations were adopted stipulating:
- a report form and a procedure to complete it with regard to income gained by a non-resident in Latvia from leasing or renting immovable property;
- documents to be submitted by the non-resident together with the report.
Currently, the Regulations provide an option to deduct special indicated main company’s expenses that can be linked to a permanent establishment in Latvia in the amount of 10%, unless they are included in the product prime price, i.e., indirect costs, such as share of the salary paid to the accountant or the like.
The amendments have been supplemented by an explanation that assets which are included in the share capital of the acquiring company as a result of reorganisation comprise deferred CIT until the time when the share capital is decreased.
The amendments specify the same tax declaration and payment period for other taxpayers – (the 20th date of the next month) for those taxpayers who carry out liquidation or reorganisation.