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Latvia: New Policy on Prior Notice of Audits

(Sept. 10, 2013) Latvia’s tax authorities announced a new audit policy on September 5, 2013. In the future, taxpayers will be informed by mail of any planned audits before those audits actually begin. At present such notice is only sent ten days prior to the scheduled start of an audit. Under the new procedure, once a taxpayer receives an information letter, there would be a chance for the taxpayer to voluntarily fix any accounting mistakes and possibly end the need for an audit. The purpose of the change is to improve cooperation between taxpayers and the tax office and promote tax compliance. (Larisa Gerzova, Tax Authorities Will Inform Taxpayers About Audit Planning Prior to Making Decision to Commence Audit, TAX NEWS PLATFORM (Sept. 6, 2013), International Bureau of Fiscal Documentation online subscription database.)

The new procedure will apply to both individuals and corporations; any taxpayer for whom an audit is planned will be given notice that such a procedure is scheduled for no later than two months from the date on the notice. The only exception is that no notice is sent if an audit is planned in response to a taxpayer requests a refund because, in the taxpayer’s view, taxes have been overpaid. (Id.)

The new policy establishes that by voluntarily correcting inaccurate or incomplete returns before the audit is actually initiated, the taxpayer in question would only have to pay any extra tax that was due plus interest; there would be no fine. If an audit has begun by the time any corrected tax return is submitted, in addition to the tax and interest, there would be a penalty of 5% of the amount of tax not originally declared by the taxpayer. (Id.)

The current tax rates in Latvia are 15% of income for legal entities and non-resident permanent establishments and 24% of individual income. (Tax System in Latvia, Ministry of Finance of the Republic of Latvia website (last visited Sept. 9, 2013).)