Report on Controlled Transactions – a New Burden, Not an Improvement in Transfer Pricing

The draft law, which intends to supplement Section 15.2 of the Law “On Taxes and Duties” with a new Paragraph 9¹, is currently being considered in the second reading by the Saeima. Given the current pace of progress and the support of the responsible Budget and Finance (Tax) Committee, the adoption of these changes is highly likely, and it is very probable that these changes await us as early as January 1, 2026. Therefore – one must act quickly.

The amendment introduces a new concept – the report on controlled transactions, defined as transfer pricing documentation in a structured data format. Such a report is intended to include information on the type, direction, and total amount of controlled transactions, the transaction partner, the market price determination method used, as well as sources of comparable data and market price indicators.

Data Duplication and Administrative Burden

Formally, the proposed changes and the wording of the law appear correct; however, their practical significance is questionable. Detailed requirements for transfer pricing documentation already exist in Latvia – the local file includes the exact same information, only it can be submitted in WORD or PDF format. Consequently, a justified question arises – what is the added value of such a provision?

In fact, an obligation is being created that duplicates existing documentation, merely requiring it in a different data format. This means an additional administrative burden for companies, which will have to adapt their accounting and IT systems to convert existing information according to the new format.
I cannot call this solution an innovation in transfer pricing supervision because:

1.  the content of the information does not change significantly;
2.  the quality of supervision does not improve – the State Revenue Service (SRS) can already request the same data from existing documentation;
3.  compliance costs for companies increase without any real benefit.

If the goal were truly the digitalization of processes, the provision should replace the existing local documentation with a structured data form. However, it is currently intended that both obligations will exist in parallel, creating duplication and uncertainty regarding which document takes priority.  

Insufficient Clarity Regarding the Objective

From a regulatory perspective, there is a lack of clear justification for the objective – how exactly will this structuring of information improve the monitoring of transfer pricing risks? If the intention is automated data analysis at the SRS level, then such a step should be followed by a detailed technical specification, a description of the data format, and a transition mechanism. Currently, this cannot be inferred from the text of the provision. Without these explanations, the provision looks more like a formal step that creates a bureaucratic obligation rather than a real improvement in tax administration.

The Corporate Perspective: Another Obligation Without Real Benefit

From the perspective of companies, this provision means another requirement that increases preparation costs and duplicates information already provided. It does not create greater tax transparency or simplicity, but rather the risk that companies will find themselves in a situation where the same data must be prepared in several different formats. This is particularly burdensome for companies with limited resources and complex international structures.

The Polish Experience

A similar requirement has existed for several years in Poland, where the tax administration introduced an electronic transfer pricing report (TPR). The Polish example clearly showed that although such a format theoretically facilitates data processing on the state side, it significantly increases the burden on companies. Many companies had to invest significant resources in restructuring data, and the risk of errors increased because any discrepancy between the TPR data and the local transfer pricing documentation was treated as a potential violation.

As a result, the Polish experience demonstrates that such an approach is not effective unless implemented alongside systemic simplification – for example, if the structured report does not supplement but rather replaces existing documentation. A similar situation is developing in Latvia, where the wording of the draft law provides for the parallel existence of both local transfer pricing documentation and the new report on controlled transactions.

What Does This Mean in Practice?

Transfer pricing regulation provides for a differentiated approach – companies whose total amount of controlled transactions exceeds EUR 250,000 but does not exceed EUR 5 million were obliged to prepare transfer pricing documentation, but submission to the State Revenue Service was only upon request, namely within 30 days. Consequently, in practice, many companies prepared the documentation only when the SRS had already initiated an audit or requested its submission.

With the introduction of the report on controlled transactions, this approach changes significantly. The structured data report will have to be submitted proactively – regardless of whether the SRS has made a request or not. In other words, this provision essentially makes the submission of transfer pricing documentation mandatory for all companies whose transaction volume exceeds the specified threshold.

This means that companies that previously considered transfer pricing documentation as “backup” material to be prepared only as needed will now be forced to prepare this documentation on time, both in the usual format and as structured data.

The progress of the draft law in the second reading indicates that the adoption of the changes is only a matter of time. However, their content creates an additional bureaucratic obligation rather than promoting digitalization or efficiency. If the goal is truly to modernize transfer pricing supervision, then a unified electronic solution is needed that replaces existing documentation rather than duplicating it. Otherwise, the “report on controlled transactions” will become another symbolic regulation that looks good on paper but in practice only increases the administrative burden.