Controlled Transactions Report | Structured Data Available to the SRS and its Impact on Transfer Pricing Risks

In recent years, transfer pricing regulations in Latvia have undergone a quiet but significant transformation. While previously the tax administration often focused on the formal existence or absence of documentation, now the focus is increasingly shifting towards the economic substance of transactions and the figures that characterize them.

With the new amendments to Section 15.² of the Law “On Taxes and Fees”, this trend becomes particularly pronounced – the State Revenue Service (SRS) will have structured data on controlled transactions at its disposal, not just descriptive documentation in free text. This significantly changes the rules of the game for businesses as well.

From Document Folders to Data Analytics

Until now, transfer pricing documentation often served as a protective instrument “just in case it’s ever asked for”. It was prepared in PDF or Word format, stored in the company’s archive, and primarily used if the SRS initiated an audit. In such an approach, the SRS’s ability to conduct extensive comparative analysis was limited – each case was evaluated in isolation from others and from the overall market.

The introduction of the Controlled Transactions Report significantly changes this situation. Structured data in the EDS system means that the SRS sees not a story about transactions, but specific figures: mark-ups, profit levels, chosen methods, tested parties, and comparable indicators. This data is mutually comparable, filterable, and automatically analyzable.

In practice, this means that the SRS no longer has to wait for an audit to “open the documentation”. Risk indicators can be identified in advance – based on data.

Why the Risk of Disputes Increases, Rather Than Decreases

From the perspective of entrepreneurs, it might seem that providing structured information makes the process clearer and more predictable. To some extent, this is true. However, at the same time, it significantly increases the likelihood that the SRS will notice discrepancies that previously went unnoticed.

The SRS will now be able to:
a) compare profit levels of similar companies in the same industry;
b) identify repeatedly low or fluctuating margins;
c) notice cases where the method is formally indicated, but the result clearly does not correspond to it;
d) analyze changes year-on-year without additional information requests.

If previously a company could hope that “no one will compare us to others”, in the era of structured data, such hope is no longer justified.

Form No Longer Protects Against Content Problems

One of the most significant misunderstandings currently observed in practice is an excessive focus on the technical side – format, fields, submission deadlines. This, of course, is important, but secondary.

The SRS will not only see whether the report has been submitted correctly. The SRS will see whether:
a) the chosen market price determination method corresponds to the economics of the transaction;
b) the profit level is logical in the respective industry;
c) the transaction structure is consistent from year to year.

If these aspects are not well-considered, a technically correctly filled report will not save anything on its own.

Parallels with Domestic Transactions and E-invoices

It is important to understand that similar development logic is also observed outside classic transfer pricing. In transactions between Latvian companies, there is already an obligation to observe the arm’s length principle, based on Cabinet Regulations No. 677. In turn, the introduction of electronic invoices in the near future means that structured, comparable data will also be available to the SRS in this area.

In other words – regardless of whether it concerns international transfer pricing or local transactions, the overall direction is one: from descriptive documents to data analysis.

What This Means for Businesses in Practice

These changes require a shift in mindset. Documentation as a formal obligation is no longer sufficient. A real understanding of why the price is exactly what it is, and whether this justification would withstand comparison with the market, is necessary.

In practice, this means timely analysis, consistency over the years, and often the involvement of a professional consultant even before data submission, not after the SRS has already asked questions, because in the era of structured data, questions appear faster, and answers must be ready in advance.