1% penalty for non-compliant transfer pricing documentation

Penalty for non-compliant documentation

1% penalty for non-compliant transfer pricing documentation.

1% penalty for non-compliant transfer pricing documentation

The law On taxes and duties empowers the State Revenue Service (SRS) to impose a penalty on a tax payer for failure to comply with the requirements on transfer pricing documentation. The amount of the penalty may reach up to 1% of the value of the controlled transaction, capped at EUR 100 000.

In practice, we have seen the SRS impose such a penalty on a tax payer which filed transfer pricing documentation relying on outdated analysis. The tax payer failed to fully resolve the deficiencies identified by the SRS after several reminders and instructions. In this case, the SRS imposed the maximum penalty allowed by law. The SRS did not elaborate on why it applied the maximum penalty whereas the law  provides that the penalty could be “up to” 1%.

Please note that the 1% penalty may be imposed regardless of whether or not the tax payer’s prices in related party transactions were at arm’s length. This administrative penalty can be imposed for non-compliant transfer pricing documentation or the failure to submit it to the SRS in time. In addition, the fact that a penalty has been imposed does not rule out that the SRS may perform tax control measures with respect to the same related party transactions and calculate a tax surcharge and a penalty.

We recommend our clients to consider the potential risk of incurring a penalty, prepare transfer pricing documentation in due time and in line with the requirements set by law, and be active in communication with the SRS if it has identified deficiencies and requests that these be resolved.



The article provides an insight into what KPMG Baltics SIA considers to be key changes in tax legislation in the 4th quarter of 2022.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Aina Oksenuka, Manager in Tax, KPMG in Latvia


© 2024 KPMG Baltics SIA, a Latvian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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