By December this year, many Latvian companies that transact with related parties will, for the first time, have to file a Controlled-Transaction Report (KDP).

Much has already been written about the KDP’s technical requirements, filing procedure and content. A different and equally important question, however, is discussed far less often - what does the KDP actually change in the context of companies’ transfer pricing requirements and risks?

What is the KDP?

The KDP is a structured report on a company’s controlled transactions. It must be filed where certain conditions are met, including where the value of controlled transactions exceeds EUR 250,000 in a year.

The KDP must be filed for the first time for 2025 - by December 2026.

The KDP must include structured information on each controlled transaction or category of transactions. Among other things, the report must state the type and direction of the transaction, the transaction counterparty, the transaction value, the market price (value) determination method applied, the source of comparable data used, the tested party, the established market price (value), as well as the chosen market price (value) indicator and its result.

What already existed?

The principle that transactions between related parties must correspond to a market price (the arm’s length principle) is nothing new. Nor is the documentation requirement: in certain cases, companies whose related-party transactions exceeded EUR 250,000 in a year were already required to prepare and maintain transfer pricing documentation.

What has changed is not the substance of the requirements. What has changed is how companies must report it and how the State Revenue Service (VID) receives this information.

Until now, in most cases transfer pricing documentation was submitted to VID only on request. The exception was companies whose controlled transactions exceeded EUR 5 million a year and which were required to file documentation. With the introduction of the KDP, VID will receive structured information on controlled transactions every year, regardless of whether the documentation has been requested.

The KDP is not merely a formal report

Public discussion often emphasises the technical side of filing the KDP, but rarely addresses the consequences that may follow from filing it - or failing to.

In legal terms, the KDP is not simply an informational notice to VID. The KDP is transfer pricing documentation. In practice, this means that the same rules and consequences that apply to the rest of transfer pricing documentation also apply to the KDP.

For this reason, failing to file the KDP or omitting material information is not to be viewed as a formal breach. It is a failure to meet transfer pricing documentation requirements, which may in fact give VID grounds to apply the sanctions provided by law for failure to submit transfer pricing documentation. Whether and how VID will exercise these powers in practice is not known to anyone, but the risk is real.

The KDP creates no new transfer pricing requirements - it makes the existing ones visible

From a practical standpoint, the most important thing to understand is that the KDP does not create a new transfer pricing requirement. It is the way in which VID receives information about requirements that companies already have.

If a company’s transfer pricing documentation is current and reflects its actual transactions, filing the KDP is largely a matter of compiling information in a prescribed format.

Where transfer pricing matters have long gone unexamined, however, or where documentation has not been prepared, the KDP becomes the moment these gaps become visible to VID - in a structured and comparable form.

What should companies check now?

Before preparing the KDP, companies should satisfy themselves on at least four points:

  • whether all related parties have been identified;
  • whether all controlled transactions in 2025 have been captured;
  • whether the EUR 250,000 threshold (and the EUR 90,000 materiality threshold) has been assessed correctly;
  • whether each material transaction type has an appropriate transfer pricing methodology in place, with sufficient justification for applying it.

What does the KDP actually change?

In substance, the KDP introduces no new transfer pricing requirements. It changes the way VID obtains information about requirements that companies already have.

For companies that have addressed their transfer pricing matters in good time, the KDP will largely be a matter of compiling existing information and filing it in a prescribed format.

For companies that have not properly assessed or documented their transfer pricing matters, however, the KDP may become the moment these gaps become visible to the tax authority as well.