On Thursday, September 29, the Minister for Finance Jānis Reirs and German Ambassador to Latvia Christian Heldt signed the Protocol amending the Agreement between the Federal Republic of Germany and the Republic of Latvia of 21 February 1997 for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital.
The Protocol will ensure the compliance of the applicable Tax Agreement between Latvia and Germany with the minimum standard set in the Action Plan of Base Erosion and Profit Shifting (BEPS) approved by the Organization for Economic Cooperation and Development (OECD), namely, Action 6 (Prevent Treaty Abuse) and Action 14 (Making Dispute Resolution Mechanisms More Effective).
The preamble of the Agreement is expressed in a new wording, which, in addition to the prevention of double taxation and tax evasion, also provides for the prevention of inappropriate application of the provisions of the tax agreement. In order to ensure compliance with the provisions of the BEPS Action Plan, the Agreement is supplemented with a provision on the obligation to make appropriate corrections. The Agreement is also supplemented with a provision preventing abuse of the Agreement. In turn, the provision contained in the Agreement on the mutual agreement procedure is supplemented by the obligation of the competent authorities to provide notifications to each other or to mutually consult about taxpayers' submissions, which they do not consider justified.
In addition, the application of Article 13 (Capital Gains) of the Agreement is extended, defining additional criteria according to which the contracting jurisdictions are entitled to tax the income from the disposal of shares of the real estate companies.