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August 18, 2021

OECD releases Latvia Stage 2 peer review report on implementation of Action 14 minimum standard

Executive summary

On 26 July 2021, the Organisation for Economic Co-operation and Development (OECD) released the Stage 2 peer review report of Latvia relating to the outcome of the peer monitoring of the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standards under Action 14 on improving tax dispute resolution mechanisms. Stage 2 focuses on monitoring the follow-up of any recommendations resulting from Latvia's Stage 1 peer review report.1 Latvia requested that the OECD also provide feedback concerning their adoption of the Action 14 best practices, and therefore, in addition to the peer review report, the OECD has released an accompanying document addressing the implementation of best practices.2

Overall, the report concludes that Latvia addressed most of the shortcomings identified in its Stage 1 peer review report.

Detailed discussion


In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 which form the basis of the Mutual Agreement Procedure (MAP) peer review and monitoring process under BEPS Action 14.

The Terms of Reference translate the minimum standard approved into a basis for peer review, consisting of 21 elements complemented by 12 best practices. The Terms of Reference assess a Member's legal and administrative framework, including the practical implementation of this framework to determine how its MAP regime performs relative to the 21 elements in four key areas: (i) preventing disputes; (ii) availability and access to MAP; (iii) resolution of MAP cases; and (iv) implementation of MAP agreements.

The Assessment Methodology establishes detailed procedures and guidelines for a two-stage approach to the peer review and monitoring process. Stage 1 involves the review of a Member's implementation of the minimum standard based on its legal framework for MAP and the application of this framework in practice. Stage 2 involves the review of the measures taken by the Member to address any shortcomings identified in its Stage 1 peer review. In light of the above, the OECD has also released a schedule for Stage 1 of the peer review and a questionnaire for taxpayers. The schedule catalogues the assessed jurisdictions into 10 batches for review.

Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration's (FTA) MAP Forum.3 In summary, Stage 1 consist of three steps or phases:

  • Obtaining inputs for the Stage 1 peer review
  • Drafting and approval of a Stage 1 peer review report
  • Publication of Stage 1 peer review reports

Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs (CFA) to adopt the report for publication.

For Stage 2, there are two steps or phases: (i) approval of Stage 2 peer monitoring report of an assessed jurisdiction; and (ii) publication of Stage 2 peer review reports. More specifically, an assessed jurisdiction should within one year of the adoption of its Stage 1 peer review report by the CFA submit a detailed written report (Update Report) to the FTA MAP Forum. The Update Report should contain: (i) the steps that the assessed jurisdiction has taken or is taking to address any shortcomings identified in its peer review report; and (ii) any plans or changes to its legislative or procedural framework relating to the implementation of the minimum standard.

Members of the FTA MAP Forum should also provide their comments on the Update Report provided by the assessed jurisdiction. Based on the Update Report submitted by the assessed jurisdiction and the input from the peers, the Secretariat will revise the Stage 1 peer review report of the assessed jurisdiction with a view to incorporate these updates in the Stage 2 peer monitoring report of the assessed jurisdiction. After adoption from the CFA, the Stage 2 peer monitoring report will be published.

Minimum standard peer review reports

The report is divided into four parts, namely:

  • Preventing disputes
  • Availability and access to MAP
  • Resolution of MAP cases
  • Implementation of MAP agreements

Each part addresses a different component of the minimum standard.

Overall, Latvia addressed most of the shortcomings identified in its Stage 1 peer review report.

Preventing disputes

In order to be fully compliant with all four key areas of an effective dispute resolution mechanism under the Action 14 minimum standard, Latvia signed and ratified the Multilateral Instrument (MLI). Through this instrument, a number of its tax treaties have been or will be modified to fulfil the requirements under the Action 14 minimum standard. Where treaties will not be modified, upon entry into force of the MLI, Latvia reported that it intends to update all of its tax treaties to be compliant with the requirements under the Action 14 minimum standard via bilateral negotiations. Such bilateral negotiations have already been initiated or are envisaged to be initiated for all of those treaties.

Latvia meets the Action 14 minimum standard concerning the prevention of disputes. It has in place a bilateral Advance Pricing Agreement (APA) program. This APA program also enables taxpayers to request roll-back of bilateral APAs and such roll-backs are granted in practice.

Availability and access to MAP

Latvia meets some of the requirements regarding the availability and access to MAP under the Action 14 minimum standard. It provides access to MAP in all eligible cases, although it has since 1 September 2018 not received any MAP requests concerning the application of anti-abuse provisions. However, Latvia does not have in place a documented bilateral consultation or notification process for those situations in which its competent authority considers the objection raised by taxpayers in a MAP request as not justified. Finally, Latvia has not yet published its guidance on the availability of MAP and how it applies this procedure in practice although it has issued detailed procedural rules on the conduct of MAP with other Member States of the European Union (EU), arising from the implementation of Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the EU.

Resolution of MAP cases

The number of MAP cases Latvia closed in 2016 through 2019 is higher than the number of all cases started in those years. Further, as noted above, Latvia ensured that all old cases, i.e., pre-2016 cases were resolved by the end of 2019. During these years, MAP cases were on average closed within a timeframe of 24 months (which is the pursued average for resolving MAP cases received on or after 1 January 2016), as the average time necessary was 6.54 months. However, the average time taken to resolve attribution/allocation cases was higher than 24 months and the average time taken to resolve all cases outside of the grouped 197 cases mentioned above was higher than 24 months. Further, Latvia's competent authority took more than 24 months to resolve several pre-2016 cases in the unilateral stage. On this basis, it has been stated that Latvia should closely monitor whether its existing resources will ensure that pending and future MAP cases are resolved in a timely, efficient, and effective manner.

Furthermore, Latvia meets almost all the other requirements under the Action 14 minimum standard in relation to the resolution of MAP cases. Latvia's competent authority operates fully independently from the audit function of the tax authorities and adopts a pragmatic approach to resolve MAP cases in an effective and efficient manner. However, the performance indicators used for the evaluation of staff in charge of MAP are based on the maintained amounts of tax revenues, although no issues have surfaced during the period under review.

Implementation of MAP agreements

After review, it is stated that Latvia also meets the Action 14 minimum standard with respect to the implementation of MAP agreements and the competent authority in Latvia monitors such implementation.


In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of Latvia's Stage 2 peer review report represents the continued recognition and importance of the need to achieve tax certainty for cross-border transactions of MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Baltic SIA, Riga



  1. See EY Global Tax Alert, OECD releases sixth batch of peer review reports on BEPS Action 14, dated 25 October 2019.