The main goals of tax conventions:
1. Double taxation avoidance
2. The prevention of fiscal evasion
3. Distribution of the taxation right between the Contracting States
4. The evasion of taxation discrimination
The mains tasks of tax conventions:
- To provide to the investors of each Contracting State in the other Contracting State stable taxation regime, including in the tax convention provisions which determine the taxation of revenue gained from the business activity in the other Contracting State and from the capital existent in that State, including in the treaty precise provisions concerning passive income -dividends, interest, commission fee, royalties, capital taxation and also defining the maximum of tax rate levied on those incomes and capital in other Contracting State.
- To create legal basis for direct co-operation of States` Tax Administrations to eliminate from the possibility to avoid the tax payments. For achieving this in the tax conventions there is included article that obligates each State's Tax Administration to provide information to the other Contracting State's Tax Administration about the business partners of the other Contracting states residents and about income of the other Contracting states residents received in the first state.
The necessity of tax treaties:
- If there is not signed any tax convention between states then the investors of one state in the other state are taxed on the basis of the other state's national normative acts. The other state can changed not only the tax rates, but also the order of calculation the taxable income. In this situation there is not guaranteed the invariability of the taxation rules in the long time period, wherewith it is impossible to plan precisely the investments, their recoupment and profit. Wherewith there is not guaranteed the stability of taxation of one State's investors income gained in the other state or there situated capital. In the situation when both states in the questions of taxation are guiding from national normative acts there is not solved the question of the double taxation avoidance. This disparity of the mentioned question can negatively affect one's states residents' investments in the other state.
- If there is not signed any tax convention between states, then one's States Tax administration is not obliged to answer to the other's States Tax administration request for the information about the business partners of the other states taxpayers in the first state and about the incomes gained in the first state by the other's states taxpayers. Without mentioned information it is difficult for the other state to tax its residents for their income gained abroad and also it is problematically to apply some special national tax normative norms, for example terms concerning the adjustment of taxable income on the basis of prices applicable in transactions between unrelated persons.
Tax conventions signed by Latvia until 01.04.2018.
Latvia began its work for the conclusion of tax conventions in 1992 and till now the negotiations on the conclusion of the tax conventions have been held with 73 states. Until now 70 conventions have been initialed (and with 2 states the protocols on amending the effective tax conventions have become effective), out of which 64 conventions have been signed and 61 conventions are currently effective.