Problems and solutions of VAT refund in Latvia

Riga, 25 November 2010

15:00-15:20 15:00-15:20 Attorney Valters Gencs, Chairman of the Board of the Norwegian Attorney Valters Gencs, Chairman of the Board of the Norwegian

Chamber of Commerce in LatviaChamber of Commerce in Latvia

Solvita Āmare - Pilka, HSolvita Āmare - Pilka, Head of the Ministry of Finance ead of the Ministry of Finance DDepartment epartment of Indirect of Indirect TTaxesaxes

15:20-15:5015:20-15:50Marina Kuzenko, Deputy Director of the SRS Tax Administration Marina Kuzenko, Deputy Director of the SRS Tax Administration

Indirect Taxes Methods DepartmentIndirect Taxes Methods Department

16:00-16:30 16:00-16:30 Coffee breakCoffee break

16:30-17:00 16:30-17:00 Kristīne Košinska, Head Lawyer of the SRS Big Taxpayers Kristīne Košinska, Head Lawyer of the SRS Big Taxpayers

DepartmentDepartment

17:00-17:3017:00-17:30Ļubova Švecova, Deputy Director of the SRS Financal Police Ļubova Švecova, Deputy Director of the SRS Financal Police

Department; Head of the Investigation DepartmentDepartment; Head of the Investigation Department

Direct Income of Latvian Direct Income of Latvian EnterprisesEnterprises

(Lursoft)(Lursoft)

2007. – 1.6 billion LVL

2008. – 6x decrease - 252 million LVL

2009. – 812 million LVL loss + bank losses 773.4 milion - total 1.5 billion

Tax advances paid from the profit of previous years

Tax overpayment problem occurs

VAT is not refunded until VAT is not refunded until construction is commencedconstruction is commenced

Company has received:Company has received:Topographical survey services.Topographical survey services.Services of designing the topographical plan.Services of designing the topographical plan.Preliminary design servicesPreliminary design services..Service Service of of designing a designing a development plandevelopment plan..* Received a planning and architectural assignment for the construction of complex.* Received a planning and architectural assignment for the construction of complex.

SRS:SRS:

The received services related to the real estate The received services related to the real estate

are not in any way connected are not in any way connected

with any kind of pwith any kind of potentialotential building building construction, construction,

but only with maintenance and management of a particular but only with maintenance and management of a particular lot.lot.

VAT is not refunded for services received VAT is not refunded for services received in Latvia on transactions with real estate in Latvia on transactions with real estate

abroadabroad

Latvian LLCs are performing reconstruction of premises in Latvian LLCs are performing reconstruction of premises in construction unit in Scandinavia and receiving services from construction unit in Scandinavia and receiving services from Latvian LLCs (subcontractors).Latvian LLCs (subcontractors).

LV General Contractor

LV subcontractor

21%Construction work in Scandinavia

21% pretax cannot be discharged because the transaction has to be charged without VAT.

Question:Question:Why is the sanction applied to general contractor Why is the sanction applied to general contractor instead of subcontractor? General contractor has paid instead of subcontractor? General contractor has paid the VAT to the subcontractor. VAT remains in Latvia.the VAT to the subcontractor. VAT remains in Latvia.

Problems with DeadlinesProblems with Deadlines

Deadline for receipt of refund

Registration

•Estonia 2 days•Latvia 7-14 days •Lithuania 3-5 days

Refund

•Estonia 7-14 days•Latvia 2-5 months (for export)•Lithuania 1-6 months

EU Court in LuxemburgEU Court in Luxemburg Case C-472/08 „Alstom Power Hydro” against VIDCase C-472/08 „Alstom Power Hydro” against VID

Construction work at Plavinas and Kegums hydroelectric power Construction work at Plavinas and Kegums hydroelectric power plants plants 1999-20031999-2003..

RequRequestest for VAT refund for VAT refund inin 2004 in Latvia 2004 in Latvia..

Opinion of the Opinion of the European Commission European Commission for the EU court in 2009:for the EU court in 2009:

The period of time when the refund was acknowledged and The period of time when the refund was acknowledged and automatically transferred, has to be excluded from the 3 year automatically transferred, has to be excluded from the 3 year term.term.

In 2010 SRS still has a question - what to do?In 2010 SRS still has a question - what to do?

As of July 1, 2010 – no automatic transferAs of July 1, 2010 – no automatic transfer

Total consumed time:Total consumed time:6 6 years from the requestyears from the request;;11 11 years from the beginning of the project.years from the beginning of the project.

How much can we get back? How much can we get back?

9% - 18% per year per one period after the judgement is 9% - 18% per year per one period after the judgement is accepted.accepted.

The interest is not paid during the litigation time.The interest is not paid during the litigation time.

The average weighted interest rates in LVL for the raised The average weighted interest rates in LVL for the raised deposits:deposits:

6.7% - year 20076.7% - year 20079.9% - year 20089.9% - year 200811.9% - year 200911.9% - year 2009