Taxpayer Rating System

The determination of the taxpayers’ rating is carried out according to specific criteria in several sequential selection steps using the exclusion method, i.e., companies included in any of the rating  levels are no longer evaluated in subsequent selection steps. A company can receive one out of five such rating evaluations.

J – newly registered taxpayer

• Companies registered no earlier than six months before the rating determination date

The risks identified for these companies are not taken into consideration in determining the rating, however a company can review the existing risks that may affect the taxpayer rating in the future in its EDS profile, in Taxpayer Rating section “Indicators”.

• Companies registered after the rating determination date

These companies do not have a rating. They will be rated at the next rating determination, which is carried out every three months.

N - inactive taxpayer

Companies that do not engage in active economic activities according to the data available to the SRS. In the SRS assessment, these are the companies whose total declared amount of taxes due for the last six months, as stated in the submitted declarations and reports, does not exceed 750 euro and who meet at least one of the following criteria groups:

• Companies are excluded from the SRS's VAT register due to not conducting economic activities.
• Companies meet all the following criteria at once:
  • no declared wages for employees.
  • tax payments to the state budget have not been made, or their total amount does not exceed 150 euro.
  • the total value of transactions declared in VAT returns for the analysis period does not exceed 750 euro (for members of VAT groups, the total amount of declared domestic transactions for supplies of goods and services and transactions within the territory of the European Union (EU), as well as export transactions is evaluated).

The information available to the SRS indicating the economic activity of these companies, which should result in tax obligations according to the SRS, is also evaluated. These companies can review this information in their EDS profile in the Taxpayer Rating section “Indicators”, “Tax Declaration Risk Assessment”.

Other risks identified for these companies are not taken into consideration in the rating determination..

C – Compliance violations

• Companies whose economic activity was suspended on the initiative of the SRS for tax compliance violations.
• Companies that have been excluded by the SRS from the SRS’s VAT register by the initiative of the SRS due to violations detected in the field of tax compliance and whose registration in the SRS’s VAT register has not been renewed.

Although other risks identified for these companies are not taken into consideration in determining the rating, a company can review them in their company EDS profile in the Taxpayer Rating section "Indicators".

B – Compliance needs to be improved.

Companies that do not meet the J, N or C rating criteria and have significant tax compliance risks in one of the areas evaluated by the SRS.

• Companies that have one or more significant risks in the field of tax compliance:
  • there is a tax debt that exceeds 150 euro at the end of the previous month and the ratio of the tax debt to the tax payments made indicates the risks of non-payment of the tax debt.
  • at least one of the risks in the wage payment evaluation has been identified:
    
    The information on employees who have not received wages in a specific month, such as those on extended leave, is not used in calculating a company's average wages.
    • Comparison of the wage and salary level:
      • the average wages are less than or equal to the amount of the minimum monthly wage specified by the state.
      • the average wages do not reach the amount of the minimum monthly wage specified in the general agreement document for the construction sector.
      • average wages are less than or equal to 50% of the average monthly wages and salaries in the respective economic sector and region (compared to data provided by the Central Statistical Bureau of Latvia on the average monthly gross wages by type of activity in regions for the second quarter of 2024:
        https://data.stat.gov.lv/pxweb/lv/OSP_PUB/START__EMP__DS__DSV/DSV051c).
      • average wages do not reach 25% of the average wages in the country in private sector (compared to data provided by the Central Statistical Bureau of Latvia on the average monthly gross wages in the country in the first quarter of 2024: https://data.stat.gov.lv/pxweb/lv/OSP_PUB/START__EMP__DS__DSV/DSV010c.
    • Non-declaration of employees and wages:
      • economic activity is carried out (the total amount of transaction value is declared in the taxpayer's VAT returns), but no amounts of the mandatory state social insurance contributions are declared in the employer’s reports.
      • "Employers reports" have not been submitted although a company has employees or no wages for employees have been declared in "Employers reports", although:
        • employees worked at the construction site (data from the Unified Electronic Working Time Record Database).
        • employees carried out commercial passenger transportation with a passenger car or taxi (data from the website or mobile app service providers).
        • at the employer’s request, at least one foreigner has been granted the right to employment (data from the Office of Citizenship and Migration Affairs).
  • at least one of the VAT risks used in determining the rating has been identified. 
    • after the transaction took place, suppliers  are excluded from the SRS’s VAT register at the initiative of the SRS for tax compliance violations – such transactions are deemed as transactions with risky counterparties who have been found to commit tax violations.
    • the declared amount of VAT due to the budget indicates potential VAT losses - the nature of the transactions declared in the taxpayer's VAT returns suggests that the taxpayer's transactions are mostly carried out within the territory of Latvia, but as a result, the amount of VAT due to the budget is minimal.
    • amounts of declared EU acquisitions and EU supplies indicate potential VAT losses - the largest share of transactions declared by the taxpayer in the VAT returns consists of intra-EU acquisitions and deliveries to EU member states, which may indicate the role of potential intermediary in the supply chain involving taxpayers from other EU member states.
    • deliveries of goods or services provided are not declared, although Latvian clients have declared purchases of goods or services received from a company.
    • the VAT credit refundable from the budget has been declared for current and at least two preceding taxation years, but no or minimal supply of goods or services has been declared.
  • more than two tax returns and/or reports have not been submitted.
  • annual report for the last fiscal year has not been submitted.
  • no bank accounts are reported.
  • more than twice process of exclusion from the SRS’s VAT register for tax compliance violations was initiated and then interrupted.
  • transition of a company has been determined.
  • additional tax amount payable to the budget assessed in result of a tax audit and/or a tax inspection and/or a customs declarations inspection exceeds 10% of a company's tax payments to the state budget.
  • administrative penalties were imposed in a result of a tax and/ or customs inspection or other tax administration measures for committed significant violations in the field of taxes or customs.
  • a decision has been made regarding the imposition of a fine for non-submission of transfer pricing documentation or violations of documentation preparation requirements and the amount of the fine exceeds 15 000 euro.
  • a company or its official is subject to international or national sanctions.
  • the status of Authorized Economic Operator (AEO) in customs has been revoked due to the identified violations.
  • tax debt enforcement activities have been carried out against a company.
  • other risks identified for a company or its official not mentioned above.

A company can review all the identified risks, as well as more detailed information, such as the period for which the risk is assessed, in their EDS profile in the Taxpayer Rating section "Indicators".

• Companies with signs of significant tax compliance risks.
  
  According to their own declared information, companies do not carry out active economic activity, but according to the information available to the SRS, there are signs indicating significant risks of tax compliance. In the SRS assessment, these are companies whose total declared amount of taxes due for the last six months, as stated in the submitted declarations and reports, does not exceed 750 euro and who meet at least one of the following criteria groups :
  • Companies are excluded from the SRS’s VAT register due to not conducting economic activities.
  • Companies meet the following criteria all at once:
    • no declared wages for employees.
    • tax payments to the state budget have not been made or their total amount does not exceed 150 euro.
    • the total value of transactions declared in VAT returns for the analysis period does not exceed 750 euro (for members of VAT groups, the total amount of declared domestic transactions for supplies of goods and services and transactions within the territory of the European Union (EU), as well as export transactions, is evaluated).
      
      And for these companies, at least one of the signs indicating significant tax compliance risks has been identified:
  • Latvian clients have declared purchases of goods or services received from a company, and the total value of these declared acquisitions excluding VAT exceeds 750 euro.
  • the amount of input tax declared in VAT returns exceeds 150 euro.
  • discrepancies of supplies and acquisition amounts exceeding 750 euro have been identified in transactions with suppliers and clients from other EU member states.
  • the declared total value of the exported or imported goods exceeds 750 euro.
  • according to the reports “Information about employees” submitted, there are current employees, but no  Employers reports have been submitted.

The other risks identified for these companies are not taken into consideration in the rating determination. A company can review all the identified risks in their EDS profile in the Taxpayer Rating section "Indicators".

• Companies that have declared insolvency.

Other risks identified for these companies are not taken into consideration in the rating determination. A company can review the identified risks in their EDS profile in the Taxpayer Rating section “Indicators”.

A – Good compliance.

Companies that have good tax compliance, without significant risks in tax compliance, and that do not meet the criteria for rating levels B, C, N and J.

A company can review the identified relatively insignificant risks in its EDS profile in the Taxpayer Rating section "Indicators".

It should be noted that the SRS may also have at its disposal other risk information about the taxpayer, including information describing a certain indicator, but the disclosure of this information to the taxpayer is prohibited for the SRS by national and international legislation, therefore it is not used to determine the publicly available rating assessment and does not affect the taxpayer's rating.

It should be taken into consideration that the SRS will continue to use this (undisclosed) information in tax administration measures for all taxpayers, regardless of the overall assessment level of the taxpayer's rating.

The exact information on periods data and information used to determine the specific indicator for its rating refer to can be viewed by a company in its EDS profile.

Indicators that describe the existence of a fact are evaluated as of the rating determination date.

Indicators that assess a company's performance in fulfilling tax obligations are evaluated for a certain period – from two months up to three years.

As of the date of determining the rating, evaluation is made for indicators such as tax debt status, compliance with extension deadlines of the term for the payment of taxes, facts related to suspension of economic activity of a company on the initiative of the SRS for tax compliance violations, facts related to declared insolvency proceedings, information on applicable sanctions for a company or its officials, etc.

For the period of:

• two months – evaluates whether for a company the SRS has decided on non-contentious tax debt recovery or whether the SRS decided on the voluntary payment of overdue taxes enforcement.
• six months – evaluates the fact of timely submission of declarations and reports and days the deadline for submission was delayed, analyzes the information provided in the taxpayer's declarations and reports, evaluates calculated tax amounts due for payment to the state budget declared in declarations and reports, and evaluates tax payments made to the state budget, evaluates the level of wages by comparing to national and regional averages, evaluates third-party data on non-declaration of employees and wages.
• nine months - evaluates VAT risks used to determine the rating.
• 12 months - evaluates the tax debt recovery activities carried out by the SRS, the amount of administrative fines imposed for violations detected in the field of taxes and customs, the amount of taxes and customs payments calculated in addition to payment to the budget as a result of tax and customs administration measures, the re-registration of a company in the SRS’s VAT register, the information received from the State Labour Inspectorate regarding detected cases of illegal employment, etc.
• 36 months – evaluates information on the actions of a company's officials in the field of compliance with tax obligations, information on the decision taken to impose a fine for non-submission of transfer pricing documentation or for violations of documentation preparation requirements and the amount of the fine imposed, and exclusion of a company from the SRS’s VAT register.