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Latvia responds to European Commission's letter of formal notice regarding taxation of outbound dividends — Orbitax Tax News & Alerts

On 28 February 2008, the European Commission announced that it had sent Latvia a letter of formal notice (first step of the infringement procedure under Art. 226 of the EC Treaty) to amend its rules under which dividends paid to non-resident individuals may be taxed more heavily than those paid to residents. On 15 April 2008, in response to the letter of formal notice, the Latvian government announced that, while its legislation is compatible with EC law, amendments are necessary to clarify the taxation of dividends paid to individuals.

The Latvian government claims that dividends paid to residents of EU/EEA Member States are currently exempt, irrespective of whether or not these dividends are paid to companies or individuals. The rules on taxation of outbound dividends, contained in the Personal Income Tax Act (PITA), make a reference to the Corporate Income Tax Act (CITA). Thus, according to the government, the current exemption of dividends paid by Latvian companies to qualifying EU/EEA Member State residents, provided for in the CITA, also applies to dividends paid to individuals. However, in order to provide for an explicit exemption of dividends paid to individuals resident in EU/EEA Member States, the government undertakes to make clarifying amendments to the PITA.