Latvia's Minister of Finance Gundars Berzins said after the meeting that he still hoped for a solution, and both ministers agreed that specialists from both countries will meet in September to harmonize their stance on the tax convention issue.
Berzins said that both countries have had different positions on the tax convention since Jan. 1, 2000, when Estonia changed its tax policies in relation to legal entities. However, the tax convention is in effect operating, except for the section on income tax.
Though both countries still hold opposing opinions, Berzins was pleased that the Estonian side was ready to continue negotiations.
Estonia's Minister of Finance Siim Kallas also said that it was necessary to continue cooperation and that Estonia respected Latvia's interests and its wish to control its revenue, which was very much a political issue.
Kallas agreed that both sides should solve the issue and prepare respective amendments to the tax convention acceptable for both countries. He added that Latvian or Estonian tax legislation would definitely not be changed.
Both ministers expressed optimism that a solution would be found at the September meeting.
On June 1, Latvia stopped applying terms of the tax convention to legal Estonian entities working in Latvia. Berzins believes that the convention is not applicable to Estonian legal entities, as it defines that in the case of introducing new taxes, the convention is to be implemented for taxes that are identical or similar to the taxes in force at the point of signing the convention.
Estonia passed a new law in 2000 that stated that income tax was no longer paid for annual profits in general, but only for profits that were distributed or paid out in dividends. Latvia believes that foreign investors are therefore encouraged to invest not directly in Latvia, but through an Estonian company.
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