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1. Apportionment of Gross Profit of Local Branch to Real Centre of Management abroad

The principle of Latvian law that the establishment or branch of a foreign enterprise in Latvia shall be taxed as if it were an independent concern means that all the profits of these establishments are taxable, but they alone.

Hence, no part of the profits of the establishment can be ascribed to the enterprise abroad; but, if part of the establishment’s profit is due to the activities and services of the parent enterprise, that share may be deducted from the taxable profit. It is on this ground that deduction is allowed of commissions, royalties and interest paid to the parent enterprise, provided that these payments correspond to what would normally have been paid to third parties and that the parent enterprise, when invoicing goods supplied to its Latvian branch, includes in the invoice the profits which would normally have been earned, had these goods been sold to third parties.

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