Latvia's tax authority explains response when bank turnover doesn't match declared income

Latvia's State Revenue Service (VID) has outlined how it acts when the turnover of funds in a person's bank accounts does not correspond to their officially declared income. In 2024, VID sent mass notifications to taxpayers flagged for such discrepancies, asking them to review the sums received and either declare previously undeclared income or provide a justified explanation. Most people contacted complied, though some did not respond at all — in those cases no penalties were imposed, though a number of individual cases were examined more closely.

Deeper review process

When a person is flagged as high-risk, VID first analyzes data from available sources. If further investigation is needed, it may request explanations and documents about the origin of transactions, account statements, and other supporting information. If a person fails to provide this within the set deadline, VID obtains it independently from business partners, banks, or foreign tax authorities. If information only the individual possesses is withheld, a written warning follows, and continued non-cooperation can lead to an administrative violation process, resulting in a warning or a fine of up to 200 euros.

Tax control and audits

When discrepancies are confirmed, VID first invites the taxpayer to voluntarily correct or explain them. If this does not happen, a tax control procedure or audit follows. During a control procedure, a late payment fee of 0.05% per overdue day is calculated on the unpaid tax. During an audit, an additional penalty of 20% or 30% is applied, depending on the scale of the shortfall.

Option to settle

Taxpayers may ask VID's director general to conclude a settlement agreement, which can cancel 85% of the late payment fee before an invoice is issued, or 75% after receiving one. In audit cases, a settlement can reduce late payment and penalty fees by 60%, and taxpayers may also request an extended payment deadline of up to three years.