On 21 May, the State Audit Office (VK) published an audit report on the effectiveness of oversight of AS “Latvijas valsts meži” (LVM) and stated at a press conference that LVM had “130 million euros that could be paid into the state budget as early as today, since this sum is not needed either for LVM's economic activity, its development, or for covering future tax liabilities...”
This claim is untrue. The 130 million euros are not available for immediate payment into the state budget as additional dividends, because part of these funds is profit from 2026 operating results, and under current legal regulation, state-owned companies cannot pay dividends into the state budget in advance. Likewise, part of the funds must remain as retained earnings so that LVM can meet the dividend amounts set out in the state budget law for 2027 and 2028 - amounts that, even at the time they were set, already exceeded the profit planned in the strategy.
The LVM board stresses: “The claim reported in the media, that 130 million euros had supposedly been “found” at the company, does not reflect reality. You can only find something that has been hidden or lost, whereas detailed information on LVM's cash and profit is made publicly available every quarter, in LVM's quarterly and annual reports.”
Work with the State Audit Office continued after the press conference on the audit report, and by 29 May, discussions between the VK and LVM had reached a shared understanding that the 130 million euros in question are not free funds that could be paid out immediately into the state budget as additional dividends, since LVM conducts its operations in line with current legal regulation.
LVM is ready to pay the maximum possible sum into the state budget, both to strengthen national defence and to support the state's social development. However, several substantial changes to legislation are needed to make that possible.
First, legislative changes are needed - which the VK itself could initiate - to allow state-owned companies to pay part of their dividends in advance, as is already done in the private sector. New legal regulation would in future allow companies that make a substantial contribution to the state budget through dividends to channel that contribution sooner, rather than accumulating large sums of money for over a year only to pay hundreds of millions of euros into the state budget within 10 days of the shareholder's decision approving the annual report and profit distribution, as the current regulation requires.
Second, legislative changes are needed that would allow state-owned companies to distribute retained earnings during the course of the calendar year, rather than only once a year, when the annual report is approved.
Third, the question of how corporate income tax (hereafter - CIT) applies to dividend payments should be reviewed. At present, a company must also pay 25% CIT from its own funds on top of additional dividends, and this CIT is only included in the profit-and-loss calculation the following calendar year. Under the current arrangement, where the state budget law requires 90% of profit to be paid out as dividends, the company effectively ends up paying the state 112.5% of its profit. A more logical option should be considered: setting the dividends payable to the state as a gross amount (similar to how employee wages are paid), so that the state company would withhold the CIT at the moment of paying dividends and transfer it directly to the state budget.
Fourth, when working on the 2027 budget law, the state and the relevant ministries should not set a minimum dividend amount that exceeds the profit expected under state companies' own strategies. This change would allow LVM to release the retained earnings currently held back to cover that gap. The wording of the law also needs improving, since LVM, the Ministry of Finance, the VK and the Saeima's Legal Bureau currently interpret differently how the state budget law's provisions should apply when LVM calculates its dividends. In the VK's view, LVM is only obliged to pay the minimum dividend amount set out in law, whereas LVM considers that both provisions of the law must apply in this case, meaning LVM is obliged to transfer 90% of its profit to the budget - 30 million euros more than the VK's recommended figure.
Fifth, LVM has already initiated talks with its shareholder to define the dividend expectations in the letter of expectations more precisely, given that the VK interprets the stated expectations regarding dividend amounts differently from how LVM and its shareholder do. This confirms that the VK's conclusion - that LVM's strategy provides for a smaller dividend amount than the shareholder's letter of expectations sets out - is based on a different reading of that letter.
Sixth, so that LVM can continue to make a substantial contribution to the state budget and to the welfare of society as a whole in future, we call on the Cabinet of Ministers to review and approve amendments to Cabinet Regulation No. 384 of 21 June 2016, “Regulations on Forest Inventory and the Circulation of Information in the State Forest Register”, and Cabinet Regulation No. 935 of 18 December 2012, “Regulations on the Felling of Trees in Forests”. These changes would significantly reduce the administrative burden by enabling the effective use of digital solutions, thereby eliminating unnecessary procedures in the forest. This would allow LVM to reduce costs and, in turn, increase the profit from which additional dividends are paid to the state.
In closing, LVM calls on the new Cabinet of Ministers to review and decide, as quickly as possible, on the investment transaction submitted by LVM, which has now gone unreviewed for more than a month. This would allow the area of forest land owned by the Latvian state to grow and would generate additional profit in the long term.
Regarding additional dividends to the state budget, a shareholder meeting of LVM has been called for 19 June this year, with the distribution of retained earnings and the payment of additional dividends into the state budget - to the extent current legislation allows - on the agenda.
LVM is grateful to the VK for its cooperation and remains open to constructive, evidence-based recommendations. LVM believes that, without rushing into loud statements, the State Audit Office's audits can help bring about important legislative changes in the country - changes that will have a lasting, positive effect on the whole economy. LVM undergoes at least 20 different audits every year, and the company is grateful to its auditors for their recommendations and for the opportunity to spot areas for improvement, helping to make one of Latvia's most valuable companies even better.