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Tax Law Review of 2016
I. LATEST CASE LAW ON ADMINISTRATION OF LAND TAX
The ruling dated 02/02/2016 by the Lithuanian Supreme Administrative Court (hereinafter the LSAC) declared that in the event relevant data on land tax payable does not coincide with those available to the Register of Real Property (hereinafter the RRP) the tax administrator shall be required to decide on the tax payable after examination of full data presented or available to the administrator, rather than relying on records available at the RRP only.
Although exclusive reliance on public registers, particularly the Land Register or the RRP, for the purposes of tax assessment provides a more cost efficient option for an entity of public administration (hereinafter the EPA), however, refusal on the part of the same EPA to re-assess fiscal duty before a tax payer corrects wrong data available to the RRP would clearly conflict with the requirement enshrined in the Constitution to the effect that State institutions shall serve the people.
II. LATEST CASE LAW ON REFUSAL TO GRANT A RIGHT TO PRIVATE LIMITED LIABILITY COMPANIES TO DEDUCT VALUE ADDED TAX
The ruling dated 04/07/2016, the LSAC declared that the duty to prove involvement of a tax payer in a transaction related to fraud involving value added tax (hereinafter VAT) falls specifically on the tax administrator.
The LSAC has found the right to deduct VAT forms a part of the common system of VAT[1]. This right can be subject to limitations based on prevention of tax evasion, tax avoidance and abuse, recognised and sought by the EU legislation; therefore both national authorities and the courts are required to refuse the right to deduction when there is evidence that this right is abused or fraud is involved.
Both national authorities and the courts are entitled to refuse a right to deduction to a taxable person (taxpayer) in the event the following is established: 1) transactions serving as a basis for this right involve abuse of rights; or 2) fraud by a taxable person in fiscal area; or 3) there is evidence in lights of objective circumstances that a buyer was, or was supposed to be, aware of its involvement when purchasing goods in a transaction related to fraud in the field of VAT on the part of supplier, even where such transaction objectively corresponds to supply of goods and economic activities pursued by such taxable person.
No tax payer can suffer negative consequences, unless it is aware of VAT fraud committed by other tax payers.
The following shall be demonstrated when seeking to deny a right to deduction based on the fact that a person seeking to exercise the right to deduct VAT, was/was supposed to be aware of its involvement when purchasing goods in a transaction related to fraud in the field of VAT: 1) that supplier of goods or provider of services has committed VAT-related fraud; 2) that transaction on supply of goods or provision of services with corresponding right to deduction should be denied, relates to fraud in VAT field; 3) that a person seeking to exercise the right to deduct VAT was/was supposed to be aware of the same fact at the time goods and services are purchased.
[1] Common system of VAT is governed by the laws of the European Union, inter alia the Council Directive 2006/112/EC dated 28 November 2006 on the common system of value added tax.
Subsequent ruling delivered by the LSAC on 19 October 2016, has expanded the case law on refusal of the right to deduction of VAT. The LSAC has declared that any person seeking to exercise right to deduction of VAT and taking interest in reliability of the other party and legitimate nature by the said party is not required in every event. This is only required in light of suspicion or doubts as to reliability of a counter party and legitimate nature of its activities.
III. LATEST CASE LAW ON ILLEGAL SET-OFF OF TAX ARREARS OF A TAX PAYER BY THE STATE TAX INSPECTORATE
On 26/06/206 the Lithuanian Supreme Administrative Court delivered a ruling rejecting the claim filed by the State Tax Inspectorate (hereinafter the Inspectorate) to set off amounts with the residents income tax (hereinafter the Tax) even where the tax payer specifically provides the purpose of amounts to be transferred and not intended for payment of the Tax.
Amounts paid by the taxpayer shall be credited in accordance with the payment code specified by the taxpayer in payment instructions (Article 84(1) of the LTA). If the taxpayer does not specify against what the paid amount should be credited, it shall be credited in accordance with the procedure established by the central tax administrator.
All taxes declared and administered by the Inspectorate are payable using single payment code, i.e. 1001. The list of codes expressly provides that the Tax is payable using different codes and not the standard code of 1001. In the event a tax payer specifically indicates payment code of 1001, any amounts transferred to the Inspectorate shall be credited based on the taxes declared and administered by the Inspectorate and covered by the same code.
In the case at hand, the Inspectorate claimed that the applicant did not cover the fines and default interest estimated and instead sought to cover current taxes, despite the fact that the duty to pay fines and default interest was caused by the tax duties delayed back in 2003. The applicant opted to extinguish latest tax duties and it avoided duty to pay tax duties based on the fiscal dispute since these do not lead to new financial consequences.
The panel observed that Article 105 of the Law on Tax Administration sets out procedure for enforcement of the recovery of arrears in payments, which the tax administrator should not mistake for the duty of a tax payer to cover current taxes and the procedure to perform the same duty. Since both the Tax and other duties related to the same tax estimated to the applicant are included in an act that has entered into effect, the tax administrator is both authorised, and required to resort to the procedure of enforcement of tax arrears, rather than to set off the amounts transferred for current VAT in terms of areas of the Tax and related amounts.
IV. THE NEW LAW ON TAX ADMINISTRATION SHALL IMPOSE THE LATEST INTEREST RATE AS PUBLISHED BY THE MINISTER OF FINANCE
On 3 November 2016, the Parliament adopted a new wording of amendments to the Law on Tax Administration, to enter into effect on 1 January 2017.
For the purposes of legal clarity, Article 88(5) and Article 99 of the new law provides that in the event next rate of interest (penalties) remains unpublished, the rate of interest (penalties) shall apply as last published by the Minister of Finance of the Republic of Lithuania.
Further information available here
V. SINCE 01/10/2016, ALL LEGAL ENTITIES ARE REQUIRED TO FILE ALL TAX RETURNS ELECTRONICALLY
An order by the Chief of the Inspectorate under the Ministry of Finance of the Republic of Lithuania No VA-69, dated 20/05/2016 has introduced amendments to the rules on filing of tax returns, extension of time limits for filing the same returns and temporary release of tax payer from the duty to produce tax returns and/or other documents provided by law.
Effective 01/10/2016, tax payers (i.e. legal entities established in Lithuania) are required to file all tax returns using electronic channel only, except for instances listed under clause 1.3 of the same order, i.e. where electronic filing would lead to clearly disproportional administrative burden, for instance when a tax return is filed by foreign natural persons or legal entities, etc.; or filing of a tax return electronically is impossible in light of objective reasons.
Further information available here
VI. LIST OF IMPOSITION AND CALCULATION OF FINES AND PENALTIES WAS JUST SUPPLEMENTED WITH AGGRAVATING CIRCUMSTANCES
The order of the chief of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania dated 01/06/2016 No. VA-75 has introduced amendments to the methodology on imposition and calculation of fines and penalties.
Amended methodology now provides that where the tax administrator intends to impose a penalty on a tax payer, and no mitigating circumstances exist (and only aggravating circumstances persist), fine imposed should be at 50% of the estimated tax arrears.
The methodology now further lists circumstances that can be treated as warranting a higher fine, e.g. where a person produces misleading clarifications or documents.
Methodology now includes an updated list of circumstances leading to higher fine. For the purposes of assessment of the nature of breach, aggravating circumstances can include cases where the tax administrator finds the costs of a tax payer exceed its income, i.e. the tax administrator finds that costs and income do not match and does not find valid sources of income. Notably the methodology provides this should not be treated as a formal reason to increase a fine.
Further details available here
Based on the data available to the Parliament of the Republic of Lithuania and the State Tax Inspectorate
AUTHOR OF THIS PUBLICATION:
Konradas Pabijanskas
Attorney-at-law
Phone: +370 5 2487473
E-mail: konradas.pabijanskas@leadell.com
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