Tax & Legal Alert Lithuania Issue 122, 19 May 2010 Tax & Legal Alert provides the latest information on changes in Lithuanian legislation most urgent to our clients. In this issue: News on VAT and Excise duty Interest rate for tax overdue decreased News from the EU Other news Contacts: Kristina Kriščiūnaitė Partner, Head of Tax Department kristina.krisciunaite@lt.pwc.com Tel: +370 5 239 23 00 Nerijus Nedzinskas nerijus.nedzinskas@lt.pwc.com Tel: +370 5 239 23 50 Egidijus Kundelis egidijus.kundelis@lt.pwc.com Tel: +370 5 239 23 57 Daiva Šoliūnaitė daiva.soliunaite@lt.pwc.com Tel: +370 5 239 23 09 PricewaterhouseCoopers, UAB J. Jasinskio 16B, Vilnius Tel: +370 5 239 23 00 www.pwc.com/lt This Tax & Legal Alert is produced by PricewaterhouseCoopers Tax department. PricewaterhouseCoopers was awarded as the best transfer pricing firm in the Baltic States International Tax Review awarded PricewaterhouseCoopers as the Baltic Transfer Pricing Firm of the Year 2010. This year was the first time when the nominees from the Baltic States were invited to participate in this nomination. According to International Tax Review, the awards were mainly judged on the size, innovation and complexity of the issues that the firms were facing while servicing their clients. PricewaterhouseCoopers European transfer pricing network was also named as the European Transfer Pricing Firm of the Year. For details Tax news The increase of threshold for advance VAT payments On 21 April 2010, by the Order No. 454 of the Lithuanian Government, the threshold for advance VAT payments was increased. Starting from 1 May 2010, an obligation to pay advance VAT payments for VAT payers arises when the average VAT payable amount for the three preceding months exceeds 10 million Litas. Amendments to the Commentary on the Law on VAT On 14 April 2010, by letter No. (18.2-31- 2)-R-3748 the Tax Authorities informed that section 1 of the Commentary on Art. 62 part 2 of the Law on VAT was amended. The amendment is related to the changes in the Law on Personal Income Tax applicable from 1 January 2010. According to the Law, allowable deductions related to the income from individual activities shall not exceed 50% of representation costs, however, these allowable deductions shall also not exceed 2% of income from individual activities actually derived during the tax period. Thus, analogically, the person engaging in individual activities and registered for VAT purposes shall deduct not more than 50% of input VAT related to representation. VAT refund to Turkey On 15 April 2010, by letter No. (18.2-31- 2)-R-3780 the Tax Authorities have added Turkey into the list of non-eu countries whose taxable persons can apply for VAT refund in Lithuania. However, only Turkish transportation companies can apply for input VAT refund incurred on fuel, maintenance services and spare parts in Lithuania. Moreover, other taxable persons can apply for input VAT refund incurred on goods and services related to the participation in fairs and exhibitions. Computerised system for monitoring movements of excise goods within the Community On 1 April 2010, in order to maintain better control and to simplify operational procedures, a new electronic computerised system for monitoring and controlling movements of excise goods (EMCS) was launched in Lithuania and within other EU member states. For more information, please see the website of the Tax Authorities. Starting from 1 April 2010, the paperbased AAD is replaced with the an electronic record e-ad, and for the purpose of confirmation that the goods arrived, electronic document e-ror will be used. Moreover, new draft rules related to the electronic monitoring system were issued:
The rules on movement of excise goods under duty-suspension arrangements; The rules on registration of excise Tax warehouses; The rules on registration / de-registration of excise goods recipients; The rules on registration / de-registration of excise goods senders. It is important to point out that the system is currently not fully implemented in all EU countries, thus, the accompanying documents for the movement of excise goods and the confirmations about the receipt of goods in several countries are still prepared according to old rules. New edition of the Law on Excise Duties On 1 April 2010, the amendment to the Law on Excise Duties No. IX-1987, and the amendment of Art. 2 of the Law on Excise Duties No. XI-723 were adopted, both of which came into effect on 20 April 2010. The Law was amended due to the implementation of Council Directive 2008/118/EC changing the paper-based movement of excise goods documentation system into an electronic one. In addition, according to Directive 2004/74/EC, the excise duty relief on orimulsion was abolished (52 Lt instead of 0 Lt excise tax for one tone of the product is applied). Moreover, the new edition of the Law specifies the taxation of electricity (the definitions are harmonized with the Law on Electricity, the requirement to receive a permission for the purchase of electricity exempt from excise duty or at a reduced excise duty rate for certain entities is abolished). Rules for taxation of natural gas used as fuel were laid down (the rate of LTL 758 for 1000 m 3 of the product is applied). In addition, an obligation to pay excise duty on natural gas used as fuel is defined for both the seller and the purchaser, provided that the excise duty on such gas was not paid. Regarding compulsory health insurance contributions (HIC) for Lithuanian tax residents residing based on the temporary permit On 30 April 2010, by letter No. KD-7258 the Tax Authorities explained that tax residents residing in Lithuania based on a temporary permit are neither covered under the compulsory health insurance scheme by the Lithuanian State nor they can be insured independently. Hence, such individuals are not subject to compulsory HIC of LTL 72 per month for the period when they were unemployed, did not perform any economic activities or did not receive any income subject to compulsory health insurance contributions. Regarding benefits in kind On 29 April 2010, the Tax Authorities explained that a monthly public transport travel pass bought by the employer for the employee to come to work and return back home will not be treated as a benefit in kind received by the employee. Such public transport travel pass should be treated in the same manner as the company s car provided only for travelling to work and returning back home, which is not recognized as a benefit in kind. Late payment interest rate for tax overdue was decreased On 7 March 2010, order No 1K-052 of the Minister of Finance came into force. This order decreased the rate of late payment interest applied on tax overdue. The rate for the second quarter of 2010 was decreased from 0,05% to 0,04% per diem. Amended ruling Regarding amounts and payment order of expenses related to business trips On 28 April 2010 the order No 440 of the Government of the Republic of Lithuania came into force amending the order No 1365 of the Government of the Republic of Lithuania Regarding amounts and payment order of expenses related to business trips.
The amendments allow not to pay daily allowance to an employee if a business trip in Lithuania does not last longer than one day and it is agreed so in the collective agreement or in the rules of work order. Furthermore, the amended version of the order includes provision that at least 50% of daily allowances should be paid to employee not later than on the last working day before the business trip, unless an employment contract or a collective agreement establish otherwise. Updates of publications of the Tax Authorities Updated publication Guidelines on VAT for transport service providers registered for VAT On 29 March 2010, by letter No. (18.2-31-2)-R-2949 the Tax Authorities updated the publication Guidelines on VAT for transport service providers registered for VAT. The publication was updated due to the new edition of the Law on VAT applicable from 1 January 2010, changing the rules of taxation of services. The publication provides for examples of taxation of transport services or services ancillary to transport services provided to taxable and non-taxable persons, passenger transport, agent services. Moreover, it is explained when zero-rated VAT could be applied. In addition, the VAT reporting principles for the mentioned services supplied and purchased are provided. Updated publication Correction of mistakes made in VAT returns On 13 April 2010, by letter No. (18.2-31-2)-R-3688 the Tax Authorities updated the publication Correction of mistakes made in VAT returns. The publication was updated due to the change of the Law on VAT provision according to which starting from 2010, tax payers have a right to adjust input VAT deduction for the current and five preceding years. The publication provides for examples when a decrease in refundable / increase in payable amount or mistakes related to intra-community supply or acquisition of goods (and acquisition of services starting from 2010) is adjusted in the VAT return of the period when the mistakes had to be reported. If the payable amount is not decreased / refundable amount is not increased, it is allowed to correct the mistakes in the VAT return of the period, when they are noticed. The new VAT return form (applicable from 2010) shall be used for the adjustments. Updated publication Tax procedures at the State Tax Authorities On 1 April 2010 the Tax Authorities informed that the publication Tax procedures at the State Tax Authorities was updated. The publication explains the current tax procedures performed at the State Tax Authorities and legislation related to these procedures. The publication is designed for new tax payers; however, it may be also useful for other tax payers which would like to become familiar with procedures of the Tax Authorities. Accounting news Amendments to methodological recommendations of 2 nd Business Accounting Standard Balance Sheet Referring to the adjustments of the 2 nd Business Accounting Standard (BAS) Balance sheet, the methodological recommendations of this standard were amended and the explanation of Articles 15, 16, 19 and 20 was supplemented. In addition to the explanations of other articles, it is also explained what shall be stated in the additional row 1.1.5. Non-current tangible assets for re-sale of the sample balance sheet forms presented in Annexes 1, 3 and 5 of the 2 nd BAS Balance Sheet.
Legal news Draft legislation The Lithuanian Government approved amendments to the Law on Commercial Arbitration If proposed amendments to the Law of Commercial Arbitration No. 10-807-02 are accepted by the Lithuanian Parliament they will provide the conflict parties with more autonomy on application of arbitration rules. According to the proposed amendments, it would be possible to organize an arbitration in any place that the parties agree on, also to choose the language of arbitration and the form of the ruling to be adopted by the court, etc. Furthermore, the amendments foresee that agreements concluded by electronic means of communication would be recognized as written agreements. Moreover, according to the proposed amendments the Commercial Arbitration would be able to decide not only on the law but also on the fact questions. The amendments also intend to extend a range of questions to be decided in the Commercial Arbitration. Amendments would enable the Commercial Arbitration to decide on questions regarding the compensation of loss caused by the infringement of competition laws, also to decide on part of disputes regarding patent law, labor law, consumption agreements, etc. However, the amendments foresee that disputes which involve public interest (for example, family matters) or implementation of Lithuanian State s sovereign rights (for example constitutional or administrative disputes) would still be excluded from the jurisdiction of the Commercial Arbitration. Apart from the abovementioned amendments, it is indented to grant the Commercial Arbitration with more rights such as the right to decide on the application of interim measures and etc. In conclusion, if the proposed amendments are adopted, dispute solution in the Commercial Arbitration would become more flexible, thus, parties could be encouraged to the apply to Commercial Arbitration. Tax case-law Regarding the classification of personal income On 12 April 2010, the Supreme Administrative Court of Lithuania (SACL) resolved a dispute in administrative case No. A-438-359/2010 between the Tax Authorities and The Commission on Tax Disputes under the Government of the Republic of Lithuania (the Commission) regarding a possibility to shift the payment of the personal income tax (PIT) on the person s class A income to an individual. Having considered the circumstances of the case, the Commission decided that the Tax Authorities had reasonably applied the principle of substance over form and a tax calculation method necessary for its implementation in the case, thus additional taxes have calculated correctly. However, the Commission noted that the Tax Authorities unreasonably shifted the obligation to pay PIT on the person s class A income received from the legal entity to the natural person. The Commission noted that the legal provisions on the obligations of the withholding agent are of mandatory nature. Therefore, according to the Commission, in presence of legal relationships between the withholding agent and the State budget, there are no ground to require the natural person (resident) who is not involved in this relationship to pay PIT to the State budget. The Tax Authorities disagreed and pointed out that in the cases where the withholding agent failed to withhold, pay and file income tax returns while making payments to the tax payer, the obligation to calculate PIT shall be shifted to the individual who shall pay to the budget the difference between the amount of income tax calculated in his/her
annual income tax return for the tax period and the amount of income tax paid (withheld) during the tax period. In general, SACL has agreed with the opinion of the Tax Authorities and concluded that in the cases where the circumstances of obtaining tax benefits are established after applying of the principle of substance over form, the unpaid tax might be recovered directly from the person who has received such tax benefit, i. e. without applying the legal provisions under which the individual s income is divided into class A and B. Tax & Legal Alert Lithuania 19 May 2010 Legal Disclaimer: The material contained in this alert is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert. 2010 PricewaterhouseCoopers. All rights reserved. "PricewaterhouseCoopers" and "PwC" refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way.