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Tax and Legal Newsletter, April – May 2013


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TAX NEWS

NEW COMMENTARY REGARDING THE TAX AUTHORITY’S RIGHT TO MAKE A DECISION IMPOSING A TAX OBLIGATION ON A TAXPAYER

Article 104 (1) of the Law on Tax Administration provides that Tax Authority can make a decision imposing a tax obligation on a taxpayer if the latter fails to perform his duty to provide tax declarations in accordance with the established order and on time. Commentary of this provision, as newly prepared by State Tax Inspectorate under the Ministry of Finance (hereinafter – STI under MF) provides some significant interpretations, highlighting that:

• Tax Authority cannot impose a tax obligation on taxpayers who are in the process of liquidation or bankruptcy;
• tax obligation also cannot be imposed with respect to taxes in cases when the taxpayers are released from obligation to submit their declarations (i.e. in cases when the taxpayer does not operate temporarily; when the Tax Authority receives the information, which is subject to mandatory filing, from third sources; and other cases when the submission of tax declarations is not purposive);
• tax obligation imposed by the Tax Authority is subject to regular performance rules (i.e. calculation of late payment interest, enforcement of recovery etc.);
• in case the taxpayer corrects the declaration based on which the Tax Authority has imposed the tax obligation, this tax obligation remains unchanged, i.e. the tax obligation that was set by the decision of Tax Authority is not adjusted;
• in case the Tax Authority carries out tax audit of the taxpayer upon whom the tax obligation was imposed and the tax declaration is still not filed, the fact of tax obligation being imposed is not taken into account and it is considered that the tax was not declared. 

More information is available here.

NEW COMMENTARY REGARDING THE TAX AUTHORITY‘S INSTRUCTION TO CARRY OUT NON-CASH SETTLEMENTS

Newly prepared Commentary of Article 104 (2) of the Law on Tax Administration includes some new significant interpretations:

• according to the position of the STI under MF, settlement is not only payment, but also receipt of money. Therefore, if taxpayer is given an instruction to carry out non-cash settlements, taxpayer can neither pay, nor accept the payment for goods and/or services in cash;
• restriction of settlements in cash applies only to relations with legal persons (Lithuanian and foreign) and with individuals engaged in commercial or economic activities. Therefore, a taxpayer who is given an instruction to carry out non-cash settlements, can still pay the wages in cash. However, he could not settle up in cash with individuals for goods or/and services provided, as well as to disburse money in cash to the accountable person;
• instruction to carry out non-cash settlements can be given not only to the company, but also to its branch, which is registered as a tax payer;
• objective reasons, based on which the taxpayer may disregard the instruction to carry out non-cash settlements, could be the following: disarray in work of credit institutions, shutdown of electricity, telecommunications or Internet connection supply, force majeure and other reasons, which could make the bank transfers difficult or impossible. Official written notifications from the credit institutions and/or other persons can serve as evidence of presence of such reasons. Commentary also explains that objective reasons do not include such factors as business partner's wish to pay in cash, absence of bank account or an appeal against the instruction.

More information is available here.

LIST OF MOST COMMON PUBLICATIONS AND VAT RATES APPLICABLE TO THEIR SUPPLY WAS UPDATED

STI under MF has recently updated the Commentary of Article 19 Paragraph 3 of the Law on VAT – the table with the list of most common publications was supplemented by some important changes concerning the VAT rate applicable to certain publications. The standard VAT rate of some periodic and non-periodic publications (such as phone directories, yearbooks, statistics, schedules, graphs etc.) was replaced by the reduced VAT rate.

More information is available here.

NEW COMMENTARY REGARDING THE OUTPUT VAT ATTRIBUTABLE TO BAD DEBTS

Article 89 (1) of Law on Value Added Tax (hereinafter – VAT) provides that the amount of payable VAT can be reduced by the output VAT amount, which is attributed to bad debts recognized as such in accordance with the law. The newly prepared Commentary of this Article explains inter alia that:

• debt can be recognized as bad and the output VAT can be attributed to it not only in respect to Lithuanian, but to the foreign taxable person as well. Therefore, the foreign taxable person or legal entity, which is a non-taxable person (VAT payer) must also be issued a free-form accounting document, formalizing the debt’s recognition as bad and attribution of output VAT to it;

• after issuing the buyer a free-form accounting document, the seller of goods and/or services is not required to obtain (and keep) a confirmation that such document was received by a counterparty. Also, it is not necessary to use minus (-) sign in such document.

The newly prepared Commentary also provides that the issues regarding bad debts are more specifically regulated by the Order No. 40 of the Minister of Finance of the Republic of Lithuania, dated 11 February 2002.

More information is available here.

COMMENTARY REGARDING DEDUCTION OF IMPORT VAT WAS UPDATED

With regard to the changes of Article 64 Paragraph 5 of the Law on VAT, the Commentary of this Paragraph was updated as well. Interpretation of some significant cases:

• VAT deduction can apply to the amount of import VAT, which was calculated in import customs declaration or in another document used instead - such import VAT amount can be deducted in the same tax period during which the debt of import VAT was incurred (i.e. without waiting until such calculated VAT amount is actually paid to Customs);
• in case the carrier instead of the receiver pays import VAT and other import taxes for the postal shipments from the third countries, then the receiver of these postal shipments can include the import VAT into VAT deduction in that tax period during which the carrier issued a corresponding document indicating the amount of import VAT;
• in case the declaration of incoming postal shipment is filled on behalf of the shipment’s receiver, then  import VAT’s inclusion into VAT deduction does not depend on who pays the import VAT. In such case the shipment’s receiver (VAT payer) has a right to include the amount of calculated import VAT into VAT deduction, if imported goods are intended to be used for receiver’s activity specified in Article 58 Paragraph 1 of the Law on VAT.

More information is available here.

COMMENTARY TO THE LAW ON VAT REGARDING THE BOOKKEEPING AND DOCUMENTS KEEPING WAS UPDATED

Official Commentary of Article 78 of the Law on VAT was recently updated with new interpretations regarding the bookkeeping and keeping of documents. Most significant interpretations were added to Article’s Paragraph 7, explaining that:

• VAT invoices kept in DVD, CD, USB or other similar means can be considered as keeping of documents by electronic means if the VAT payer ensures the accessibility of such means. In this case the VAT payer must ensure that during such keeping the integrity, legibility and authenticity of VAT invoice is retained;
• in case of long-term goods and (or) services supply, the supplier of such goods and (or) services can keep the non-electronically sent written VAT invoices only in electronic form (also in a paper form, if the supplier chooses so). However, the buyer who receives an invoice for such goods and (or) services in a paper form, cannot keep such invoice in electronic form.

More information is available here.

COMMENTARY REGARDING THE PROCEDURE OF IMPORT VAT PAYMENT WAS UPDATED

In accordance with the amendments of Rules on Settlement of Import VAT (Nr. 122-6175, 2012), STI under MF has recently updated an official Commentary of the Law on VAT explaining the procedure of import VAT payment. Several important interpretations of the Article 94 Paragraph 2 are the following:

• import VAT on the goods imported in Lithuania by Lithuanian VAT payers since 1 March 2013 shall be included (paid) to STI;
• STI is to be paid such import VAT, which is calculated:
(i) at the moment when goods were released for free circulation, if goods have been declared by the automatic data-processing means  or by common administrative document (hereinafter – customs declaration);
(ii) after the goods were released for free circulation, if the customs declaration (in which the calculated VAT was included) was revised.  
• the procedure of import VAT payment at STI is applicable to those importers who are registered as Lithuanian VAT payers at the moment of incurring the obligation to pay import VAT;
• the procedure of import VAT settlement at STI is not applicable if:
(i) obligation to pay import VAT arises otherwise (in cases stipulated in the Law on VAT) than releasing goods for free circulation;
(ii) during the Customs clearance procedure, the person is being indirectly represented by his appointed representative.

More information can be found here.

COMMENTARY REGARDING THE DOCUMENTS FOR SUBSTANTIATING COSTS WAS UPDATED

Article 4 Paragraph 11 of the Law on Corporate Income Tax (hereinafter – CIT) provides that costs can be recognized as expense only on the basis of documents which (i) substantiate the costs, (ii) are legally valid and (iii) contain all the required records. In the recently updated Commentary of this Paragraph several important interpretations related to such documents were added:

• costs can be recognized as expense based on the taxi travel vouchers containing the required records (from 2008-09-13 to 2012-04-30) or based on the money receipts which a carrier issues for provided services (from 2012-05-01);
• in case the taxi services are paid by bank transfer, costs for such services can be recognized as expense based on the VAT invoice issued for the taxi services provided for the month (in this case the buyer is not required to have money receipts);
• State or local tolls can be recognized as expense by the accounting documents confirming the payment of tolls;
• local fees for rubbish removal can be recognized as expense by a free-form report and accounting documents confirming the payment of toll.

The updated Commentary also notes that in case the value of goods supplied and (or) services provided does not exceed 345 LTL (including VAT), a simplified invoice may be issued.

However, in the updated Commentary it is also explained that VAT invoice received by fax is considered to be non-original document (copy), therefore it cannot be used as a document substantiating attribution of costs to tax-deductible expense.

More information is available here.

STATE TAX INSPECTORATE UNDER THE MINISTRY OF FINANCE EXPLAINED REGARDING THE CONTROL OF PROVIDED SPONSORSHIP

In order to draw attention to the risk of fictitious transactions, STI under MF issued an explanation regarding the application of CIT incentives provided in Article 28 of the Law on CIT with respect to the cases when beneficiary and provider of the sponsorship (benefactor) are related by the business relationships or similar situations.

STI under MF explains that if the beneficiary used the support not in accordance with the provisions of the Law on Charity and Sponsorship, the benefactor should not be disallowed to apply support-related CIT incentive and attribute the given support to his tax-deductible expense (i.e. in such case the provisions of Article 28 of the Law on CIT do not provide any CIT incentive restrictions for the benefactor).

However, the STI under MF explains that situation would be different if it were identified that support was provided only in order to gain tax advantage or a benefit for a private person (e.g., benefactor‘s employees or persons related to employees). In such cases the Tax Authority has a right to calculate taxes in accordance with the substance over form principle, i. e. to decide not to apply the CIT incentive.

More information is available here.

SOLAR ENERGY POWER STATIONS AS SUBJECT OF INVESTMENT PROJECTS INCENTIVE

STI under MF explained, that investments which the entity puts into the construction of solar energy power station might be considered as investment project’s expense which reduce entity‘s taxable profit, if such construction is carried out for the purposes provided in the Article 12 (1) of the Law on CIT, i.e. is designed to:

• produce new, additional goods and/or provide services;
• enlarge the capacity of production and/or provision of services;
• implement a new process of production and/or provision of services;
• radically replace the existing process (or part of it);
• implement an international patented technologies.

After the entity starts manufacturing the new product (renewable energy) which the entity sells and earns income from the sale, it should be considered that entity‘s project (solar energy power station) meets the purposes of investment project.  

In this case, entity‘s taxable profit will be reduced by the actual costs which were needed for the construction of the solar energy power station, i.e.  acquisition cost of station‘s mounting components as well as other costs that are incurred during the construction.

More information is available here.

AMENDMENTS REGARDING THE TAXATION OF LIFE INSURANCE AND PENSION CONTRACTS WERE ADOPTED

Article 17 Paragraph 1 of the Law on Personal Income Tax (hereinafter – PIT) providing the incentives of personal income taxation was recently updated by amending its Sections 9, 14 and 16.

New amendments of the Sections 9, 14 and 16 provide that the incentives discussed in these Sections apply to payouts received in 2012 and subsequent fiscal periods due to the life insurance and III level pension contracts concluded before 2012 December 31. It is now amended that these incentives apply for the mentioned payouts if the receiver of such payouts is at the age of 55 years (without further reference to the Law on Professional Pension, as it was previously).

In addition, Article 17 Paragraph 1 of the Law on PIT was complemented by Sections 91, 141 and 161, which are up to regulate the application of incentives to  the payouts which are received in 2013 and subsequent fiscal periods due to life insurance and III level pension contracts concluded from 2013 January 1. New regulations provide that incentives discussed in these Sections apply to payouts if the receiver of such payouts at the moment of payment is not more than 5 years before the statutory retirement age (which was in force at the moment of concluding the contract).

More information is available here.

OTHER NEWS

COURT OF JUSTICE EXPRESSED ITS OPINION REGARDING THE VAT REFUND IN CASES THE INVOICE IS CORRECTED

Previously the Court has held that in order to ensure the neutrality of VAT, Member States in their national law must provide a possibility to correct an invoice, if the issuer proves his good will.

In the decision dated 2013 April 11 the Court held that the principle of neutrality of VAT has to be interpreted in a way which forbids the Tax Authority to refuse return the incorrectly indicated VAT for the non-taxable supplier, motivating that the supplier has failed to correct the invoice. In the present case, the supplier could not correct the invoice because previously the Tax Administration refused to give supplier’s client the right to deduct the VAT, which led to the situation that the possibility to correct an invoice could no longer be applied.

In this context, the Court held that the taxable person may rely on the principle of VAT neutrality challenging the provision of national law, according to which the return of incorrectly indicated VAT depends on the correction of invoice.

More information is available here.

GUIDELINES REGARDING THE ACQUISITION OF BUSINESS CERTIFICATE WERE UPDATED

STI under FM has recently revised and supplemented the guidelines (both general and extensive versions) concerning the acquisition of business certificate. New supplements explain such aspects as business certificate acquisition by electronic means, certificate acquisition for minors from 14 years old, the order of business certificate possession in the place of business activity etc.  

More information is available here.

REGULATIONS REGARDING THE VAT INFORMATION SYSTEM WERE APPROVED

In accordance with the implementation of EU funded project “VAT electronic services”, STI under FM has recently approved the Regulations governing the forthcoming information system for storage and management of VAT invoices.

Regulations establish that the purpose of such information system is to enable the VAT payers to receive electronic VAT services from STI under FM. Regulations explain that such receivable electronic VAT services are the following:

• preliminary preparation of VAT invoices registry;
• preliminary preparation of VAT reports;
• preparation of other VAT related tax documents.

Regulations also define main objectives, functions and organizational structure of the information system, explain who are considered to be data provides, beneficiaries, discusses data security, system financing and other provisions.

More information is available here.

REGARDING INCOME AND ASSETS DECLARATION

In accordance with the amendments made to the Law on State Guaranteed Legal Aid, corresponding changes were also made to the Law on PIT and to the Law on Personal Property Declaration (hereinafter – PPD).

Corresponding changes (which come into force on 1 January 2014) establish that from 1 January 2014 residents who seek to receive State guaranteed legal aid, will no longer have to declare their assets in accordance with PPD procedures, nor to submit an annual personal income tax report in accordance with PIT procedures. Instead, from 1 January 2014 residents seeking to receive State guaranteed legal aid will have to declare their assets and income using the declaration in a format approved by the Minister of Justice of the Republic of Lithuania.

More information is available here.

REGARDING THE RESCHEDULING OR POSTPONING OF TAX ARREARS

STI under MF issued the guidelines for natural and legal persons who seek to apply for the rescheduling or postponing of the tax arrears. The guidelines provide systematic information regarding what needs to be specified in the request to reschedule or postpone the tax arrears and what documents have to be submitted along with the request.

More information is available here.

LEGAL NEWS

AMENDMENTS TO THE LAW ON COMPANY BANKRUPTCY WERE ADOPTED

On 18 April 2013 the Law on amendments and supplements to the Law on Company Bankruptcy No. XII-237 (hereinafter – the Law) was adopted, whereby the law was supplemented with provisions regarding fraudulent bankruptcy, creditors’ rights in the bankruptcy proceedings, hearing of the bankruptcy case following the simplified bankruptcy procedures etc.

The Law establishes that fraudulent bankruptcy is bringing a company to the status of being bankrupt by means of intentional defective management (act or omission) and/or by entering into agreements which deliberately infringe the rights and/or lawful interests of the creditors.

The Law provides that a court shall acknowledge the bankruptcy as fraudulent if there are any of the following circumstances resulted in the company’s bankruptcy:

• the management body (bodies) of the company failed to perform or did not duly perform their duties, related to the management of company, established by laws and company’s incorporation documents;
• transactions were not economically viable or concluded at a loss, including transactions, related to purchase, sale and/or transfer of shares and other financial assets, as well as there were other unprofitable decisions adopted;
• assets were sold to close-related persons at a price below the market price;
• the company‘s accounts were kept fraudulent and/or not properly and, therefore, there is no possibility to completely or partially identify the business, assets, equity and liabilities of the company etc. 

The Law also establishes that a court may let the creditors to conduct due diligence of the documents and other information of the company, provided that their claims in value terms constitute not less than 10 % of the sum of approved claims of all creditors.  

The Law comes into force on 1 October 2013.

More information is available here.

AMENDMENTS TO THE CIVIL CODE WERE ADOPTED

On 18 April 2013 the Law on amendments and supplements to the Civil Code of Lithuania No. XII-293 (hereinafter – the Law) was adopted, whereby the settlement order by cash and non-cash was established (Article 6.9301 of the Civil Code).

The Law establishes that a debtor, who does not have sufficient funds to fulfil the creditors’ claims pursued against him, should conduct the payments according to the following order:

• in the first priority to withdraw the funds under the executive documents regarding compensation of the damage incurred due to personal injury or death, and recovery of the maintenance;
• in the second priority to withdraw the funds under the executive documents regarding payments arising from employment and copyright agreements;
• in the third priority to withdraw the funds under the executive documents regarding payments to the budget and other state funds;
• in the fourth priority to withdraw the funds under the executive documents to satisfy other monetary claims;
• in the fifth priority to withdraw the funds under other payment documents according to their issuance date.

Payments under the claims of the same order sequence shall be conducted with regard to the calendar date of receipt of payment documents. The order of payments related to enforcement or bankruptcy proceedings are established by other laws.

The Law comes into force on 1 October 2013.

More information is available here.

LAW ON ADVERTISING HAS BEEN RESTATED IN A NEW WORDING

On 16 May 2013 the Parliament of Lithuania adopted the Law on amendment of Law on Advertising No. XII-315 (hereinafter – the Law) and restated it in a new wording.

The Law amends the provisions regulating outdoor advertising and self-regulation of advertising business, establishing advertising infringement procedure, competence of advertising supervisory authorities and responsibility for breach of the requirements set by the law etc.

In addition to other amendments, the Law establishes that:

• regulations on outdoor advertising (specifying the requirements for outdoor advertising installations, procedure of issue of advertising permits and terms of validity thereof) shall be approved by the Government or its authorized institution. According to the previous regulation, municipalities were in position to establish different requirements for outdoor advertising and conditions for granting/withdrawal of permits;
• misleading advertising or prohibited comparative advertising conducted repeatedly within one year period imposes a fine of up to LTL 120,000 which may not exceed 6 percent of entity’s annual income for advertising activities (previously, a maximum rate of 3 percent was established);
• as mitigating circumstance of advertising operator may be considered the fact that an entity (i) has entered into commitments established by the code of self-regulation institution and has complied with them until the commitment of infringement, and (ii) provides a supporting document issued by self regulation institution etc.

In addition to the Law, respective amendments to the Lithuanian Administrative Infringement Code and Law on Prohibition of Unfair Business-to-Consumer Commercial Practices were adopted.

The Law shall come into effect on 1 August 2013.

More information is available here.

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