Tax & Legal Alert Contacts Issue No. 155 ▪ 11 October 2012

Tax & Legal Alert
Issue No. 155 ▪ 11 October 2012
Contacts
Kristina Kriščiūnaitė
Partner, Head of Tax & Legal Services
E-mail: [email protected]
Tel: +370 5 239 23 00
Nerijus Nedzinskas
E-mail: [email protected]
Tel.: +370 5 239 23 50
Daiva Šoliūnaitė
E-mail: [email protected]
Tel.: +370 5 239 23 09
Aušra Miltenytė
E-mail: [email protected]
Tel.: +370 5 239 23 71
PricewaterhouseCoopers, UAB
J. Jasinskio 16B, Vilnius
Tel: +370 5 239 23 00
www.pwc.com/lt
The Tax & Legal Alert is produced by PwC Lithuania Tax & Legal Services
Tax & Legal Alert
October 2012
Tax News
Legal News
Tax & Legal Alert
provides the latest information on
changes in Lithuanian legislation most
urgent to our clients.
In this issue:

Value Added Tax news

Customs News

Corporate Income Tax news

Personal Income Tax and Social
Insurance Tax

General Information

Legal News

Tax Case-Law

PwC Publications
Tax Case-Law
Publications
Tax News
Value Added Tax (VAT)
Amendment to the official Commentary
on the VAT Law concerning VAT
treatment of oral health services
The official Commentary on Art 20 Part 1 of the
VAT Law was supplemented by an example
explaining that denture correction services provided
by a dental technician to a dentist and then by the
latter rendered to a patient (an individual) should
be considered as therapeutic services and, therefore,
both supplies of services should be considered as
exempt from VAT.
Letter No (18.2-31-2)-R-8064 issued by the Tax
Authorities on 28 September 2012.
The official Commentary on the VAT
Law concerning adjustment of input
VAT deduction after VAT deregistration of the producer of
agricultural production
The official Commentary on Art 69 Part 1 of the
VAT Law was supplemented by an explanation
providing that in case a producer of agricultural
production is de-registered for VAT purposes, input
VAT deduction related to biological assets (plants
and animals) owned by him that were used in VAT
taxable activities should not be adjusted.
However, if assets acquired or created (e.g. animals
grown) by such a VAT payer were not used in VAT
taxable activities at all, input VAT deduction related
to costs on such assets should be adjusted after deregistration for VAT purposes. The official
Commentary also provides examples related to this
issue.
Letter No (18.2-31-2)-R-8063 issued by the Tax
Authorities on 28 September 2012.
Customs News
List of perishables was adjusted
In the list of perishables, codes of perishables that
are used in accordance with the simplified
procedure of customs valuation were adjusted.
These amendments come into force on 1 May 2013.
Order No 1B-680 of the Head of the Customs
Authorities adopted on 4 September 2012.
Corporate Income Tax (CIT)
The Tax Authorities commented on
recognition of bad debts
Provisions from the rules No 1-K 188 regarding the
proof of bad debts and the efforts to recover them
and calculation of the amounts of bad debts which
were approved by the Minister of Finance on 10
June 2010 were transferred to the Commentary on
the Law on CIT.
PwC 2
Tax & Legal Alert
October 2012
Tax News
Legal News
A debt can be treated as a bad debt only if a
company cannot recover it after at least for one year
from including the amount of the debt in the
company‘s income or if the debtor passed away, has
been liquidated or has gone bankrupt.
Companies could deduct bad debts incurred during
the tax period if the amount of the debt was
included in the company’s income. For instance, a
loan granted by the company which cannot be
recovered shall not be treated as a bad debt whereas
unreceived interest which were included in the
company’s income, if proved that the debt is bad,
could be deducted.
A bad debt can be deducted from income only in the
tax period during which it was proved that the debt
is bad.
When a debtor has passed away, has been
liquidated or went bankrupt a debt can be
recognised as a bad debt in the tax period during
which the amount of the debt was included in the
company’s income, if proved that the debt is bad.
A company shall have documents substantiating
that the debts are bad and the efforts have been
made to recover them. The documents which are
required to substantiate that debts are bad
considering different amounts of debt and a
debtor’s status are discussed in the Commentary.
A requirement to provide substantiating documents
does not apply if the amount of a bad debt from a
single debtor does not exceed LTL 1,000.
Tax Case-Law
Publications
The rules regarding recognition of bad debts shall
not apply to credit institutions and in the event that
the company and the debtor are related persons or
have become such in the tax period following the tax
period during which the debt was recognised as a
bad debt and included in allowable deductions.
after the court has provided the documents proving
that a natural person is and will be capable to
discharge debt obligations. In order to recognise
such a debt as a bad debt effective court order or
final court decision to close a bankruptcy case of a
natural person is required.
Comments regarding supplements to the rules
issued on 19 September 2012 (please see The rules
regarding recognition of bad debts were
supplemented) are not yet provided in the
Commentary on the Law on CIT.
Other provisions of the rules remained unchanged.
Letter No (18.10-31-1)-R-7576 issued by the Tax
Authorities on 7 September 2012.
The rules regarding recognition of bad
debts were supplemented
The rules regarding the proof of bad debts and the
efforts to recover them and calculation of the
amounts of bad debts set the procedure for a CIT
payer, a PIT payer or a taxable person for VAT
purposes for proving bad debts and the efforts to
recover them.
The rules were supplemented with the following
provision: if based on the Law on VAT a VAT
amount payable to the budget is adjusted by an
output VAT amount on bad debts this amount is not
treated as a bad debt for CIT and PIT purposes.
As of 1 March 2013 the following provision will
apply: debts could be treated as bad debts if the
debtor is a natural person having its bankruptcy
case closed, except when a bankruptcy case is closed
Order No 1K-311 of the Minister of Finance
Regarding the amendment of the rules regarding
the proof of bad debts and the efforts to recover
them and calculation of the amounts of bad debts
issued on 19 September 2012.
Dividends received by pension and
investment funds are non-taxable
If pension and investment funds are non-taxable
persons according to the provisions of the Law on
CIT the dividends received by them are non-taxable.
For instance, dividends received by pension funds,
established under the Law on the Supplementary
Voluntary Accumulations of Pensions (SVAP), and
investment funds, established under the Law on
Collective Investment Undertakings (CIU), are not
subject to CIT.
Accordingly, Lithuanian/foreign companies paying
dividends for these funds/ their holding companies
do not have to withhold and pay CIT on such
dividends.
PwC 3
Tax & Legal Alert
October 2012
Tax News
Legal News
If a Lithuanian company pays dividends to pension
or investment funds which are established in the EU
or an EEA member state and comply with the
requirements stipulated in the Law on SVAP and
the Law on CIU, no CIT should be withheld and
paid to the budget.
Letter No (18.10-31-1)-R-7577 issued by the Tax
Authorities on 7 September 2012.
Deduction of taxes for CIT purposes
Additional explanations are provided in the
Commentary on the Law on CIT regarding
deduction of taxes from income for CIT purposes.
Deduction of excise and customs duties and real
estate tax is commented on more widely.
In addition, the Tax Authorities provide different
examples for deduction of input and import VAT for
CIT purposes, comment on the possibility to refund
VAT amount paid in a foreign country and provide
criteria which should be met to apply for VAT
refund.
When a Lithuanian company has a right to submit a
request regarding a refund of VAT which was paid
in another country, this VAT amount shall not be
attributed to limited allowable deductions.
A VAT amount calculated by a seller in another EU
member state shall not be attributed to limited
allowable deductions when the Lithuanian company
acquiring goods (services) is liable for the
calculation of VAT in Lithuania.
Tax Case-Law
Publications
A non-refundable VAT amount, provided it is lower
than a minimum refundable VAT amount in a
particular EU member state, should be attributed to
limited allowable deductions, however,
impossibility to refund shall be proved.
If the company acquires goods (services) in a nonEU member state and the legal acts of this country
do not provide a possibility to recover VAT paid,
this VAT amount shall be treated as allowable
deductions. In case this VAT amount is recovered
later, the allowable deductions shall be reduced by
the recovered VAT amount during the tax period in
which this amount was attributed to allowable
deductions or the current tax period if CIT returns
have already been submitted.
Letter No (18.9-31-1)-R-7635 issued by the Tax
Authorities on 11 September 2012.
Taxation of income derived from sports
and performers’ activities was
explained
Income derived from sports and performers’
activities performed in Lithuania is subject to WHT
only if the final income receiver is a foreign
company acting in Lithuania not through a PE and
performing sports or performers’ activities. WHT
shall be withheld and paid by a Lithuanian
company.
If a foreign company performing sports or
performers’ activities not through a PE in Lithuania
receives income from a non-Lithuanian entity it has
to submit Revenue (amounts) paid to foreign
taxable persons and CIT calculated on those
revenue return form FR0313 and to pay CIT on
received income or taxable profit if the company has
all the required documents substantiating
calculation of the taxable profit.
A Lithuanian company may not withhold WHT on
income received by a foreign company for sports or
performers’ activities if it proves to be a non-profit
entity and the income is not derived during the
course of its economic and commercial activities.
If WHT was withheld on income received by a
foreign company for sports and performers’
activities in Lithuania this company is entitled to
apply for recalculation of CIT paid, i.e. to apply for
calculation of CIT on taxable profit. A request is
satisfied and an overpayment is refunded if a
foreign company submits the documents
substantiating the calculation of taxable profit.
Letter No (18.10-31-1)-R-7793 issued by the Tax
Authorities on 17 September 2012.
Income received by a foreign company is taxed
irrespective of the form of the receipt of income and
payment methods.
PwC 4
Tax & Legal Alert
October 2012
Tax News
Legal News
Personal Income Tax and Social
Insurance Tax
New order regarding the submission of
form FR0526 for individuals and
companies
Individuals and companies have to inform the Tax
Authorities if they open or close bank accounts in
credit, payment and electronic money institutions
established in foreign countries by submitting
updated form FR0526.
Individuals have to submit this form together with
their annual personal income tax return according
to the requirements established in the Law on PIT.
If an individual is not obliged to submit the annual
tax return, the deadlines for submitting form
FR0526 are the same as for submitting the annual
personal income tax return.
Companies are obliged to submit form FR0526 not
later than within five working days after a bank
account was opened or closed.
For more information please read the notification
issued by the Tax Authorities on 6 September 2012.
Amended memos for individuals
obtaining business certificates
The Tax Authorities published the Long and the
Short Memos for Individuals Obtaining Business
Certificates supplemented by the legislation changes
Tax Case-Law
Publications
which came into force as from 1 January and 1 May
2012.
Letter No (18.23-31-1)-R-7809 issued by the Tax
Authorities on 21 September 2012.
New rules regarding the completion and
submission of form FR0611
New rules regarding the completion and submission
of form FR0611 have been approved. The form has
to be used by companies for reporting data
regarding life insurance contributions paid by
individuals.
The rules will come into effect as from 1 January
2013. The form will be used for filing data regarding
the year 2012 and later tax periods, as well as for
adjusting the data for previous periods.
Letter No (18.18-31-1)-R-8092 issued by the Tax
Authorities on 1 October 2012.
Unemployment benefits will be paid by
the Social Security Authorities
As from 1 January 2013 unemployment benefits will
be paid by the Regional Departments of the State
Social Security Authorities. At the moment the
unemployment benefits are calculated and paid by
The Lithuanian Labour Exchange under the
Ministry of Social Security and Labour.
This information was provided in the press release
issued by the Social Security Authorities dated 5
September 2012.
Short telephone number 1883
introduced by the Social Security
Authorities
On 1 October 2012 an information centre was
opened by the Social Security Authorities in
Radviliškis. The employees of this centre will
provide information regarding social security for the
insured and the insurers.
The opening hours of the information centre are
from 8 a.m. until 5 p.m. during the workdays (until
3:45 p.m. on Fridays). The short number of the
centre – 1883, the number (+370) 5 250 0883
should be dialled when calling from abroad.
The calls are charged depending on the rates
established by the telephone network operator used.
For more information please refer to the press
release issued by the Social Security Authorities on
3 October 2012.
General Information
The rates of late payment interest and
tax credits remain unchanged
Unchanged rates of tax credits and late payment
interest for the fourth quarter, 0.01% and 0.03%
respectively, were approved.
Order No 1K-301 issued by the Minister of Finance
on 7 September 2012.
PwC 5
Tax & Legal Alert
October 2012
Tax News
Legal News
Legal News
Amendments to the Law on Investment
Amendments will establish additional incentives for
enterprises setting up new workplaces and expand
investment incentive opportunities.
Amendments provide that the State will support
enterprises’ investment if it is aimed at the
establishment of at least 20 workplaces, provided
that the workplaces are retained for at least three
years, and the average salary for the period of three
years is no less than the country's average monthly
salary for every employed person.
The adopted amendments also supplement the list
of types of investment incentives by including (i)
full or partial compensation of re-skilling and
creation of workplaces and (ii) conclusion of the
investment contract for determination of special
business terms and conditions subject to
investments in the amount of at least LTL 5 million.
The Law on Amending and Supplementing Articles
12 and 13 of the Law on Investment No XIP1128(3)
will enter into force as of 1 November 2012.
Tax Case-Law
Publications
The Parliament will consider
amendments to the Law on Prevention
of Delay of Payments under Commercial
Transactions
The amendments introduced at the Parliament
propose to determine that a payment term between
private entities and public institutions may not
exceed 30 days and in exceptional cases only, when
it is objectively reasonable - 60 days. Longer terms,
if established, would be void. Payment terms
between private entities should not exceed 60 days,
however, longer terms would have to be challenged
at court. It is also proposed to change the
calculation of the statutory interest for late
payment, instead of one month VILIBOR interest
rates, increased by 7 percentage points is proposed
to use the overnight repo rate, plus 8 percentage
points.
It is also proposed to establish that if it is a delayed
payment between two private entities the creditor
will be entitle to require EUR 40 compensation
despite the amount of overdue obligation and before
even starting the recovery process.
The draft of the Law on Amending the Prevention of
Delay of Payments under Commercial Transactions
Law No XIP-4677, which aims at harmonizing the
current legislation to the Late Payments Directive
(2011/7/ES).
A preliminary date of hearing at the Parliament is
9 October 2012.
Tax Case-Law
0% VAT rate application is allowed for
the supplies to a purchaser who is deregistered from VAT payers’ register
retroactively
On 6 September 2012, the European Union Court of
Justice (further – EUCJ) ruled in case C-273/11
(Mecsek-Gabona), where one of the questions
analyzed was the application of 0% VAT for the
supply of goods to a VAT payer of another member
state, which, however, was deregistered by his local
tax authorities from VAT payers’ register with
retroactive effect from a date prior to the supply of
the goods. According to the EUCJ, member states
could not restrict the application of 0% VAT in such
a case, since it would be contrary to the principle of
proportionality.
VAT deduction of entities having
economic and non-economic activities
On 6 September 2012, EUCJ ruled in case C-496/11
(Portugal Telecom), where the question of input
VAT deduction for holding company performing
mixed activities which incurred input VAT of
consultants fees and which were recharged to its
subsidiaries was analyzed. EUCJ ruled that such
company does have a right to input VAT deduction
with the condition that the services acquired have a
direct and immediate link with the services
supplied. Where the goods and services acquired are
PwC 6
Tax & Legal Alert
October 2012
Tax News
Legal News
used both for economic and non-economic
activities, the pro-rata deduction could not be
applied and the methods of deduction and
apportionment are to be defined by the Member
States.
Such opinion was issued by the Lithuanian tax
authorities in the official commentary of the VAT
Law, however, they did not issue any
methodological guidance how to calculate the part
of deductible input VAT attributable to economic
activities.
Immovable property related services
could not be treated as separate services
On 27 September 2012, EUCJ ruled in case C496/11 (Field Fisher Waterhouse), where it was
questioned, whether the VAT exempt lease of
immovable property and the supply of directly
related services (i.e. utility, maintenance services,
etc.), which of the lessee was obliged to purchase
from the lesser, should be regarded as a single VAT
exempt lease supply, o supply of several separate
services. EUCJ did not provide with the clear
answer and referred the local court to indentify
whether transactions are so linked to each other
that they must be regarded as constituting a single
supply of leasing of immovable property (and
therefore the same treated for VAT purposes – in
such a case VAT exempt). However, EUCJ
emphasized that the lease of immovable property
and the supply of services linked to that leasing may
constitute a single supply. The fact that the lease
Tax Case-Law
Publications
gives the landlord the right to terminate it if the
tenant fails to pay the service charges (utilities, etc.)
supports the view that there is a single supply, but
does not constitute a decisive element. On the other
hand, the fact that the services could be supplied by
a third party does not allow a conclusion that they
cannot constitute a single supply.
Zero-rated VAT on intra-Community
supply may be allowed even if the
intermediary does not have an EU VAT
number
On 27 September 2012, EUCJ ruled in case C587/10 (VSTR), where the following supply of goods
scheme was analyzed: German VAT payer sold
goods to a US company, not registered for VAT
purposes within the EU (although having a
subsidiary in Portugal), which re-sold the same
goods to a Finnish VAT payer. According to the
EUCJ, Member States may not restrict application
of 0% VAT only relying on the fact that there is no
VAT number, provided that the supplier acts in
good faith and demonstrates sufficiently that the
person acquiring the goods is a taxable person
acting as such.
Member States may choose the measures how to
prove that the person is taxable, however, according
to the decision, the VAT number itself is a definite
criteria but not the only one.
0 % VAT rate applies only to those
transactions where the seller or the
buyer is also the person responsible for
the exportation of goods from the
territory of the European Community
On 4 September 2012 the Supreme Administrative
Court of Lithuania (hereinafter - SACL) adopted a
decision in administrative case No A438-1639/2012
with regard to application of zero-rated VAT.
The applicant appealed the decision of the State Tax
Authorities, which determined that after sales
transactions the applicant's goods sold to a German
company were not physically exported from the
territory of Lithuania but were immediately re-sold
by the buyer and delivered to other Lithuanian
companies, which in their turn organised export of
goods outside the European Community.
Accordingly, the applicant was not entitled to apply
zero-rated VAT to these supplies. As the applicant
breached the provision of Article 49, part 1, and
Article 56 part 1 of the Law on VAT, the State Tax
Authority additionally estimated LTL 45,076 of VAT
and LTL 2,319 late payment interest on the value of
sales transactions.
SACL stated that 0 percent VAT rate could in
principle be applied only to those transactions
where the seller (in the given case – the applicant)
or the buyer was also a person responsible for the
export of goods outside the European Community.
I.e. zero-rated VAT may be applied in that part of a
chain transaction where the seller or the buyer is
PwC 7
Tax & Legal Alert
October 2012
Tax News
Legal News
the first who meets the requirements of zero-rated
VAT application.
EU VAT news
Serbia – standard VAT rate increase from 18% to
20% starting from 1 October 2012.
Tax Case-Law
Publications
principles of carrying forward of losses in a
company, provides comments on the draft
Commentary on the Law on CIT regarding
provisions on carrying forward of tax losses related
to termination of a company’s activity and assess a
potential outcome to companies in this respect.
The Netherlands - standard VAT rate increase
from 19 to 21% starting from 1 October 2012.
Return of acquired assets for debts –
CIT consequences
Publications
On 24 September 2012 an article under the title
“Return of acquired assets for debts – CIT
consequences” by Egidijus Kundelis, Senior
Manager at PwC, Tax & Legal Services, and
Robertas Talandis, Senior Consultant at PwC, Tax &
Legal Services, was published. The article analyses
CIT consequences arising after return of acquired
assets for debts. A practical case regarding the
treatment of losses arising from return of assets for
debts for CIT purposes is discussed in the article.
Carrying forward of tax losses when a
company terminates its activity: a new
approach
On 10 September 2012 an article under the title
“Carrying forward of tax losses when a company
terminates its activity: a new approach” by Daiva
Šoliūnaitė, Manager at PwC, Tax & Legal Services,
and Ieva Kairytė, Consultant at PwC, Tax & Legal
Services, was published. The article covers general
Article on taxation of small
partnerships
On 1 October 2012 an article under the title “Small
partnership: what should be known regarding its
taxation” by Egidijus Kundelis, Senior Manager and
Rasa Valatkevičiūtė, Senior Consultant at PwC, Tax
& Legal Services was published. The article presents
questions related to the tax burden of a member of a
small partnership and the small partnership itself.
Furthermore, it analyses the changing taxation
order when the activities of the partnership are
developed. Moreover, the publication details
favourable aspects for those who choose this new
form of a legal entity.
Tax & Legal Alert
Lithuania • 11 October 2012
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.
PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what
matters to you and find out more by visiting us at www.pwc.com.
© 2012 PwC. All rights reserved. Not for further distribution without the permission of PwC. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for
further details.
PwC 8