What is the threshold to follow procedures established by the legislation for transfer pricing documentation?


What are tax litigation practices in Lithuania?

Transfer pricing issues raised during tax investigations have already reached the Supreme Administrative Court of Lithuania. One of the first transfer pricing cases, which is very important to the case law, was announced in 2013. This case was highly promoted in the mass media and is followed by the Tax Authority and courts recently.

In 2013 the Supreme Administrative Court of Lithuania stated that the Lithuanian company is obliged to pay over 1 mln. EUR additional tax amounts (including profit tax) due to adjusted pricing applied between the related parties.

The dispute in this case arose due to benchmark study. Lithuanian Tax Authorities stated that the gross margin rate calculated by the company is too wide and, therefore, there is a risk that not all data is reliable and comparable. Therefore, a part of the companies chosen as a potential comparable were declined by the Lithuanian Tax Authority. As the result, the Lithuanian Tax Authority recalculated the average margin interval and profit tax.

As a consequence, the Tax Authority is increasing its actions and control measures related to the transfer pricing issues.

What are amounts of fines and penalties?

1.   The penalty for non-compliance with transfer pricing documentation procedures might be up to EUR 5.800 (applicable as from 1 April 2016);

2.   Incorrectly calculated taxes might result:

a.   late payment interest amounting to 0,03% per day, calculated from unpaid tax amounts. Please note that the rate of late payment interest might change in the future because it is confirmed separately by the Lithuanian legislation for each calendar quarter
b.   penalties during tax audits that are up 50% from the tax amounts additionally calculated.

Leinonen Lithuania is ready to assist in preparation of:

  • benchmarking study;
  • full documentation;
  • updates of documentation;
  • request for Advocate Pricing Agreement (APA)*
  • non-binding request*
  • other services, i.e. tax advises, review of documentation, participation in tax audits, etc.

* The Lithuanian Tax Authority issues non-binding rulings and APA free of charge.