Lithuania

Japan: DTA with Lithuania signed

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The Japanese Ministry of Finance on 14 July 2017 issued a press release announcing that the Government of Japan and the Government of the Republic of Lithuania have signed a Double Taxation Agreement (DTA). The agreement provides for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. This Convention is the first tax convention to be concluded between Japan and the Republic of Lithuania in the light of an increasingly close economic relationship between the two countries.

The Treaty contains a number of treaty-based recommendations from the BEPS project and contained in Actions 2 (neutralizing the effects of hybrid mismatch arrangements), 6 (preventing the granting of treaty benefits inappropriate circumstances), 7 (preventing the artificial avoidance of permanent establishment status) and 14 (making dispute resolution mechanisms more effective).

Both Japan and Lithuania have signed the OECD MLI. Given that the Treaty already incorporated the treaty-related BEPS minimum standards, it can be expected that this treaty will not be listed as a CTA and thus will not likely be further modified by the MLI.

Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalised in both countries.

Lithuania: Parliament approves CbC reporting requirements

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The Lithuanian Parliament on 23 May 2017, passed amendments to the Tax Administration Law to implement the CbC reporting requirements that will take effect from 5 June 2017. According to law, all Lithuanian tax resident entities that are part of an MNE Group with annual consolidated group revenue of €750 million and above will need to comply with the CbC requirements for fiscal years starting on or after 1 January 2016.

The CbC report must be submitted within 12 months after the end of MNE’s financial year. There is no information yet regarding the CbC reporting notification deadlines, secondary filling procedures or penalties specific to non-compliance with the CbC requirements. Penalties for non-compliance are between € 150 and € 300.

7 more countries sign tax co-operation agreement to enable BEPS Action 13

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According to a press release of 27 January 2017, published by the OECD, as part of continuing efforts to boost transparency by multinational enterprises (MNEs), Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and the Russian Federation have signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), bringing the total number of signatories to 57. Lithuania and Hungary joined the Agreement in October and December 2016 respectively.

The CbC MCAA is an efficient mechanism that allows signatories to bilaterally and automatically exchange Country-by-Country Reports with each other, as contemplated by Action 13 of the BEPS Action Plan. It will help ensure that tax administrations obtain a better understanding of how MNEs structure their operations, while also ensuring that the confidentiality and appropriate use of such information is safeguarded. Information on the activation of exchange relationships under the MCAA will be released in due course.

Gabon, Indonesia, Malta, Mauritius and the Russian Federation signed the Agreement at a signing ceremony held during the second meeting of the Inclusive Framework on BEPS on 26-27 January 2017. The inclusive framework brings together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) package.

Lithuania, Russia signed the Multilateral Competent Authority Agreement for CbC reporting

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According to a press release of 27 January 2017, published by the OECD, Lithuania, Mauritius, Gabon, Hungary, Indonesia, Malta, and the Russian Federation have now signed a tax co-operation agreement, the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCA), to enable automatic sharing of country-by-country information. According to OECD, Total signatories to the agreement CbC MCAA are now 57.

IMF comments on tax policy of Lithuania

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Following a visit to Lithuania from 6 to 12 September 2016 for consultation on economic developments the IMF has issued a press release setting out its preliminary findings.

Lithuania’s economic activity is expanding and GDP growth is expected to reach around 2.5% in 2016 and rise to around 3% in 2017. This economic performance combined with possible gains from improvement in tax administration could give scope for new initiatives next year including cuts in social contributions and higher allowances under the personal income tax.

The IMF considers that the focus can now shift to structural reforms. These would include tax changes to reduce the tax burden on low wage earners and increase tax revenue from higher income groups, tax on income from capital and tax on wealth. This could reduce income inequality and increase employment. The efforts to strengthen the tax administration should also continue.

The report also emphasizes the importance of education to move the economy towards higher value goods and services. This includes increasing information about job market needs and raising the profile of vocational training. The report emphasizes the importance of innovation in reducing the income gap with Western Europe.

Lithuania: Changes to various tax laws

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Draft amendments to various tax laws were approved by the parliament in the first reading on 17 November 2015. If adopted by the parliament in the final reading, the amendments will enter into force from January 2016.

The modifications are summarized below:

The draft amendments introduce a single date rule for:

(1) Filing tax returns and (2) Payment of taxes by legal entities.

Accordingly, the deadline for filing tax returns and for payment of taxes is to be the 15th day of the month following the end of the relevant tax period. Relevant annual tax returns must be filed in due time and final taxes must be paid by the 15th day of the reporting month.

The single date rule will apply to the following taxes:

(1) Withholding tax on dividends; (2) Advance corporate income tax; (3) Annual corporate income tax; (4) Environmental pollution tax; (5) lottery and gaming tax; and (6) Hydrocarbon resources tax.

The draft amendments also propose to increase the threshold of annual real estate tax up to which legal entities are not required to pay advance real estate tax from EUR 435 to EUR 500; change advance corporate income tax reporting proportions if advance corporate income tax is calculated based on the results of previous tax periods;  and change the advance corporate income tax return filing deadlines.

In particular, if advance corporate income tax is calculated based on the results of previous tax periods, (i) the first advance corporate income tax return must be filed before the 15th day of the third month of the first quarter of the relevant tax year; and (ii) the second advance corporate income tax return must be filed before the 15th day of the third month of the third quarter of the relevant tax year.

However, if advance corporate income tax is calculated on the basis of forecast results, only one advance corporate income tax return needs to be filed, before the 15th day of the third month of the first quarter of the relevant tax year. Advance payments of corporate income tax must be made before the 15th day of the third month of the relevant quarter, irrespective of the calculation method chosen.

Lithuania issues a proposal to amend the Law on Corporate Income Tax

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The Ministry of Finance of Lithuania issued a proposal to amend the Law on Corporate Income Tax on 3 September 2015. If approved by parliament the amendments will enter into force on 31 December 2015.

Under the proposed amendments, anti-abuse rules adopted under the European Union Parent-Subsidiary Directive (recast) (2011) will be incorporated into the Law on Corporate Income Tax as follows:

  • Dividends will not be exempt from withholding tax if a tax benefit is the main purpose or one of the main purposes of the relevant transaction. This rule will be enforced in relation to cases of tax avoidance concerning transactions performed without commercial reasons reflecting economic reality; and
  • Dividends will not be tax exempt if such dividends are tax deductible by the subsidiary.