Taxing authority and tax law
Tax authority: Ministry of Finance of the Republic of Lithuania and the State Tax Inspectorate.
Tax law: The arm’s length principle is established in the Corporate Income Tax of Lithuania and its implementation rules introduced in 2004.
Relevant regulations and rulings
- Article 40 of the Law on the Corporate Income Tax of Lithuania
- Order of the Minister of Finance No 1K- 123 as of 9 April 2004 on transfer pricing evaluation and documentation rules
- Order of the Head of the State Tax Inspectorate No VA-27 as of 22 March 2005, on the associated party transaction disclosure in the annual corporate income tax return
OECD guidelines treatment
The use of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrators is explicitly advocated in the regulations and rulings applicable in Lithuania. Other OECD papers, such as regarding business restructurings and profit allocation to permanent establishments, are not explicitly implemented in the Lithuanian legislation, however, in practice they are frequently referred to for practical guidance.
Priorities/pricing methods
Transaction-based methods are preferred over profit-based methods. Taxpayers are encouraged to use profit-based methods only if transaction-based methods are not sufficient. Taxpayers are not required to use more than one method; however, a combination of methods may be used in all cases providing support for the decision to apply any particular method.
Transfer pricing penalties
There are no specific transfer pricing penalties. General tax penalties applicable in the case of the taxable income adjustments by the tax authority are equal to 10% to 50% of the tax additionally calculated. In addition, the penalty interest will apply.
There are no special penalties related to the non-provision of the transfer pricing documentation at the request of the tax authorities.
Penalty relief
No penalty relief regime applicable.
Documentation requirements
The transfer pricing documentation requirements are binding for resident and non-resident legal entities registered as corporate income taxpayers in Lithuania, whose revenues in Lithuania in the year before the transactions were conducted exceeded EUR 2.9m.
In addition, transfer pricing documentation requirements are applicable to the credit institutions such as banks and entities providing financial services (e.g., insurance companies), irrespective of their revenue size.
The transfer pricing documentation has to contain:
- Details of the transactions
- Terms and conditions of the transactions
- Participants in the transactions, including their legal and organizational structure
- Functions performed, property used or contributed and the risks assumed by the parties
- Data and methods considered and the analyses performed to determine the transfer prices
- All relevant assumptions, strategies and policies that influenced the determination of the methods applied
In general, the OECD guidelines’ principles are to be followed.
Documentation deadlines
There are no specific requirements or schedules for the preparation of transfer pricing documentation. Taxpayers must submit the transfer pricing documentation within 30 days of the corresponding notice by the tax authorities.
Statute of limitations on transfer pricing assessments
Transfer pricing assessments may occur during the five years before the year in which the assessment takes place.
Return disclosures/related-party disclosures
An associated party disclosure annex to the annual corporate income tax return has to be submitted within nine months after the end of each tax period, in case the associated-party transactions of the taxpayer exceed in annual value approximately EUR 87,000. In the annex, taxpayers are required to inform the tax authorities whether any prescribed transfer pricing methods have been used in the transactions disclosed.
Audit risk/transfer pricing scrutiny
Taxpayers in Lithuania run a high risk that transfer prices will be scrutinized during a tax audit.
APA opportunity
Currently, the Lithuanian tax laws do not provide for an opportunity to conclude APAs.
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