Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Lithuania

Lithuania has met all of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

Lithuania can legally issue four types of rulings within the scope of the transparency framework.

In practice, Lithuania issued five past rulings; and for the year in review, Lithuania issued six future rulings within the scope of the transparency framework.

Peer input was received from one jurisdiction in respect of the exchanges of information on rulings received from Lithuania. It was positive, noting that information was complete, in the correct format and received in a timely manner.

Introduction

774.  This peer review covers Lithuania’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

775.  Lithuania can legally issue the following four types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral APAs and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) unilateral downward adjustments; and (iv) permanent establishment rulings. With respect to the issuing of rulings, Lithuania distinguishes two categories: APAs and binding tax rulings (other than transfer pricing). The APAs are issued by the APA working group, consisting of five-seven officers (transfer pricing specialists, lawyers and experts) from various departments (control department, law department and tax information department) of the State Tax Inspectorate under the Ministry of Finance (“STI”). The binding tax rulings are issued by the binding tax rulings working group, consisting of 11 officials from various departments (law department, control department, large taxpayer monitoring and controlling department, tax information department and excise duty administration department) of the STI.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

776.  For Lithuania, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 April 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

777.  The process for identifying past APAs was conducted as follows: All APAs are issued by the APA working group and are available in a central registration system. Two members of the APA working group were responsible for the identification of the APAs. Only the members of the working group had access to the APA data. The officials selected the APAs involving a transaction with at least one related party in a jurisdiction outside Lithuania that fell into the period of validity for past rulings.

778.  The APAs generally contain information on the relevant related parties, as the legislation obliges the taxpayer to provide this information when the taxpayer requesting an APA.2 In addition, officers of the APA working group carry out verification methods using information from the public Amadeus database and checking internal reports of the STI comprising information on controlling entities for tax purposes declared by Lithuanian taxpayers. Lithuania confirms that in all cases, all potential exchange jurisdictions were able to be identified.

779.  The process for identifying past rulings other than APAs was conducted as follows: All rulings are registered in one central registration system. Five members of the binding tax rulings working group were responsible for the identification of other past rulings. These members identified all past rulings by a systematic review of all rulings. Once the past rulings were identified, a review of the content of each ruling was undertaken to identify whether they are within categories as defined in the transparency framework and whether they fell into the period of validity for past rulings.

780.  In order to identify the potential exchange jurisdictions for the other binding tax rulings, the “best efforts approach” was used. This included a manual search within the existing information available within the STI as well as consulting publicly available information, including the Amadeus database. Lithuania confirms that in all cases, all potential exchange jurisdictions were able to be identified.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

781.  For Lithuania, future rulings are any tax rulings within scope that are issued on or after 1 April 2017.

782.  The APA working group remains responsible for the identification of future APAs. Since all APAs are issued by the APA working group, the APAs are identified within the APA database at the point of issuing. The process of identifying the potential exchange jurisdictions is the same for future and for past rulings (see paragraph 8).

783.  In March 2018, Lithuania made amendments to the legislation with respect to the responsibility of the members of the APA working group. The amendments codify the practical process for identifying APAs and potential exchange jurisdictions and therefore the current approach does not practically change.

784.  With respect to binding tax rulings, for the period 1 April 2017 - 24 July 2017, the same information gathering process as for past rulings was used, using the central registry. The potential exchange jurisdictions were able to be identified in all cases.

785.  As of 24 July 2017, the binding tax rulings working group is responsible for determining for every ruling request, at receipt, if the ruling falls within one of the categories for the transparency framework. In order to identify the potential exchange jurisdictions, the taxpayer is obliged to submit all relevant information when applying for a binding tax ruling, including the relevant exchange jurisdictions. If any relevant information is missing, the STI shall have the right to approach the taxpayer to collect this information. Officers of the binding tax rulings working group verify this information. This includes a manual search within the existing information available within the STI as well as consulting publicly available information, including the Amadeus database.

Review and supervision mechanism (ToR I.4.3)

786.  The supervision of the process for identifying binding rulings was delegated to three members of the binding tax rulings working group who reviewed all the decisions and selected those which had the content of a cross-border element. In addition, internal guidance has been provided to the staff issuing tax rulings.

787.  The collection of relevant information for APAs is done by the officer preparing the decision. As the APA working group makes the decisions on APAs collectively, the accuracy of the relevant information will be assured through the revision performed by every member of the group providing its opinion on the information to be exchanged.

Conclusion on section A

788.  Lithuania has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

789.  Lithuania has the necessary domestic legal basis to exchange information spontaneously. Lithuania notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

790.  Lithuania has international agreements permitting spontaneous exchange of information, including being a party to (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 54 jurisdictions.3

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

791.  Lithuania started exchanging information on rulings as of 1 September 2017. The past rulings and the future rulings that have been issued before this date were reviewed by members of the APA working group and binding tax ruling group who were also responsible for filling out the templates (in the form of Annex C of the 2015 Action 5 Report (OECD, 2015)). The templates were provided to the STI Department of the International Cooperation (“Competent Authority”) before 1 September 2017. For rulings, the summary section of the template is completed by describing the transaction or other activities covered by the ruling. Regarding APAs, the summary section provided information indicating the main business activities, the functional analysis, the entities involved in the transaction, the type of the relevant controlled transaction and the transfer pricing methodology. Lithuania will incorporate the internal FHTP suggested guidance in its processes.

792.  As of 1 September 2017, each member of the APA working group and the binding tax ruling group is obliged to complete the template for the exchange of information on each specific case which is assigned to him or her within 30 days after the issuance of the decision and then provide the template to the Competent Authority. The Competent Authority should then exchange the information with the relevant jurisdictions within 10 days. The Competent Authority uses the Central Directory developed by the EU Commission (for exchanges with EU Member States) for the production of the XML file which conforms to the OECD XML schema, or the XML file is loaded onto the Common Transmission System (CTS) portal (for exchanges with non-EU Member States). If a non-EU jurisdiction has no access to the CTS, then the information on the ruling will be sent in hard copy. The Competent Authority maintains a database recording the information about sent and received rulings.

793.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	11	0	N/A	N/A
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	4	0	N/A	N/A
Total	15	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

794.  Two future rulings were issued in April and May 2017 and exchanged on 1 September 2017. As this delay was attributable to the implementation of Lithuania’s new process on exchange of information on rulings, no recommendations are made in this regard as it is not anticipated to be a recurring issue.

Conclusion on section B

795.  Lithuania has the necessary legal framework and administrative process in place for exchanging information on rulings. Lithuania has timely exchanged the rulings within scope of the transparency framework. Lithuania has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

796.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	7	Bulgaria, Latvia, Luxembourg, United States
Cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	5	Finland, Hungary, Singapore, Sweden
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	Included in de minimis	N/A
Permanent establishment rulings	Included in de minimis	N/A
Related party conduit rulings	N/A	N/A
De minimis rule	3	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	15

D. Matters related to intellectual property regimes (ToR I.4.1.3)

797.  Lithuania offers an intellectual property regime (“IP regime”) which came into effect from 1 January 2018. Although this is after the year in review, it is noted that this regime is not subject to transparency requirements under the Action 5 report (OECD, 2015), because:

• New entrants benefitting from the grandfathered IP regime: as this is a new IP regime rather than a grandfathered IP regime, transparency on new entrants was not relevant.

• Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following regimes: 1) Free economic zone taxation regime, 2) Tonnage tax regime and 3) IP regime.

← 2.  This is established in The Rules for the Submission of a Taxpayer’s Request to Consent to the Principles of Pricing of a Future Controlled Transaction, Adoption and Amendment of the Decision Obligating the STI (adopted by the Order No. VA-106 of Head of STI dated 21 October 2011).

← 3.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Lithuania also has Double Tax Agreements with Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China (People’s Republic of), Croatia, Czech Republic, Denmark, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Luxembourg, Malta, Mexico, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, Turkmenistan, United Arab Emirates, United Kingdom, United States and Uzbekistan.