Amendments to the Law on Tax Administration

Amendments to the Law on Tax Administration (hereinafter - “Amendments to the Law”) which will enter into effect on 1 January 2016, establish the obligation of financial market participants to provide information to the tax administrator. In addition, the Amendments to the Law oblige the taxpayer to present documents that comply with the requirements of the laws proving the sources of acquisition of certain assets and income. Moreover, Amendments to the Law establish the tax administrator's right to check and recalculate newly declared taxes after the expiry of the limitation period in certain cases.

The most recent Amendments to the Law oblige financial market participants (banks, branches of foreign banks, the central credit union, credit unions, insurance companies, reinsurance companies, branches of foreign insurance and reinsurance companies, insurance brokerage companies, and branches of foreign insurance and reinsurance agents, financial brokerage companies and other entities defined by the Law on the banks) to provide information of all types of accounts opened and closed by persons, their turnover and balances, interest, debt liabilities, securities, insurance premiums, pension insurance contributions, as well as other information necessary for performance of the tax administrator’s functions to the tax administrator on an annual basis (the Government or an institution authorised by the Government, as proposed, shall set detailed requirements on providers of information, types and scope of data).

The Amendments to the Law also provide periodic submission of information of monetary contributions of individuals – members of legal entities – for disbursements received from the legal entity in consideration for a fee, and debts by legal entities to natural persons for costs incurred on behalf of the legal entity. The Amendments to the Law determine that information of such a nature must be provided on an annual basis only in the case where an amount paid by one individual, or a debt of an individual to a legal entity, or a legal entity's debt to an individual amounts to at least 15 thousand euros (Amendments to the Law provide that such information would be provided in accordance with the procedure and deadlines set by the central tax administrator).

In order to ensure timely identification of tax liabilities of foreign legal entities dealing through a permanent establishment that has not been registered, Amendments to the Law provide that legal entities registered in the Republic of Lithuania are obliged to provide information of services provided to them by foreign legal entities in Lithuania if the value of the services received under one or several transactions concluded within one calendar year amounts to least 15 thousand euros to the State Tax Inspectorate (Amendments to the Law provide that such information would be provided once in a year in accordance with the procedure and deadlines set by the central tax administrator).

In addition, in order to ensure timely identification of the persons who are not permanent residents of Lithuania, and who may become obliged to declare and pay personal income tax for their income the source of which is in Lithuania, the Amendments to the Law provide that legal entities registered in the Republic of Lithuania are obliged to present information of each non-permanent resident of Lithuania employed by the legal entity under a contract of temporary employment concluded with a foreign legal entity to the State Tax Inspectorate (Amendments to the Law provide that such information would be provided in accordance with the procedure and deadlines set by the central tax administrator).

The Amendments to the Law also establish that sources of acquisition of assets and income received by request of the tax administrator must be supported by documents evidencing the transactions complying with the legal requirements and other legally effective documents (by analogy to the Law on the Declaration of Assets).

The Amendments to the Law provide that in the cases where a taxpayer presents his/her tax declaration (a revised declaration) in less than 90 days until the expiry of the limitation period for recalculation of the tax, the tax administrator has the right to verify and recalculate the newly declared tax after the expiry of the limitation period; however, the inspection has to be started not later than within 90 days after the date of submission of the declaration. These measures are aimed at preventing potential misuse of the right to revise a declaration and the possibility to reduce the payment (or increase the tax to be repaid) unlawfully.

In addition to the above, the Amendments to the Law establish that in case when the repeated inspection is assigned, a decision of property seizure remains effective as in principle during the repeated inspection the same issues that were examined during the first inspection are examined, and only the amount is rechecked (a failure to adopt this provision creates the risk that during the period from withdrawal of the decision to approve the inspection deed by the commencement of the next inspection, the taxpayers will transfer their assets which will make the recovery limited or impossible).

In order to simplify other tax administration procedures and to make their management more comprehensive, the Amendments to the Law remove the restrictions regarding set-off of the personal income tax for the purposes of covering other taxes, remove the requirement to familiarise a taxpayer with the inspection deed upon his/her signed acknowledgement, and provide that during examination of tax disputes, together with the decision to carry out a repeated inspection, the former decision has to be cancelled by the same decision.

Amendments to the Law on Implementation of European Union and International Legal Acts Governing Civil Procedure

By the Draft Amendment to the Law on Implementation of European Union and International Legal Acts Governing Civil Procedure (hereinafter – “Draft Amendment to the Law”), it is proposed to transfer the examination of foreign states' applications for service of documents to bailiffs, and  it is proposed to set forth that the central authority for carrying out the functions provided in Regulation No. 1393/2007 of the European Parliament and of the Council (EC) (hereinafter – “Regulation”) and in the Hague Convention is the Ministry of Justice of the Republic of Lithuania, and to lay down that the powers to transfer documents under the Regulation and the Hague Convention, where service of the documents is to be effected in a foreign state,  are vested in the ordinary courts of the Republic of Lithuania.

The Draft Amendment of the Law proposes adjusting the functions of institutions of the Republic of Lithuania related with service documents in accordance with the Regulation and the Hague Convention. The Draft Amendment to the Law provides that the central authority for performing the functions provided for in the Regulation and Hague Convention is the Ministry of Justice of the Republic of Lithuania. In accordance with the Regulation, the central authority will be in charge of forwarding applications by way of exception, resolution of issues related with service of documents, provision of information related with application of the Regulation, while in accordance with the Hague Convention, the central authority will be in charge of accepting applications of the contraction states and verification of their compliance with the requirements laid down in the Hague Convention, and transferring these applications to the  authority performing the service.

In addition, the Draft Amendment of the Law proposes establishing that under the Regulation, the institution authorised to accept documents from another member state, is the Chamber Bailiffs of Lithuania, and the documents requested to be serviced in accordance with the Hague Convention, are accepted by the central authority (i.e., the Ministry of Justice) which transfers them for enforcement to the Chamber of Bailiffs of Lithuania. According to this provision, the function of service is transferred from district courts to bailiffs in the Republic of Lithuania. The authors of the draft law expect that the transfer of the function which by its nature is not typical to courts, as it is not related with administration of justice, from district courts to bailiffs will reduce the workload in the courts of Lithuania.   

In addition, the Draft Amendment to the Law proposes establishing that all ordinary courts of the Republic of Lithuania examining civil and commercial matters are competent to transfer documents in accordance with the Regulation and the Hague Convention when it is required to submit documents in a foreign state.

The amendments to the Law on Banks

The amendments to the Law on Banks (hereinafter – “Amendments to the Law”) that have already came into effect establish the procedure for obtaining information which is considered to be a secret of a bank and submission of applications in order to receive such information; in addition, amendments define groups of subjects that can receive this type of information.

The Amendments to the Law provide requirements for an application for disclosure of a secret of a bank. The amendments provide that such a document must include: 1) identification data of the person who seeks to get information of such a nature; 2) precise description of the information requested; 3) scope of the information requested; 4) purpose of use of the information and the legal grounds for its receipt. The wording of the Law on Banks that was valid before the amendments did not contain any requirements for an application for information which constitutes a secret of a bank, therefore banks and other credit institutions were unable to ascertain whether applications provided by applicants were justified by the law and whether the purposes of collection of the said information comply with the functions performed by these persons. The Amendments to the Law also lay down that the bank must provide the requested information which is considered a secret of a bank within 20 days or to present a reasoned refusal to provide the information within 5 days after the date of receipt of the application. No deadlines within which a bank or other credit institution were obliged to present such information or to provide a reasoned rejection thereof existed until the Amendments to the Law became effective.

For clarity (before the amendments it was difficult to establish whether an individual had the right to receive information considered a secret of a bank as this right was established in different laws), the Amendments to the Law determine the subjects to whom a bank's secret can be disclosed. The amendments establish that bank shall provide information considered a secret of a bank without a court's ruling: to notaries and bailiffs, if the information is required for performing the functions of notaries and bailiff's prescribed by the laws, and to authorities that perform the functions of pre-trial investigation, criminal intelligence, intelligence, tax administration, administration of the Deposit Insurance Fund and the Fund of Insurance of Liabilities to Investors, supervision of the financial market and examination of disputes between consumers and financial market participants. The Amendments to the Law provide that in other cases information considered a secret of a bank is provided only under a reasoned ruling of a court, if the court determines that such information is necessary for a legal interest sought by the court or the person who requests the information considered a secret of a bank.

It is believed that, if the above-indicated amendments are adopted, credit institutions will not face difficulties assessing applications of the state institutions and other persons requesting to provide information considered a secret of a bank any more, and that the procedure of disclose of a secret of a bank will become more expedient.

Newly adopted Administrative Offences Code

The new Administrative Offences Code (hereinafter – „Code“) which will replace the current existing Administrative law infringements code (hereinafter – „ALIC“) as of 1 April 2016, provides variety of changes in the law. Code foresees new justifying circumstances for liability for administrative offences, it establishes new regulation when providing procedural documents electronically, also new legislative regulation is implemented when assessing the size of the material damage caused by administrative offence, among these some other changes were also made.

Code provides new circumstance eliminating the administrative liability - marginal nature of the act as a basis not to initiate proceedings also to terminate already initiated proceedings. Article 12 of the Code establishes, that this circumstance is invoked only under the following conditions: 1) the offence is not as dangerous which means that the offence is not as dangerous even if compared with other offences which have the same constituent elements; 2) if purpose of the penalty, that is, to discourage person from committing administrative offenses, to influence a person in such way, so that he would abide the law and so on, could be attained without imposing administrative liability to that person. Official influence on a person by an officer could be done in a form of verbal warning. However, this kind of decision by an officer should be made only when particular offence and the person who performed the unlawful actions were assessed in accordance with the conditions listed above and only for certain administrative offenses specified in Article 12. Moreover, such a decision is applicable only in case of the infringement of administrative offences mentioned in Article 12. According to the developers of the Code, the marginal nature of the act could be considered as circumstance eliminating administrative liability in offences such as traffic law infringements, some minor procedural breaches regarding the improper submission of certain documents, or minor breaches of terms and etc.

Moreover, the Code will introduce other significant changes, such as – obligatory requirement for offender to participate in programs (courses) for alcohol and drug prevention, resocialization, improvement in communication with children, in programs dealing with violent behaviour and other programs (courses). For example, it is suggested to apply such obligatory requirements for individuals who do not take care of their children or are abusing drugs or alcohol, or are acting violently in families. The mentioned measures should be applied only if there is an agreement of the person, moreover, such agreement of the person should be held as mitigating circumstance when deciding on administrative penalty and type of administrative sanction, also when determining amount of the fine.

It is established in the Code, that when determining amount of the fine in each individual case, not only ratio of mitigating and aggravating circumstances should be taken into account but also factors like nature of the offence, form and type of liability and personality of the person.

Additionally, Code establishes general prescription period for imposing administrative fine that is – two years from the moment administrative offence was made and when it is lasting offence – then two years from the moment the administrative offence was revealed (came to light). According to the developers of this Code, limitation period as this is an adequate choice because it properly allows to apply the principle of inevitability of punishment and is not too long.

Moreover, the Code establishes new regulation when providing procedural documents electronically. Court serves subpoenas, notices, copies of complaints and other procedural documents to institution, whose official carried out investigation on administrative offence, other subjects of public administrative bodies, attorneys at law, assistants to attorneys at law, bailiffs, assistants to bailiffs, notaries, to State and Municipal Enterprises, financial institutions, insurance enterprises by means of electronic communications. To other persons court serves subpoenas, notices, copies of complaints and other procedural documents by means of electronic communications only if these persons request so and have provided their e-mail address or any other electronic communications address and network ID, if they are necessary to receive procedural documents by means of electronic communications (the procedure of submitting subpoenas, notices, copies of complaints and other procedural documents will be established by the Minister of justice).

The Code lays down new legal regulation for compensation of property damage caused by an administrative offence. Mechanism provides a possibility for infringer to make a settlement on compensation of material loss with a victim. Victim notifies court about an agreement in writing. If the infringer and the victim do not conclude a settlement, the court will have the right to award compensation of the damage in favor of the victim.  This way of resolving matters which by their nature are related to civil relations should not damage the main objective of judicial proceedings – to resolve an infringement case in a fast and objective manner. Therefore the Code contains a condition for resolution of the issue of property damage award – the amount of the damage must be determined during the examination of the case, it cannot serve as a reason for further examination of the case, postponement of examination of the case, or scheduling a separate hearing intended for examinations of this issue. Consequently, if the issue of compensation of damage is not resolved without postponing the examination of the case, it has to be resolved in a separate matter, in accordance with the procedure laid down by the Code of Civil procedure.