The Supreme Administrative Court of Lithuania (hereinafter, the SAC) examined a request for exemption from the payment of interest, increased interest, and late-payment interest on interest. Let us examine what the court held.

Background of the Case

The Applicant signed a tax loan agreement with the State Tax Inspectorate (VMI) concerning payment of the amount in installments over a certain period.

The Applicant submitted a request to VMI to exempt her from the interest accruing under the Agreement (current, past, and future interest). The Applicant based her request on the fact that her economic (social) situation was difficult.

As stated in the ruling, after examining the request, VMI decided not to exempt the Applicant from the interest already calculated and the interest continuing to accrue under the Agreement, nor from increased interest or late-payment interest on interest. In its decision, VMI noted that the Applicant's economic (social) situation was not so difficult that she could be exempted from the payment of interest, increased interest, and late-payment interest on interest under Article 100(1)(4) of the Tax Administration Act. It stated that the obligations to the bank and child maintenance were not solely the Applicant's own financial obligations.

It is also noteworthy that the Tax Disputes Commission (hereinafter, the TDC), after examining the Applicant's complaint, amended VMI's decision and exempted the Applicant from payment of 50 percent of the calculated interest, increased interest, and late-payment interest on interest under the Agreement.

The SAC's Review of the Applicant's Economic Situation

The SAC noted that the Applicant based the above request only on the fact that her economic (social) situation was difficult; therefore, when examining the case, the court of first instance reasonably assessed the legality and validity of the contested decisions only from the perspective of Article 100(1)(4) of the Tax Administration Act.

When assessing the Applicant's social (economic) situation, VMI established that, according to data from State Enterprise Registrų centras, the Applicant owned a land plot and a residential house where her place of residence was declared; the Applicant received, as declared in the annual income tax return, income of approximately EUR 30,000, including approximately EUR 5,000 in employment-related income, approximately EUR 2,000 from the sale of a car, and approximately EUR 22,000 from the sale of real estate other than her dwelling.

The SAC noted that the Applicant had not submitted to the case file any data that would refute the factual circumstances established by the tax administrator.

Together with her request for exemption from interest, the Applicant did not submit any factual data confirming that she needed state support or that such support had been provided to her. Therefore, there was no basis, under Article 100(1)(4) of the Tax Administration Act, to exempt the Applicant from interest, increased interest, or late-payment interest.

Legal Framework: Grounds for Interest Exemption

The ground for exemption from late-payment interest established in Article 100(1)(4) of the Tax Administration Act (before January 1, 2019, this ground was established in Article 100(1)(3) of the Tax Administration Act) is inseparable from the rule established in Article 113(1)(3) of the Tax Administration Act: it is not expedient to enforce recovery of arrears because the natural person's economic (social) situation is difficult, that is, the natural person needs state support (the person is of retirement age, is disabled, needs treatment, preventive medical care and rehabilitation, is unemployed, or receives social assistance) or such support is already being provided. Under this rule, a taxpayer requesting exemption from late-payment interest must submit factual data proving that state support is needed or that such support is already being provided. 

Otherwise, the right granted to the tax administrator to exempt the taxpayer from late-payment interest could not and should not be exercised. Under the procedure established by the Minister of Finance, the tax administrator may defer the deadline for payment of tax arrears or arrange payment in installments. Payment of tax arrears is deferred or arranged in installments by a decision of the tax administrator. 

Based on this decision, a tax loan agreement is concluded between the taxpayer and the tax administrator (Article 88(1) of the Tax Administration Act). A decision to defer payment of tax arrears or arrange it in installments may be adopted only after establishing that immediate payment would make the taxpayer's financial condition critical or cause the taxpayer significant difficulties in fulfilling other financial obligations, while deferral or payment in installments of those tax arrears would enable the taxpayer to stabilize his or her financial condition and pay the tax arrears later (Article 88(2) of the Tax Administration Act).

Application of the Law to the Applicant's Circumstances

Under the above legal regulation, the mere fact of concluding the Agreement confirms that, by arranging the payment of tax arrears in installments, the tax administrator ensured that the Applicant's financial condition would not become critical and that she would have the opportunity to meet her other financial obligations.

Thus, the court noted that the following circumstances - that the Applicant cooperated in good faith with the tax administrator, agreed with the violations identified during the operational inspection, submitted VAT returns immediately after the operational inspection, did not avoid the tax obligation, signed the Agreement with VMI to settle with the state budget, and is raising two minor children - are not exceptional circumstances based on which the Applicant could be exempted from payment of interest, increased interest, and late-payment interest under the criteria of justice and reasonableness.

The SAC's Ruling

Taking into account the factual circumstances set out in VMI's decision regarding the Applicant's income, property status, and family situation, the panel of judges of the SAC decided that there was no basis to grant the Applicant's request for exemption from payment of interest being calculated or already calculated, increased interest, and late-payment interest on interest; therefore, VMI's decision rejecting this request was lawful and well-founded, and there was no basis to annul it.

The SAC emphasized that there was no basis to grant the Applicant's request for exemption from interest; however, taking into account the scope of the dispute at hand and pursuant to Article 144(3), the part of the TDC's decision by which it decided to exempt the Applicant from part of the interest, increased interest, and late-payment interest on interest is not reviewed and remains unchanged.