The Supreme Administrative Court of Lithuania (SACL) examined a tax dispute, where under the contested decision of the State Tax Inspectorate (STI), the income received by the applicant, essentially from the sale of vehicles, was recognized as income from individual activities and was subject to personal income tax (PIT), compulsory health insurance (CHI) contributions and state social insurance (SSI) contributions.
Why the Income was Classified as Income From Individual Activities
The tax administrator established that the applicant had sold a vehicle. The buyer paid for the vehicle by transferring the money to the applicant's bank account. Accordingly, this income was classified as the applicant's income from individual activities.
When classifying the income as income from individual activities, the tax administrator took into account that the applicant had insured more than 100 cars in his own name and, in 2013, had bought and sold 10 cars.
Independence and Continuity: the SACL’s Assessment of the Vehicle Sales
SACL held that the STI, the Tax Disputes Commission (TDC) and the court of first instance had correctly concluded that the applicant's vehicle sales activity met the characteristics of individual activities. When acquiring, insuring and selling vehicles, the applicant acted independently and at his own discretion. The continuity of the applicant's vehicle sales activity was established by assessing the number of transactions concluded during the audited period. In the case at issue, it was correctly concluded that the vehicle sales were not incidental transactions of a personal nature.
The cars acquired by the applicant were sold within a few days or months. The applicant advertised the sale and rental of vehicles on websites (paying for the advertisements), and some of the cars were sold without having been used in Lithuania. The fact that the applicant insured the vehicles was regarded as evidence of additional probative value confirming that he was carrying on individual activities.
Having assessed the factual evidence collected in the case and confirming those circumstances, the STI, the TDC and the court of first instance correctly concluded that the applicant acted as a person carrying on individual activities within the meaning of Article 2(7) of the Law on Personal Income Tax and was therefore required to pay PIT on the income received from those activities.
Greater Weight Given to Earlier Explanations
SACL noted that the tax administrator had taxed the income received from the car as income from individual activities on the basis of written documents and explanations provided by the applicant and the vehicle purchaser at earlier stages of the tax proceedings. It was justified in giving those explanations greater weight than the explanations submitted later, namely during the tax dispute proceedings.
Late Evidence and the Principle of Procedural Concentration
The Court stated that, in this case, the applicant, as a party to the tax dispute, submitted new evidence to the court that had not been presented either to the tax administrator or to the TDC, without giving any reasons why that evidence could not have been submitted earlier. Such procedural conduct by a taxpayer and a party to a tax dispute is incompatible with the principle of procedural concentration and to gather evidence at the earliest possible stage of a tax investigation, tax audit or tax dispute proceedings. In the circumstances of the case, this provided grounds for not assessing the newly submitted evidence and, as noted above, for giving precedence to evidence submitted at earlier stages of the tax proceedings.
The Court further explained that the Law on Tax Administration of the Republic of Lithuania, for example, Article 155(6), implements the principle of procedural concentration in tax dispute proceedings. In other words, as a rule, evidence in a tax dispute may be submitted only up to a certain procedural stage; afterwards, a party to the tax dispute may submit evidence only in exceptional cases, provided that it gives proper reasons explaining why the evidence could not have been submitted during the tax investigation or tax audit, or at an earlier stage of the tax dispute proceedings.
Legal Definition and Criteria of Individual Activities
It should be recalled that individual activities mean any independent activity in pursuit of which an individual seeks to derive income or any other economic benefit over a continuous period: (1) independent commercial or production activities of any nature, except for the sale and/or lease of property immovable by nature, as well as transactions in financial instruments <...>.
Against the background of the factual circumstances established, the Inspectorate concluded that the applicant's activity met the characteristics of individual activities – independence and continuity – and therefore the income in question was classified as income from individual activities. The tax administrator noted that the continuity of the applicant's vehicle sales activity was evident from the specific number of transactions carried out during the relevant periods.
Documents in a Foreign Language: the Requirement of a Lithuanian Translation
It should also be noted that, as regards documents submitted in the case in a language other than the official language, SACL pointed out that the court hearing had been adjourned and the applicant had been invited to submit to the Supreme Administrative Court of Lithuania a duly certified Lithuanian translation of the document referred to as his French residence card.
The applicant did not provide a translation of the document; consequently, the document could not be assessed. For the same reason, the arguments in the applicant's procedural submissions and his criticism of the first-instance court's decision on this issue were not considered, as doing otherwise would have infringed the principle that proceedings are conducted in the Lithuanian language, as laid down in Article 9 of the Law on Administrative Proceedings of the Republic of Lithuania.
