Lithuania Tax Case: Late Payment Interest Ruling

In one LVAT case, the tax administrator’s decision ordered the recovery of tax arrears from the taxpayer into the budget. Attached to the decision is a statement of liabilities indicating that personal income tax, interest on arrears, and a tax penalty are due.  

It is interesting to note that the Lithuanian Administrative Disputes Commission (hereinafter — LAGK) annulled part of the tax administrator’s decision concerning personal income tax late payment interest. Ultimately, both the taxpayer and the tax administrator appealed against this LAGK decision to the court, and the cases were therefore joined.

The LAGK and the Regional Administrative Court's Findings

It is worth noting that in its decision of 28 October 2021, the LAGK emphasised that the tax administrator, in the administrative decision under which the taxpayer’s tax and late payment interest were recalculated and payment was ordered, in the contested decision to recover the tax arrears from assets, a clearly higher amount of late payment interest was specified. The LAGK emphasised that the tax administrator had not submitted any evidence to the case to justify the increase in late payment interest. 

The Regional Administrative Court also emphasised that the tax administrator had not substantiated with any calculations or provided further details regarding the difference in the amounts of late payment interest specified in the decision, under which the newly calculated tax payable was specified for the taxpayer and the contested decision ordered the recovery of the tax arrears from the taxpayer’s assets. 

The Tax Administrator's Position on Appeal

Meanwhile, the tax administrator stated in the appeal that the court’s decision should be amended because the factual circumstances have now changed and the contested decision has been amended, as the taxpayer has been exempted from part of the late payment interest. Furthermore, the taxpayer’s obligation to pay late payment interest (at least part of the specified late payment interest) was clear, as the late payment interest was calculated in the decision approving the audit report, pursuant to which the taxpayer’s tax liability was recalculated and the amount payable specified. 

The Supreme Administrative Court's Ruling

Finally, the Supreme Administrative Court of Lithuania dismissed the State Tax Inspectorate’s appeal. The Supreme Administrative Court of Lithuania explained that, in the case in question, the Vilnius Regional Administrative Court and the court of first instance had reasonably and correctly concluded that the tax administrator had not substantiated the decision to recover the tax arrears from a portion of the assets in respect of the payment of late payment interest with evidence, as required by Article 67 of the Tax Administration Act. 

In the opinion of the Supreme Administrative Court of Lithuania, it failed to substantiate this the amount of late payment interest in the contested decision to recover the tax arrears from the assets is clearly higher than that specified in the decision approving the audit report, pursuant to which the newly calculated tax payable by the taxpayer is indicated. In the opinion of the Supreme Administrative Court of Lithuania, the tax administrator did not substantiate or further detail the difference in the aforementioned amounts of late payment interest by any calculations. The contested decision merely cites the legal provisions establishing the tax administrator’s right to enforce the recovery of tax arrears from individuals.

Key Principles Established by the Court

It is particularly relevant to mention and emphasise in this article that, in the opinion of the Supreme Administrative Court of Lithuania, it is clear from the content of the contested decision that the amounts to be recovered, arising from the tax administrator’s decision (the tax amount, the fine), however, the amount of late payment interest is stated as higher than in the administrative decision approving the audit report, pursuant to which the tax is recalculated and the taxpayer is required to pay it. 

The contested decision does not specify the factual circumstances and the provisions of the Tax Administration Act on which the calculation of late payment interest is based; this information is only provided after the taxpayer has appealed against the decision. The factual circumstances and legal provisions must be set out in the administrative decision; the inclusion of this information in procedural documents when the decision is appealed does not substantiate the legality of the decision at the time of its adoption. 

The Obligation to Justify Tax-Related Amounts and the Principle of Legality

Thus, the fact that the tax administrator failed to substantiate the tax-related amount (late payment interest) calculated for the taxpayer constituted sufficient grounds for setting aside this part of the decision. Failure to comply with the requirements of relevant legislation (failure to fulfil the obligation to justify the tax and related amounts calculated for the taxpayer) cannot be justified by the fact that the decision was adopted using the prescribed form. 

The completion of a prescribed form when adopting an administrative decision does not negate the obligation to comply with the principle of legality, which requires not only that public administration bodies do not violate the requirements of legislation in their activities, but also that their decisions be based on legal norms, and that the content of their decisions complies with the requirements of legal norms. In accordance with the principle of legality, it is necessary to ensure that public administration bodies comply effectively with these requirements. In the present case, it cannot be accepted that the principle of legality was observed. 

It is precisely these arguments of the Supreme Administrative Court of Lithuania that are presented here, as they reveal what must always be included in a tax administrator’s decision.