The Supreme Administrative Court of Lithuania (hereinafter - the SACL) examined a tax dispute in which it addressed the required conditions for applying the ground for exemption from a fine where no damage has been caused to the state budget (Article 141(1)(3) of the Law on Tax Administration). In this case, VAT was assessed, but the validity of the tax assessment itself was not disputed.

When Does 'No Damage to the State Budget' Apply?

The SACL held that, when applying the ground for exemption from a fine on the basis that no damage has been caused to the state budget, it is important to establish whether no damage was caused to the state budget during the period in which the tax had to be paid. If it is established that the taxpayer's overpayment equals the VAT payable or exceeds it, it may be concluded that no damage was caused to the state budget.

Why the Exemption Was Denied in This Case

However, in the case at hand, in the absence of evidence that the conditions laid down in Article 141(2) of the Law on Tax Administration had been met (exemption from a fine is granted only where the taxpayer has paid the amount of tax related to the imposed fine (the tax has been set off and/or recovered by enforcement), or where the deadline for payment of that tax has been deferred or payment has been spread out in accordance with the procedure laid down in that Law), in the circumstances of the present case there was no basis to decide on exempting the applicant from that fine or from late payment interest. 

The SACL also noted that this does not prevent the applicant, once the conditions laid down in Article 141(2) of the Law on Tax Administration have been fulfilled, from applying to the tax administrator for exemption from payment of these amounts (or part of them) (Articles 100 and 141(3) of the Law on Tax Administration). The court noted that this position is consistently followed in the case law of the SACL.

Commenting on the summaries of late payment interest calculations submitted to the case file by the tax administrator, the SACL stated that they were, first, uninformative and, second, unproven, because no evidence had been submitted in the case to confirm the correctness of the late payment interest calculations.

How Lithuanian Courts Assess Evidence in Tax Disputes

Under Article 56(1) of the Law on Administrative Proceedings, a fact may be recognized as proven where, on the basis of the evidence in the case, the court forms the conviction that the fact exists. Assessment of evidence under Article 56(7) of the Law on Administrative Proceedings means that the probative value of any information relevant to resolving the dispute is determined by the court according to its internal conviction, based on a comprehensive and objective examination of the circumstances that were proved during the proceedings, in accordance with the law and the criteria of justice and reasonableness. When assessing evidence, the court must evaluate the probative value of each item of evidence and draw conclusions from the body of evidence as a whole. 

When evaluating the probative value of each item of evidence, it is necessary to determine its connection with the subject of proof, whether the evidence is admissible and reliable, whether there are any signs of falsification, whether the burden of proof has been properly allocated, whether statutory presumptions have been rebutted, and whether there are any facts with preclusive effect. 

When assessing the body of evidence as a whole, the court must be satisfied that there is sufficient information to conclude that certain facts existed or did not exist and that there are no material contradictions that would undermine such conclusions.

The Court's Ruling: Late Payment Interest Annulled

The panel of judges of the SACL, applying these procedural rules governing proof and the assessment of evidence, concluded that the applicant had disputed the calculated amount of late payment interest from the very beginning of the dispute (submitting arguments regarding the amount, the start date and duration of the calculation, the evidence, etc.), but the documents submitted by the defendant did not prove when and why late payment interest of the indicated amount had been calculated. 

Since the tax administrator, being required to substantiate its position, did not submit evidence, and since the case was already being heard by the Supreme Administrative Court of Lithuania for the third time, while the principles of procedural rationality and efficiency also had to be ensured, the court annulled the part of the local tax administrator's decision concerning the calculated late payment interest. Accordingly, the parts of the decisions of the Central State Tax Inspectorate and of the Commission concerning the late payment interest calculated as payable by the applicant were annulled.

How Tax Overpayments Are Set Off Against Arrears

Incidentally, Article 87(1) of the Law on Tax Administration provides that amounts of tax overpaid by a taxpayer are set off against the taxpayer's tax arrears in accordance with the procedure established by the central tax administrator. Amounts of tax overpaid by the taxpayer that remain after the overpayment has been set off against tax arrears are refunded at the taxpayer's request <...> (Article 87(5) of the Law on Tax Administration). 

If the taxpayer wishes the tax overpayment to be set off against taxes whose payment deadline has not yet expired, as well as against taxes administered by customs in accordance with the procedure established by the Minister of Finance, the taxpayer must submit a corresponding request (Article 87(10) of the Law on Tax Administration). The procedure and forms for submitting a request for the refund or set-off of a tax overpayment are established by the central tax administrator. The central tax administrator has the right to establish the list of documents to be attached to the request, as well as the cases in which a tax overpayment is refunded to the taxpayer without a separate request (Article 87(11) of the Law on Tax Administration).

The Four Grounds for Fine Exemption Under Lithuanian Tax Law

In general, the court recalled that Article 141(1) of the Law on Tax Administration provides that the grounds for exemption from payment of fines imposed under Articles 139 and 140 of that Law are: 1) where the taxpayer proves that they are not at fault for the violation committed; 2) where the tax law was violated due to circumstances beyond the taxpayer's control that the taxpayer did not and could not have foreseen. 

Such circumstances do not include acts or omissions by the taxpayer or its employees, nor do they include the taxpayer's insolvency; 3) where a specific act by the taxpayer, although violating the provisions of tax law, does not cause damage to the budget; 4) where the taxpayer violated the tax law because of an erroneous general explanation of the tax law or erroneous advice on tax payment matters provided by the tax administrator in writing or by telephone, provided that the advice given was recorded in accordance with the procedure established by the central tax administrator and it is possible to identify the caller - the taxpayer (or their representative). 

Exemption from a fine is granted only where the taxpayer has paid the amount of tax related to the imposed fine (the tax has been set off and/or recovered by enforcement) or where the deadline for payment of that tax has been deferred or payment has been spread out in accordance with the procedure laid down in the Law on Tax Administration (Article 141(2) of the Law on Tax Administration). 

The tax administrator may exempt the taxpayer from fines and, during a tax dispute, the institution examining the tax dispute may also do so. The procedure for exemption from fines, where adoption of the relevant decision falls within the competence of the tax administrator, is established by the central tax administrator (Article 141(3) of the Law on Tax Administration).