Personal Income Tax and economic activity.

Conditions for Deducting Property Acquisition and Sale Costs

The Supreme Administrative Court of Lithuania reminds that, pursuant to Article 19(1), Article 16(1)(4) and Article 16(3) of the Income Tax Act, a taxpayer may deduct the costs of acquiring (producing) property and the costs associated with the sale of property from taxable income if two essential conditions are met: 1) such amounts (expenses) were actually incurred, 2) the taxpayer can substantiate them with relevant supporting documents. If at least one of these conditions is not met, the taxpayer loses the right to deduct the aforementioned amounts from taxable income, in which case income tax must be calculated on the total amount received for the property sold (this practice is established by the Supreme Administrative Court of Lithuania). Article 19(3) of the Income Tax Law sets out the requirements for evidence on the basis of which income-reducing expenses may be recognized, namely: only amounts that are supported by documents containing all the mandatory accounting document details specified in the Accounting Law of the Republic of Lithuania and other legal acts may be deducted, and, if the Government of the Republic of Lithuania has established relevant requirements for document forms, – meeting the requirements, and/or valid transactions, and/or documents drawn up by foreign entities and residents, if the content of the economic operation can be determined from these documents (.

Assessment of Documents and Substantiation of Expenses

During the audit, all documents submitted by the applicant during the audit to confirm the costs of acquiring real estate were assessed, as well as additional documents submitted by the applicant during the examination of comments. Also. The case mentions that after the contested decision of the tax administrator was adopted, the assessment report was submitted to the Tax Disputes Commission, which, after a detailed assessment of the document, reasonably concluded that it was not an accounting document, a valid transaction or a document drawn up by a resident, from which it is possible to determine the content of the economic operation, namely to determine the amount of expenses actually incurred by the taxpayer.

Tax Administrator's Deadlines and Unsubmitted Documents

In the case under consideration, during the audit, the tax administrator set deadlines for the taxpayer to submit the aforementioned documents, but for some of the transactions, such documents were not submitted at all. Therefore, the tax administrator assessed this data, Therefore, in the court's opinion, the applicant's arguments that the court of first instance did not rule on the case in question in its decision, stating that all documents submitted by the applicant during the audit to confirm the costs of acquiring real estate had been assessed, are unfounded.

Taxpayer's Right to Deduct Expenses and Tax Administration Act

Article 16(3) of the Income Tax Act establishes the right of a resident to decide not to deduct/ deduct the expenses referred to in paragraph 1(4) of this article cannot be linked to the tax administrator's obligation to collect additional evidence in the tax audit process when the taxpayer does not exercise or improperly exercises that right. The Supreme Administrative Court of Lithuania reveals that no other interpretation can be derived from Article 70 of the Tax Administration Act when the tax is calculated according to the tax administrator's assessment, because on this basis (a specific means of proof in a tax case) the tax is calculated, so no decision is made on the taxpayer's individual improper actions or unimplemented rights when the tax is calculated without reference to Article 70 of the Tax Administration Act.

Application of Relief and Abuse of Rights

The Supreme Administrative Court of Lithuania found that in the case under consideration, the State Tax Inspectorate had collected sufficient factual data during the audit to refute the possibility of applying the relief provided for in Article 17(1)(54) of the Income Tax Act to the applicant (except in one case). The inspection report described and assessed the relevant factual circumstances in detail, and the conclusions mentioned in the STI's decision were confirmed. The STI reasonably concluded that there were no grounds for applying the aforementioned relief because the applicant did not act as a taxable person and abused his rights. In all cases (except for one), the applicant only formally declared his place of residence in both the sold and acquired dwellings, which could not be considered a person's place of residence as defined in the legislation (place of residence – the main place where a person actually lives most of the time and with which he or she is most closely connected). Therefore, the STI reasonably concluded that the relief, the application of which is linked to the provision of housing for residents, could not be applied to the applicant.