Lithuania's Supreme Court on VAT Fine Exemption & Interest Case

The Supreme Administrative Court of Lithuania (hereinafter – SACL) examined a tax dispute in which it expressed its position on the mandatory circumstances required when applying the ground for exemption from a fine on the basis that no damage was caused to the State budget (Article 141(1)(3) of the Law on Tax Administration (LTA)).

In this case, value added tax (hereinafter – VAT) was calculated; however, no dispute was raised regarding the validity of the tax calculation itself.

No Damage to the State Budget as a Ground for Fine Exemption

The SACL held that, when applying the ground for exemption from a fine on the basis that no damage was caused to the State budget, it is important to establish whether damage to the State budget was not caused during the period in which the tax should have been paid. Once it is established that the taxpayer’s overpayment and the VAT payable coincide, or that the overpayment is greater, it may be concluded that no damage was caused to the State budget.

Conditions Under Article 141(2) LTA That Must Be Satisfied Before Exemption

However, in the case under examination, in the absence of data showing that the conditions laid down in Article 141(2) of the LTA are satisfied (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 offset and/or forcibly recovered), or where the deadline for payment of this tax has been deferred or payment has been arranged in instalments in accordance with the procedure established by this Law), under the circumstances that arose in the present case, there is no basis for deciding on the applicant’s exemption from this fine or from default interest. 

The SACL also drew attention to the fact that this does not prevent the applicant, after fulfilling the conditions specified in Article 141(2) of the LTA, from applying to the tax administrator with a request to be exempted from payment of these amounts (or part of them) (Article 100 and Article 141(3) of the LTA). The Court noted that such a position is consistently followed in the practice of the SACL.

Default Interest Annulled Due to Insufficient Evidence

When commenting on the default-interest calculation summaries submitted to the case file by the tax administrator, the SACL stated that they were, firstly, uninformative and, secondly, unproven, because the case file did not contain evidence confirming the correctness of the calculation of default interest.

Pursuant to Article 56(1) of the Law on Administrative Proceedings, a fact may be considered proven if, based on the evidence contained in the case file, the court forms the conviction that the fact exists. The 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 inner conviction, based on a comprehensive and objective examination of the circumstances that were proven during the proceedings, guided by the law as well as the criteria of justice and reasonableness.

When assessing evidence, the court must evaluate the probative significance of each item of evidence and conclude the body of evidence as a whole. In assessing the probative significance of each item of evidence, it is necessary to determine its connection with the subject matter 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 prejudicial facts. 

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

Court's Assessment of the Tax Administrator's Default Interest Summaries

Applying these procedural rules defining proof and the assessment of evidence, the panel of judges of the SACL concluded that the applicant had disputed the amount of calculated default interest from the very beginning of the dispute, submitting arguments regarding the amount, the start date and duration of the calculation, the evidence, and other matters. However, the documents submitted by the respondent did not prove when and why default interest in the stated amount had been calculated.

Since the tax administrator, although obliged to justify its position, failed to submit evidence, and since the case was already being examined for the third time by the Supreme Administrative Court of Lithuania, while the principles of procedural rationality and efficiency must also be ensured, the Court annulled the part of the local tax administrator’s decision concerning the calculated default interest. Accordingly, the relevant parts of the decisions of the central State Tax Inspectorate and the Commission concerning the default interest calculated as payable by the applicant were also annulled.

Tax Overpayment Offsetting Rules Under Article 87 of the LTA

Incidentally, Article 87(1) of the LTA provides that tax amounts overpaid by a taxpayer shall be offset, in accordance with the procedure established by the central tax administrator, against the taxpayer’s tax arrears. Tax overpayments remaining after the overpaid amounts have been offset against tax arrears shall be refunded to the taxpayer upon the taxpayer’s request <...> (Article 87(5) of the LTA). 

If the taxpayer wishes the tax overpayment to be offset against taxes whose payment deadline has not yet expired, or, in accordance with the procedure established by the Minister of Finance, against taxes payable at customs, the taxpayer must submit the relevant request (Article 87(10) of the LTA). The procedure and forms for submitting a request to refund or offset 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 LTA).

Overview of All Grounds for Fine Exemption Under Article 141(1) LTA

In general, the Court recalled that Article 141(1) of the LTA provides that the grounds for exemption from payment of fines imposed under Articles 139 and 140 of the LTA are as follows:

1. where the taxpayer proves that they are not at fault for the committed violation; 

2. where the tax law was violated due to circumstances beyond the taxpayer’s control which the taxpayer did not foresee and could not have foreseen. Actions or omissions of the taxpayer or the taxpayer’s employees, as well as the taxpayer’s insolvency, are not considered such circumstances; 

3. where the taxpayer’s separate act, although violating the provisions of the tax law, does not cause damage to the budget; 

4. where the taxpayer violated the tax law due to an incorrect generalized explanation of the tax law, or due to incorrect consultation on tax payment matters provided by the tax administrator in writing or by telephone, provided that the consultation, in accordance with the procedure established by the central tax administrator, was recorded and it is possible to identify the caller — the taxpayer or the taxpayer’s 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 offset and/or forcibly recovered), or where the deadline for payment of this tax has been deferred or payment has been arranged in instalments in accordance with the procedure established by the LTA (Article 141(2) of the LTA).

The taxpayer may be exempted from fines by the tax administrator and, during a tax dispute, also by the institution examining the tax dispute. The procedure for exemption from fines, where the 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 LTA).