Supreme Administrative Court of Lithuania Practice on Appealing Tax Administrator Decisions

Recently, the Supreme Administrative Court of Lithuania (hereinafter referred to as the SAC) has been developing practice in various aspects of tax administrator decisions, e.g., when they can be appealed, in which cases they cannot be the subject of a dispute, etc. Therefore, let us take a closer look at the new rulings in which the LVAT clarified important issues so that taxpayers will know when they can appeal against the decisions of tax administrators and when they cannot.

Clarification on Interim (Procedural) Decisions

For example, the Supreme Administrative Court of Lithuania clarified the issue of interim (procedural) decisions, which have been the subject of much uncertainty to date.

In the LVAT case, the applicant appealed to the court, requesting that the tax administrator's letter "Regarding the documents submitted during the audit" be revoked, that the tax audit of the applicant be recognized as unjustified, and that the tax audit be terminated. The tax administrator continued the tax audit of this person and refused to grant the applicant's request in a letter.

In this situation, the Supreme Administrative Court of Lithuania first recalled that the right of a taxpayer to appeal against any action or inaction of a tax administrator (or its official) provided for in Article 144 of the Tax Administration Law is not absolute; this legal provision, insofar as it relates to appeals to the courts, cannot be interpreted contrary to the purpose of judicial proceedings and cannot be treated as granting the right to appeal to the court against actions of the tax administrator which do not have legal consequences and whose examination in court would be meaningless; the refusal to terminate a tax audit cannot be the subject of an independent administrative case. Therefore, the Supreme Administrative Court of Lithuania explained that, in the case at hand, the applicant was not appealing any final decision of the tax administrator on the relevant issue that would determine the applicant's substantive rights and obligations.

The Supreme Administrative Court of Lithuania revealed that the letter contested by the applicant regarding the refusal to terminate the tax audits initiated against them was adopted during the applicant's tax audit procedure and does not specify any mandatory obligations, does not have any legal consequences, and therefore cannot be the subject of administrative proceedings.

The Supreme Administrative Court of Lithuania emphasized that, as repeatedly emphasized in the practice of administrative courts, arguments regarding interim (procedural) decisions adopted during a tax audit may be submitted when challenging final tax audit decisions, and these arguments must be assessed by the administrative courts when deciding on the legality and validity of the final decision (e.g., the decision on the approval of the audit report (Article 132(1) of the Tax Administration Law)).

Therefore, the panel of judges of the Supreme Administrative Court of Lithuania, having assessed the content of the applicants' complaint to the court of first instance in the context of the evidence gathered in the case, found that the court of first instance, when deciding on the admissibility of the complaint, should have refused to accept the applicants' complaint regarding the annulment of the letter and the derivative claims on the basis of Article 37(2)(1) of the Administrative Procedure Law, i.e., refused to accept the complaint as inadmissible by the courts under the procedure established by the Administrative Procedure Law.

Appeals Related to Taxpayer’s Requests for Deferral/Suspension of Enforcement

Another very relevant issue arises when taxpayers receive responses from the tax administrator on issues of taxation clarification and the taxpayer-inquirer does not like the response and therefore decides to appeal it.

Let us examine a specific example of a decision of the Supreme Administrative Court of Lithuania. In a completely new situation, the tax administrator sent the applicant a notice of unpaid taxes, stating that the applicant had a debt under enforcement documents issued by the courts of the Republic of Lithuania. The applicant submitted a request to the tax administrator "Regarding unpaid taxes," in which, in accordance with the relevant legislation, to defer the payment of the tax debt and suspend its recovery until the final court decisions are taken in the court proceedings specified in the request or, taking into account the applicant's difficult financial situation, to waive the recovery.

In this situation, after examining the applicant's request, the tax administrator informed him in writing that the tax administrator had no legal basis to defer/suspend enforcement proceedings in respect of the applicant's debt arising from enforcement documents issued by Lithuanian courts. What did the Supreme Administrative Court of Lithuania say on this matter?

The Supreme Administrative Court of Lithuania first recalled that a tax is a monetary obligation imposed on a taxpayer by tax law. The concept of tax in the Tax Administration Law also includes the contributions and fees referred to in Article 13 (Article 2(25) of the Tax Administration Law). Tax arrears are the amount of tax not paid on time in accordance with the procedure laid down in the tax law or in a subordinate legal act adopted on the basis thereof (Article 2(11) of the Tax Administration Law). The tax administrator may defer or reschedule the payment of tax arrears in accordance with the procedure laid down by the Minister of Finance.

It is important to note that the Supreme Administrative Court of Lithuania has clarified that the payment of tax arrears is deferred or rescheduled by decision of the tax administrator. On the basis of this decision, a tax loan agreement is concluded between the taxpayer and the tax administrator (Article 88(1) of the Tax Administration Act). Article 113(1) of the Tax Administration Act provides that that, unless otherwise provided by the law on a specific tax, a taxpayer's tax arrears may be recognized as uncollectible if they cannot be collected for objective reasons or if their collection is not expedient from a social and/or economic point of view, where: 1) the taxpayer's assets cannot be found or the assets found are illiquid (have low liquidity); 2) the costs of enforced collection exceed the tax arrears; 3) it is not expedient to enforce collection of the arrears due to the difficult economic (social) situation of the natural person: the natural person needs state support (the person is of retirement age, disabled, needs treatment, medical prophylaxis and rehabilitation, is unemployed, receives social assistance) or such support is already being provided.

In the opinion of the Supreme Administrative Court of Lithuania, this ground for recognizing arrears as irrecoverable applies only to taxpayers who are natural persons or when the owners of individual (personal) companies or members of economic partnerships are in a difficult economic (social) situation. The debt for which the applicant applied to the defendant is not a tax or tax arrears, therefore, according to the aforementioned provisions of the MAĮ, the tax administrator is not competent to decide on the deferral or rescheduling of this debt, nor on the refusal to collect this debt.

Therefore, the Supreme Administrative Court of Lithuania consistently concluded that the tax administrator had rightly stated in the contested response that it had no legal basis to examine the request in accordance with the provisions of the Tax Administration Act regarding the deferral or rescheduling of debt under enforcement documents issued by the courts of the Republic of Lithuania.

Tax Loans and Deferral of Administrative Offense Fines

Finally, we will touch upon another issue that is no less important and relevant to taxpayers regarding the decisions of tax administrators, namely, the conclusion of tax loans.

For example, in one case before the Supreme Administrative Court of Lithuania, the applicant filed a complaint with the court, which he subsequently amended, requesting that the tax administrator's decision be annulled and that the defendant be obliged to adopt a new decision on the conclusion of a tax agreement. It is important to note that in this situation, the applicant submitted a request to the tax administrator asking for: 1) to allow the conclusion of a single tax agreement for the fines imposed; 2) to allow the conclusion of a new tax agreement, deferring the payment of the aforementioned fines for one year, and to submit the documents necessary for the conclusion of the agreement; 3) to annul the tax administrator's decision and to suspend the adoption of the remaining decisions as an excessive coercive measure.

After examining the applicant's request, the tax administrator informed the applicant by a decision that the request would not be examined on its merits because it did not meet the requirements laid down in the legislation governing the deferral of payment of fines for administrative offenses, since the maximum deferral periods had already expired. namely, the maximum possible deferral periods had already expired. Incidentally, regarding the tax administrator's decision itself, it explained that, taking into account the applicant's request and in accordance with the criteria of reasonableness and economic expediency laid down in Article 110(3) of the MAĮ, it had decided to revoke the previous decision to recover the fine for administrative offenses from the property, since the aforementioned decision to recover the fine from the property had not yet been forwarded to the bailiff for enforcement.

However, the Supreme Administrative Court of Lithuania dismissed the applicant's appeal. The Supreme Administrative Court of Lithuania emphasized that Article 88(1) of the Tax Administration Act provides that the tax administrator may defer or reschedule the payment of tax arrears in accordance with the procedure established by the Minister of Finance. The payment of tax arrears shall be deferred or rescheduled by decision of the tax administrator.

In the opinion of the Supreme Administrative Court of Lithuania, this decision forms the basis for a tax loan agreement between the taxpayer and the tax administrator. Paragraph 10 of the Rules for the deferral or rescheduling of tax arrears or fines for administrative offences, approved by Order No. 268 of the Minister of Finance of the Republic of Lithuania on November 17, 1998 (see the current version), provides that that the payment of fines for administrative offenses may be deferred or rescheduled for a period not exceeding two years from the date of payment of the fine specified in Article 675(2) of the Code of Administrative Offenses of the Republic of Lithuania (hereinafter referred to as the CAO).

The Supreme Administrative Court of Lithuania noted that, according to the provisions of Article 10 of the aforementioned rules, the maximum period for which the payment of fines for administrative offenses may be deferred or spread out is two years, counting from the date of payment of the fine specified in Article 675(2) of the ANK.

The Supreme Administrative Court of Lithuania revealed that, according to the circumstances indicated in the contested decision of the defendant, which are not disputed by the applicant, on the date of submission of the application, the time limits for deferral or rescheduling of fines for administrative offenses specified in point 10 of the Rules had already expired, therefore, the defendant had reasonably refused to grant the applicant's request to defer payment of fines for administrative offenses. The legislation does not provide for the possibility of extending the time limit laid down in point 10 of the Rules, therefore the circumstances referred to in the applicant's appeal relating to the quarantine imposed by the Government of the Republic of Lithuania due to COVID-19 are not relevant to the dispute in question and are therefore not assessed by the panel of judges.

Thus, the Supreme Administrative Court of Lithuania found that, in the absence of grounds for overturning the contested decision, the court of first instance had rightly rejected the applicant's claim that the defendant be required to adopt a new decision on the conclusion of a tax agreement.

Conclusion: Importance of Understanding SAC Decisions

This article examines the explanations provided by the Supreme Administrative Court of Lithuania in order to reveal to readers the most relevant cases in accordance with the practice of the Supreme Administrative Court of Lithuania regarding appeals against decisions of tax administrators, as there is a lack of broader explanations and information on this subject. However, it is always relevant, as a significant number of such decisions are appealed.