מחירי העברה: ליטא- יוני 2012

LITHUANIA- ADVANCE PRICING AGREEMENTS IN LITHUANIA

From 2012 Lithuanian companies will be able to agree advance controlled pricing arrangements with the tax administrator. This should provide clarity and certainty for international companies, in particular those planning to carry out large-scale transactions with associated companies.

The amendment to the Tax Administration Law which enables taxpayers to apply for advance transfer pricing agreements with the tax administrator applies from 1 January 2012.

Agreements between taxpayers and the tax administrator on transfer pricing methodologies and assessment principles can therefore be made from that date.

The transfer pricing agreements may be used for various intergroup transactions, and will be binding for a specific period, i.e. they will be valid for the current year and for five years from the date of the tax administrator’s decision. After the expiry of this period the agreement can be extended if the circumstances of the controlled transactions have not changed. These agreements are issued only for future transactions, unlike the position in some Western European countries, where pricing agreements are also issued for past transactions, to ensure fiscal transparency in case of possible inspections.

After receiving the pricing agreement from the State Tax Inspectorate, the taxpayer can choose not to follow it. In addition, the tax administrator also has the right not to follow the agreement during an inspection if the actual circumstances of a transaction differ from those set out by the taxpayer in the application. An agreement will expire if there is a change in legislation, or if new Lithuanian or EU legal decisions that affect the agreement are published.

A pricing agreement will benefit the taxpayer by ensuring the clarity of tax issues in relation to future intergroup transactions, reducing the fiscal risks associated with such transactions.

Despite their significant advantages, pricing agreements do have some disadvantages, the greatest of which is that the taxpayer must provide a considerable amount of complex and revealing documentation when applying for an agreement. In the application, the taxpayer must accurately and unambiguously describe the future transactions, the circumstances to which the tax legislation will apply, the relevant provisions of the legislation, and other information and evidence on which the application is based. The term “future transaction” means a transaction or economic operation which the taxpayer or any group company will commence to carry out after the date of the application to the tax administrator. The application cannot specify a tax rate. As taxpayers must consider all aspects of transactions in advance in order to reach an agreement, this should help to avoid the situation encountered in practice, when attempts are made to justify arrangements retrospectively, in the absence of proper transfer pricing planning.

The tax administrator must give a ruling on an application within 60 days of receiving it, but an additional 30 days is allowed for the examination of applications received up to 1 July 2013. A further 60 day extension can be granted if additional research is required to process an application. Processing time extensions must be notified in writing to the taxpayer making the application.

The clarity brought by pricing agreements significantly contributes to the improvement of the Lithuanian tax regime, making it easier to attract foreign investors.

Your BDO contact in Lithuania:
OTILIJA KOZEMIAKO
otilija.kozemiako@bdo.lt