The right to an effective tax system
What does this mean? An effective tax system should be the best of all possible regulatory alternatives, balancing both public and private interests: tax revenue should ensure basic societal needs, but the tax burden should not place undue constraints on economic activity. The tax system should minimise the costs of compliance.
Why is this important? A tax system the administration of which does not impose an excessive burden upon either government or taxpayers, allows taxpayers’ money to be saved and does not restrict economic activity.
Source: Article 3 of the Law on the Legislative Framework of the Republic of Lithuania.
The right to high-quality and well-crafted tax laws
What does this mean? In preparing tax laws and their accompanying legislation, it is necessary to assess the impact of such laws, to consult with the public, and to accept such laws only when they are ready. Consideration and acceptance of such laws should not be rushed. Legal regulation must be consistent, logical, concise, understandable, precise, clear and unambiguous.
Why is this important? If this right is ensured, taxpayers can avoid confusion regarding tax laws, their interpretation, and form of declarations. This not only allows taxpayers to better understand the tax system, but also reduces its administrative burden, thus making it easier for taxpayers to calculate, declare and pay the taxes required. In addition to this, the principle of clarity of taxation provided for in the Law on Tax Administration of the Republic of Lithuania provides that the subject of a tax obligation must be clearly defined in tax legislation. Only in this way can its correct and timely fulfilment be ensured. The clarity, rationality and efficiency of legal regulation depend on –the quality of the legislative process involved. Inefficient legislation results in an unnecessary administrative burden for both business and society in general, and creates preconditions for the inefficient use of budgetary funds. In addition, inefficient legislation expands the scope of activities carried out by public administration, and fails to prevent corruption. The abundance of legal acts, together with their consideration as a matter of urgency or extreme urgency, does not create the right conditions for the comprehensive assessment of draft laws submitted to parliament (Seimas). Public engagement is vital, because only then can conditions be created to assess the public’s expectations.
Source: Constitutional Court practice of the Republic of Lithuania; Article 9 of the Law on Tax Administration of the Republic of Lithuania; Article 3 of the Law on the Legislative Framework of the Republic of Lithuania; Article 145 of the Statute of the Seimas.
The right to stability in the taxation system
What does this mean? Legislation to change tax laws must be passed at least six months before its implementation can begin.
Why is this important? Taxpayers must be able to prepare for tax changes – to take decisions relating to tax accounting or the increased tax burden, to plan their activities and their cash flows, and to reorganise their accounting systems.
Source: Constitutional Court practice of the Republic of Lithuania; Article 20 of the Law on the Legislative Framework of the Republic of Lithuania.
The right to the effective use of taxpayers’ money
What does this mean? The taxes paid by taxpayers – citizens, institutions, businesses –forms the basis of the state’s resources. The state budget is created out of funds gained from taxpayers. As such, citizens are the real owners of state’s financial resources and other assets – and they need to know how these assets are being managed. It is also important for citizens to know whether these incomes are correctly calculated; whether they actually reach the state budget, whether public funds are legitimately spent; and whether their accounting is accurate. It is equally important to know how the executive branches work: whether public finances and other material resources are used purposefully, economically and efficiently – and who benefits from tax credits and exemptions.
Why is this important? Taxpayers’ dues form the basis of the national budget. An increasing quantity of taxes are paid into the budget every year. Illegitimate or inefficient use of budget funds not only results in an increased tax burden in the future, reduces the quality and quantity of public services, and creates distrust in the state.
Source: Article 1 of the Law on the Budget Structure of the Republic of Lithuania.
The right to good tax administration
What does this mean? Declaration, payment and administration of taxes should be simple, fast, easy and cheap. The principle of good administration includes the obligation to take active measures to assist, and to act carefully. The principle of responsible management (good administration), inter alia, establishes the duty of the public administration to take active steps in the administrative procedure. Excessively formal and bureaucratic public administration functions are incompatible with the principle of good administration.
Why is this important? Tax administration – in particular, the collection of insignificant taxes that represent only a small portion of total revenue– is costly for both tax administrator and taxpayer. Avoiding inefficient taxation would free up limited resources for more productive activities and income generation, which in turn would increase budget revenue.
Source: Arises from Art. 5 (“Public authorities serve people”) of the Constitution of the Republic of Lithuania; Article 27 of the Law on Tax Administration of the Republic of Lithuania.
The right to high-quality consultation and information
What does this mean? The taxpayer has the right to receive timely and high-quality consultation and information relating to his obligation to calculate, declare and pay taxes.
Why is this important? Frequent tax changes can make it difficult for taxpayers to keep up with issues relating to their obligation to calculate, declare and pay taxes. Tax laws can be confusing and complex, or require specific legal or accounting knowledge. Without intending to deceive tax authorities, taxpayers may commit errors in calculating, declaring, or paying taxes.
Source: Articles 36 and 27 of the Law on Tax Administration of the Republic of Lithuania.
The right to plan taxes
What does this mean? Tax planning / optimization is the arrangement of activities (economic and financial transactions) in such a way that the sequence of transactions allows for the use of tax benefits provided by the legislation, where these transactions have actually occurred and the intended result has been achieved – i.e. that the relevant operational solution have been implemented – and where the objective of obtaining tax benefits is not the sole and / or main purpose of the activity.
Why is this important? Every taxpayer has the right to choose a business model that returns the highest profit at the lowest cost.
Source: Arises from article 46 the principle of freedom of economic activity of the Constitution of the Republic of Lithuania. This principle provides that every entity has the right to choose the operating model that it deems the most appropriate.
The right to predictability in the actions of the tax administrator
What does this mean? When in doubt as to how to apply tax laws to future transactions, the taxpayer has the right to apply to the tax administrator for approval of his proposed application of the tax laws. The tax administrator must provide an answer – either to approve or to reject the application. In the case of refusal, the tax administrator must indicate the reasons. By adopting a positive decision, the tax administrator undertakes to apply the provisions of the tax laws to the future transaction as set out in the decision.
Why is this important? A taxpayer who is faced with, for example, a new type of activity, or who has a question regarding the application of specific provisions of tax law, should be able to ensure that he and his tax administrator regard his actions in the same way. If no explanations are provided for certain tax regulations, or if the responses provided by the tax administrator to the taxpayer are non-binding, the taxpayer cannot act confidently in the knowledge that his actions do not violate the law.
Source: Article 37 of the Republic of Lithuania on Tax Administration Law.
The right to be treated as an honest taxpayer
What does this mean? The burden of disproving information provided by the taxpayer (for example, in tax returns, consignment notes, accounting data, etc.) falls on the tax administrator. In addition, tax administrator must explain any contradictions or uncertainties arising in the tax legislation of the Republic of Lithuania to the taxpayer during the course of tax inspections, tax disputes and other tax administration procedures. For the benefit of the taxpayer, any uncertainties or contradictions arising from tax legislation and other legal acts shall be explained when this affects the performance of the tax obligation or the performance of other taxpayers’ obligations. Legislative provisions shall be interpreted in favour of taxpayers in cases where conflict arises between rules with the same legal weight, where the law uses an undefined or vaguely defined concept of tax liability, and in other cases where the tax administrator, after assessing the situation and following the principles established by the Law on Tax Administration, decides to interpret tax legislation to the benefit of taxpayers.
Why is this important? A taxpayer may be the weaker party in a tax dispute (i.e. they may lack time and resources for lengthy tax disputes). It is therefore crucial that the taxpayer can rely on the right to be treated as an honest taxpayer.
Source: Article 73 of the Law on Tax Administration of the Republic of Lithuania.
The right to confidentiality
What does this mean? The taxpayer has the right to confidentiality regarding any information provided to the tax administrator. Information presented to the tax administrator about the taxpayer must be kept secret and used only for legitimate purposes.
Why is this important? The right to confidentiality is of great importance not only to individuals, being essential to the inviolability of a person’s private life, but also to business. For example, the tax administrator holds a large amount of data that could constitute a commercial secret (relating to profit margins, suppliers, etc.). Disclosure of such or similar information could cause damage to a company’s reputation – for example, the fact that a company is subject to a tax inspection could affect the company’s reputation.
Source: Articles 32 and 36 of the Law on Tax Administration of the Republic of Lithuania.
The right to interact with the tax administrator directly or via a representative
What does this mean? The taxpayer has the right to participate, directly or via a representative, in the tax inspection process being carried out by the tax administrator. When the tax administrator takes various decisions regarding tax administration (i.e. a decision either to return or not to refund a tax overpayment, a decision to dismiss or exempt the taxpayer from fines or penalties, etc.), it is obliged to inform the taxpayer, and the taxpayer has the right to provide explanations and responses.
Why is this important? The taxpayer’s participation in the tax verification process is beneficial for both sides. Such participation can quickly clarify all circumstances affecting the subject matter, as well as reducing the time taken to carry out the inspection, thus limiting the constraints on the taxpayer’s activities.
The opportunity to provide explanations and responses to an inspection is relevant in avoiding unnecessary tax disputes, as well as clarifying the circumstances affecting the subject matter, or the amount of additional tax to be assessed.
Source: Article 36 of the Law on Tax Administration of the Republic of Lithuania.
The right to equal treatment under the law
What does this mean? With regard to participants in the same tax legal relationship, the tax administrator must treat the facts in the same way. It is forbidden to arbitrarily evaluate the same facts in a different way.
Why is this important? Failure to comply with the principle of equality leads to discrimination against one taxpayer in comparison to others. Different treatment of subjects reduces the clarity and fairness of the tax system.
Source: Article 7 of the Law on Tax Administration of the Republic of Lithuania.
The right to minimal interference from the tax administrator
What does this mean? The tax administrator must not interfere unreasonably in the activities of the taxpayer.
Why is this important? If the taxpayer is unreasonably burdened by additional demands from the tax administrator, or is unjustifiably subjected to repeated checks, the taxpayer will have less time and resources for their own direct activities.
Source: Article 32 of the Law on Tax Administration of the Republic of Lithuania.
The right not to follow unlawful instructions from the tax administrator
What does this mean? The taxpayer to be inspected has the right not to carry out instructions from the tax administrator that are unauthorised, or which exceed the administrator’s legal authority. This includes the right to refuse to provide information, if the instruction is provided in respect of data that the taxpayer does not possess, and which the taxpayer is not required to collect under the applicable legislation.
Why is this important? The taxpayer shall not be required to provide data that he or she does not possess, or is not required to keep within the time limits specified in the applicable legislation, or which the taxpayer has no objective opportunity to present, or if the fulfillment of such requirements would be impossible or would entail a significant administrative burden.
Source: Article 36 of the Law on Tax Administration of the Republic of Lithuania.
Right to refunding of overpayment on time
What does this mean? The Law on Tax Administration provides that any overpayment (difference), left over after the payment of the tax arrears, must be refunded to the taxpayer in a timely manner. Interest shall be calculated for late refund of overpayment.
Why is this important? Tax overpayments can be very important for the taxpayer, as he may have to ‘freeze’ his funds, take out loans to pay taxes, and pay interest in such a way that he must limit or in some cases even cease his activity if he does not recover these overpayment in time.
Source: Articles 36 and 87 of the Law on Tax Administration of the Republic of Lithuania.
The right to appeal against decisions of the tax administrator
What does this mean? Every taxpayer who believes that his rights have been violated, has the right to defend them in the manner enshrined by law. Tax disputes arise from decisions of the tax administrator as part of an inspection, or from other similar decisions whereby the tax payable by a taxpayer is recalculated. Disputes may also arise from a refusal to refund or to offset overpayment by a taxpayer; and from a decision not to exempt the taxpayer from fines or penalties. Complaints relating to other acts or omissions of the tax administrator, which do not fundamentally resolve tax disputes, are categorised as non-tax disputes. Such complaints include, for example, complaints about the implementation of recovery actions by the tax administrator, the custody of property seized, the non-recognition of tax arrears, or the despatch or delay of payment arrears and similar actions.
Why is this important? Taxpayers often ask how they can protect themselves against potentially illegal acts of the tax administrator, such as unjustified reassessment, or demands for information or documents unrelated to the taxpayer’s taxation, or which the taxpayer is not required to supply. In addition, complaints may arise from unlawful inaction from the tax administrator – situations in which the tax administrator fails to perform the functions assigned to him in such a way that it is likely to infringe the rights or interests of the taxpayer.
Source: Articles 36 and 144 of the Law on Tax Administration of the Republic of Lithuania.
The right to propose an agreement over the level of tax payable
What does this mean? The tax administrator and the taxpayer may enter into an agreement on the tax and the amount of the tax if, while calculating the tax, neither side has sufficient evidence to substantiate its calculations.
Why is this important? A situation in which neither of the parties to the dispute has sufficient evidence to substantiate its calculations, may result in the taxpayer and the tax administrator engaging in a lengthy and costly legal process. In some cases, the type of agreement mentioned above can help to avoid such eventualities, and resolve the tax dispute in a mutually acceptable way.
Source: Article 71 of the Law on Tax Administration of the Republic of Lithuania.
Right to compensation for material and non-pecuniary damage
What does this mean? The taxpayer has the right to claim compensation for material and non-pecuniary damage (for example, the unauthorised seizure of property, refusal to refund overpayments of tax, or the unlawful disclosure of confidential information relating to the taxpayer, etc.).
Why is this important? Actions of the tax administrator that are against the law may lead to the taxpayer not only incurring material damage (e.g.. loss of income), but also non-pecuniary (e.g. inconvenience, loss of reputation, lack of communication with customers and partners, etc.). It is therefore important to have a reliable and functional compensation mechanism.
Source: Articles 35 and 36 of the Law on Tax Administration of the Republic of Lithuania.
Right to plead the statute of limitations
What does this mean? The taxpayer may rely on the statute of limitations – a legal provision that prevents state institutions from imposing legal liability upon individuals for their infractions for an indefinite period. The statute of limitations also establishes the period of time after which no investigation may be initiated regarding a possible violation of law, etc. Tax payable for a given tax period may not be calculated and recalculated indefinitely. This principle applies to both the taxpayer and to the tax administrator.
Why is this important? The statute of limitations on tax recovery is designed to ensure the stability and efficiency of tax administration, ensuring that the tax administrator can properly exercise the right to recover unpaid taxes from the taxpayer’s assets, and that the taxpayer is protected from prolonged tax recovery procedures, i.e. the statute of limitations for the recovery of tax is established in the interests of both the taxpayer and the tax administrator.
Source: Articles 68 and 107 of the Republic of Lithuania Law on Tax Administration.