Legal Framework and OECD Alignment
Article 40 paragraph 2 of the Corporate Income Tax Act, introduced in December 2001, establishes the arm’s length principle. Lithuania, although not an OECD member, closely follows OECD guidelines for double tax treaties.
Definition of Related Parties
The Lithuanian Law on Corporate Income Tax defines related persons based on various criteria, including family relationships, group membership, and control over shares or votes.
Nature of Transfer Pricing Documentation
Transfer pricing documentation in Lithuania includes a master file, a local file, country-by-country reports, and specific transfer pricing returns. Specific obligations apply based on turnover and industry.
Advance Pricing Agreements (APAs)
APAs became available in Lithuania from January 1, 2012. The application process is detailed, and the decision is binding on tax authorities for a specified period.
Transfer pricing investigations are typically triggered by loss-making companies or declining profitability. Standard audit procedures are applied for transfer pricing risk evaluation.
Transfer Pricing Documentation Requirements
Transfer pricing documentation obligations depend on the taxpayer’s turnover. Financial institutions and insurance companies must prepare contemporaneous documentation regardless of turnover.
Transfer Pricing Methods
Accepted transfer pricing methods include the Comparable Uncontrolled Price (CUP) method, Resale Price method, Cost Plus method, Profit Split method, and Transactional Net Margin method.
Before seeking external comparables, the tax authorities expect a search for potential internal comparables. Specific criteria and reasons for data selection must be documented.
Inter-company Legal Agreements
While inter-company legal agreements formalize relationships, OECD guidelines emphasize the “conduct of parties” as the primary consideration.
Amendments to the Company Law on reporting shareholder data came into force on January 1, 2014, impacting private limited liability companies.
Production Process for TP Relevant Returns
The document outlines the formats, deadlines, and languages for filing various transfer pricing-related returns and financial documents.
While there is no statutory deadline for submitting transfer pricing documentation, it generally must be provided within 30 days of a tax authority request.
Taxpayers are expected to retain supporting documentation for the current and five previous calendar years.
Penalties and Interest Charges
Non-compliance with transfer pricing documentation procedures may result in administrative penalties and interest charges, as outlined in the Administrative Offences Code and Tax Administration Law.