Lithuania: While the tax authority does not collect taxes, various proposals have been made to improve the situation. However, not all proposals are rational.
While the tax authority does not collect taxes for the state budget, various proposals have been made to improve the situation. However, not all proposals are rational and proportionate to the result – collection of taxes.
The Lithuanian Parliament has received a draft Tax Administration Law (Draft) which, for example, suggests a new tax dispute resolution procedure. That is, the tax authority could enforce recovery of 10% of disputed tax from taxpayers who challenge the tax authority and take their tax dispute to court. The Draft also includes a compensation mechanism, which on certain conditions will allow calculation and payment of interest to the taxpayer in cases of incorrect tax recovery. The reason why these amendments were suggested is the increase of unjustified tax disputes in court, where taxpayers do not always properly assess the situation and apply to the court, thus postponing tax obligations by several years.
However, the proposed amendments do not meet the requirements of major principles of law, such as the principle of fairness and universal obligation, the principle of equality of taxpayers and other fundamental rights settled in the Lithuanian Constitution, which guarantees the right to defence. The amendments foresee tax dispute investigations as “free of charge” only at the pretrial investigation stage, i.e. before the Tax Disputes Commission under the Lithuanian Government, while further investigation would be possible only on payment of a 10% “deposit”. However, courts are entirely responsible for justice in Lithuania so that imposing financial burdens in order to defend a position in the courts would contradict fundamental rights settled in the Constitution. Moreover, the tax authority also makes mistakes: the Supreme Administrative Court often accepts taxpayer friendly solutions and sometimes applies to the European Court of Justice for a preliminary ruling. Thus a taxpayer’s right to defend itself cannot be burdened by tax obligations in advance – a move which in our opinion is ungrounded and illogical.
Clearly, amendments to the Draft will arouse debate and different opinions which will support one or another side. However, the best solution to a dispute is to avoid a dispute.