Page 38 - Central and Eastern European Transfer Pricing Review

38 | CEE Transfer Pricing Review

Transfer pricing study To satisfy the requirement and/or Transfer pricing audit
overview obtain the benefts, are there any and penalties
requirements on when the transfer
Is preparation of a transfer pricing pricing study must be prepared When the tax authority requests
study required i.e. can the and submitted? a taxpayer s transfer pricing
taxpayer be penalized for mere The law states that the taxpayer documentation, how long does
failure to prepare a study? should be in possession of transfer the taxpayer have to submit its
Yes, for all transactions. A requirement to pricing documentation. There are no documentation?
prepare a written transfer pricing study is guidelines on when the transfer pricing The statutory requirement is to present
applicable to companies if at least one of documentation should be prepared. transfer pricing documentation within
the criteria listed below is met: Documentation must be submitted 30 days of the request.
within 30 days of a written request from
sales income of the entity before the the tax authorities.
taxable year when the transaction was If an adjustment is proposed by the
actually carried out exceeded 10 million When a transfer pricing study is tax authority, are dispute resolution
Lithuania litas (LTL) (approximately prepared, should its content follow options available to the taxpayer
2.9 million Euros (EUR)) Chapter V of the OECD Guidelines? outside of competent authority?
The procedure of ordinary dispute
fnancial companies, credit institutions Yes. resolution should be followed, i.e. the
or insurance companies taxpayer may fle a claim with the central
Does the tax authority require an
foreign entities engaged in activities advisor/tax practitioner to have tax authorities or with the Commission
through permanent establishments, if specifc designation in order of Tax Disputes.
the attributable income of the foreign to prepare or submit a transfer
entitys establishment in Lithuania pricing study? If an adjustment is sustained, can
exceeds LTL10 million (approximately penalties be assessed? If so, what
EUR2.9 million). No. rates are applied and under what
conditions?
If one of these criteria is met, a Transfer pricing methods Generally, the tax penalties imposed
transfer pricing study should include all range from 10 to 50 percent of the
transactions with associated parties. Are transfer pricing methods outlined
in Chapter II of the OECD Guidelines outstanding tax amount.
Other than complying with a acceptable? To what extent are transfer pricing
requirement per the previous penalties enforced?
question, describe the benefts, if Yes.
any, of preparing and maintaining Is there a priority among the Often.
a transfer pricing study? acceptable methods? What defenses are available with
The following benefts can be identifed:
Yes. There is a priority rule in Lithuanian respect to penalties?
shifting of the burden of proof. Tax legislation: the taxpayer has to choose The penalties can be reduced by up to
authorities will accept the methods the CUP method. If the information 10 percent of the outstanding corporate
used by the taxpayer unless it available is not suffcient, the resale price income tax if the taxpayer properly
is proven that the methods are method or the cost-plus method will communicates with the tax authorities
inappropriate be chosen before the application of the and presents all requested documents/
proft-based methods. explanations.
mitigating the risk that the tax
authority will propose adjustments If there is no priority of methods, is What trends are being observed
based on secret comparables (the there a best method rule? currently?
tax authorities are entitled to use Not applicable.
comparables/information not available The number of tax audits (by the tax
to the taxpayer if the taxpayer has authority) related to transfer pricing
provided incorrect information) issues is increasing. As well, the
number of disputes and proposed tax
penalty protection adjustments has increased. Transfer
pricing audits are particularly likely
meets the tax authoritys expectations.
for loss making companies and

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