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Commission Opinion [COM(97) 2007 final - Not published in the Official Journal]
Commission Report [COM(98) 706 final - Not published in the Official Journal]
Commission Report [COM(2000) 707 final - Not published in the Official Journal]
Commission Report [COM(2001) 700 final - SEC(2001) 1750 - Not published in the Official Journal]
Commission Report [COM(2002) 700 final - SEC(2002) 1406 - Not published in the Official Journal]
Commission Report [COM(2003) 675 final - SEC(2003) 1204 - Not published in the Official Journal]
Treaty of Accession to the European Union [Official Journal L 236 of 23.09.2003]
In its Opinion of July 1997, the European Commission took the view that transposing the Community acquis in the direct taxation field should not pose major difficulties for Lithuania. Nevertheless, the report stressed that a considerable effort would be required if Lithuania was to comply with existing Community rules on VAT and excise duties in the medium term. The Commission also stated that Lithuania's tax administration should be able to take part in mutual assistance once it had completed its technical preparations.
The November 1998 Report noted that, despite some progress in the VAT field, Lithuania would have to make considerable efforts to align the provisions on VAT and excise duties.
The November 2000 Report recorded some progress in the matter of administrative capacities but noted continuing delays in the adoption of legislation on VAT and excise duties.
The November 2001 Report took the view that Lithuania had made good progress in terms of its alignment with the acquis. The changes in the law on VAT had entered into force (determining the place where a service is supplied and defining the concept of services provided outside the territory and special treatment for travel agents). As regards excise duties, LPG was now subject to excise duties, and the structure and rates of duties applicable to alcohol and alcoholic drinks conformed with the acquis. As far as administrative cooperation and mutual assistance were concerned, the Parliament had ratified the conventions aimed at preventing double taxation with Russia, the Netherlands, Croatia, Slovenia and Armenia. The agreement on mutual assistance with Sweden had entered into force. In the field of administrative capacity, the central taxpayers register now contained a large database and a new unit responsible for the administration of excise duties had been created. Amendments had been made to procedures to improve fiscal controls, the imposition of penalties, the examination of disputes and the execution and carryover of debt.
In its October 2002 Report, the Commission stressed that Lithuania had made substantial progress in aligning its tax legislation with the acquis. Progress had also been made on the reform of Lithuania's tax administration.
The 2003 Report found that Lithuania had met most of the commitments and requirements arising from the accession negotiations with regard to VAT, excise duties and direct taxation and that it should be able to apply the acquis from accession. With regard to administrative cooperation and mutual assistance, Lithuania had honoured only some of its commitments. It urgently needed to speed up preparations for the creation of information-exchange systems to make sure that essential connections were in place by accession day.
The Treaty of Accession was signed on 16 April 2003 and accession took place on 1 May 2004.
In the area of direct taxation, the rate of tax on profits was reduced in December 1999 and the taxation of dividends harmonised.
In the area of indirect taxation, Community law on VAT and excise duties has been only partly transposed, and the administrative reform provided for in the 1999 Accession Partnership is behind schedule. In April 2000 the tax exemption for public transport services was abolished and replaced by a reduced rate of 5%.
In the area of administrative cooperation and mutual assistance, bilateral conventions with Iceland, Italy and USA on double taxation and tax evasion came into force in January 2000. Lithuania has concluded similar conventions with Russia, the Netherlands, Croatia and Slovenia. The tax administration, which comes under the umbrella of the Ministry of Finance, comprises the State Tax Inspectorate (STI) and ten regional inspectorates. Responsible for managing and administering taxes, the STI drew up a Strategic Plan for the period 2000-04 in March 2000. The following month its local networks were connected to the central network and an integrated fiscal information system created.
Value added tax
Lithuania's current VAT system was introduced in May 1994, replacing the former turnover tax. Lithuania applies a single VAT rate of 18% which is applicable to all taxable transactions, including imports. The current VAT system is based on the main principles of Community legislation. However, it is very general and inconsistent in its application.
Since July 1997 Lithuania has continued to bring its VAT legislation more closely into line with the Community acquis. Recent changes to national VAT legislation include abolition of the reduced rate applicable to domestic agricultural products only and the raising of the registration threshold in order to reduce the number of taxpayers registered for VAT purposes. Although progress has been made, substantial efforts are still required.
The November 2000 Report notes that legislative improvements remain necessary to achieve the objectives of the Sixth Directive. The list of exemptions remains too long, and there is neither a scheme for refunding VAT to taxable persons registered outside the country nor a reverse charge system.
The November 2001 Report confirms this evaluation.
A new law on VAT was adopted in March 2002 and entered into force in July 2002. This law defines the concepts of tax base, taxable persons and taxable transactions. It also adopts the measures aimed at doing away with the current exemptions and reduced rates that are incompatible with the Community acquis.
At the end of 2003, Lithuania had yet to transpose intra-Community VAT rules and bring its rates into line with the range of reduced VAT rates and exemptions, except in those areas in which it had obtained a derogation. It also had to deal with the slight differences that still existed between its rules and EU rules with regard to taxable transactions, the place of supply of goods and special arrangements for second-hand goods.
As with VAT, efforts remain to be made in the matter of excise duties: beer has to be taxed by alcohol content and wine by the hectolitre, while cigarettes must not only be subject to excise duties but to a combination of specific and ad valorem rates.
The November 2001 Report confirms this evaluation.
The law on excise duties was adopted in October 2001 and entered into force in July 2002. This law regulates the adoption of the tax warehouse and duty suspension system as well as the introduction of combined excise duty rate for cigarettes in October 2002.
At the end of 2003, more needed to be done to reach the minimum Community rate of excise on certain products and to bring a small number of exemptions on mineral oils into line. Lithuania also had to deal with the divergences regarding certain product definitions and the structure of duties for certain mineral oils, and extend national suspension rules applying to harmonised excise products to cover intra-Community movements. Excise duties on cigarettes were gradually being increased as planned with a view to achieving the maximum rate by 31 December 2009, in accordance with what was agreed on during the accession negotiations.
In the field of direct taxation, Lithuanian legislation will have to respect the principles in the code of conduct for business taxation. The new law on profit tax was adopted in December 2001 and entered into force in January 2002. The corporate profit tax rate has been reduced from 24% to 15%. In addition, the new law on personal income tax was adopted in July 2002. However, Lithuania will have to further align its legislation with the acquis, taking action, in particular, to eliminate potentially harmful fiscal measures. This will enable Lithuania to comply with the code of conduct for business taxation to the same extent as current Member States upon accession.
At the end of 2003, Lithuania had still to transpose the Directives on interest and royalties and on taxes on income from savings. It also had still to amend its legislation on economic free zones so as to abolish additional advantages for non-residents and stop companies from being involved in banking and insurance.
Some measures have been taken to reform and strengthen Lithuania's tax administration with respect to tax audit performance, application of sanctions, examination of tax disputes, enforcement and postponement of debts. Progress is also noted in the development of the Integrated Tax Information System. Since May 2002, the data warehouse of the State Tax Inspectorate (STI) has been fully operational. This new instrument includes VAT and income declarations, customs data and information from audits and payments. The implementation of the new excise information system started in April 2002.
In February 2002, an International Information Exchange Division was established at the STI in order to ensure effective exchange of information with foreign tax administrations. In addition to its established functions for mutual assistance in the field of direct taxation, this division will be responsible for implementing the acquis on administrative cooperation in the field of indirect taxation. Despite these significant improvements, Lithuania will have to improve the tax collection capacity and efficiency of the STI and make progress on training and human resource development. In addition, the State Tax Inspectorate has not yet implemented a computerised fiscal system that is compatible with the VIES (VAT Information Exchange System) and the SEED (System for Exchange of Excise Data).
At the end of 2003, administrative structures were in place and steps were being taken to reform and modernise the tax administration. Action was still needed to improve capacity for collecting taxes and to ensure more effective management of the tax system, in particular by improving control procedures and audits. Accordingly, reinforcing and training of human resources was a priority in this area.
More legislative alignment was needed with regard to administrative cooperation and mutual assistance. An adequately staffed central liaison office had been created and would also serve as a liaison office for excise duties. Lithuania now urgently needs to develop the recently launched VAT information exchange system.
This summary is for information only and is not designed to interpret or replace the reference document.