Recovery of tax arrears

Taxpayers (tax withholders) are not always able to pay taxes and tax-related amounts within the due dates set by law. Failure to pay the above amounts in a timely manner in accordance with the procedure established by the tax laws or accompanying legal acts adopted on the basis thereof results in tax arrears, as pursuant to Article 2(19) of the Republic of Lithuania Law on Tax Administration.

Actions to administer tax arrears:

  • Tax arrears recovery procedures
  • Reminding taxpayers of their tax obligations
  • The right to enforce tax arrears recovery
  • Methods of enforced tax arrears recovery
  • Suspension of enforced tax arrears recovery
  • Deferral or staggering of tax arrears payment
  • Tax arrears recognition as bad debt
  • Applying a limitation period for enforced tax arrears recovery
  • Take-over of tax arrears
  • Payment of tax and related amounts on behalf of the taxpayer

Tax arrears recovery procedures

To recover tax arrears, the tax administrator has the right to apply the following methods of securing the fulfilment of the tax obligation, provided for in Article 95 of the Republic of Lithuania Law on Tax Administration:

  • default interest;
  • seizure of assets;
  • an order to a credit, payment or electronic money institution to cease issuing and transferring money from the account(s) of the taxpayer;
  • a mortgage or pledge;
  • a surety or guarantee, including where the surety or guarantee secures the fulfilment of a tax obligation which may arise.

LEGAL INFORMATION

Article 95 of the Republic of Lithuania Law on Tax Administration.

Reminding taxpayers of their tax obligations

The tax administrator communicates to the taxpayer who fails to discharge tax obligations in due time a reminder to pay taxes and related amounts voluntarily. The reminder of payment is communicated in one of the following cases:

  1. a decision on an appeal by the taxpayer in tax disputes enters into force, i.e. after an appeal against a decision of the tax administration under which the taxpayer is newly assessed and ordered to pay the tax and/or amounts related thereto, the decision of the authority hearing the tax dispute does not satisfy the appeal of the taxpayer and the taxpayer does not appeal against such decision within the prescribed time limit; or the decision of the authority hearing the tax dispute which does not satisfy the appeal of the taxpayer becomes final;
  2. a negative decision is adopted in respect of the request of the taxpayer to defer or stagger the time limit for discharging arrears in payments;
  3. the tax loan agreement is terminated;
  4. the taxpayer fails to pay taxes not subject to declaration within the time limits laid down by the relevant tax law.

LEGAL INFORMATION

Article 89 of the Republic of Lithuania Law on Tax Administration.

The right to enforce tax arrears recovery

Pursuant to Article 105 of the Republic of Lithuania Law on Tax Administration, the tax administrator acquires the right to enforce the recovery of arrears in payments based on at least one of the following grounds:

  1. the taxpayer fails to pay the tax and related amounts specified in the reminder of payment issued by the tax administrator;
  2. the taxpayer fails to pay the declared tax or a tax indicated in the customs declaration within the time limit laid down in the relevant tax law or a subordinate legal act adopted on the basis thereof;
  3. the taxpayer fails to pay the tax and related amounts specified in the decision of the tax administrator on the approval of an inspection report within the time limit laid down in paragraph 2 of Article 81 of the Republic of Lithuania Law on Tax Administration.

The right to recover arrears in payments is acquired on the next day after the expiry of the time limit specified in the reminder to pay taxes and related amounts voluntarily and, if the reminder of payment is not sent, within 20 days after the expiry of the time limit laid down in Article 105 (1) (2) and (3) of the Republic of Lithuania Law on Tax Administration. In cases where after the expiry of the time limit for the payment of tax, the taxpayer files a delayed tax return late or files an adjusted tax return, the tax administrator acquires the right to recover the tax specified in the adjusted tax return and related late payment interest on the next day after the submission of said tax return.

The right to enforce the recovery of an unpaid fine for an administrative offence is acquired by the tax administrator on the day following the expiry of the time limit for the payment of the fine provided for in Article 675 of the Code of Administrative Offences. In the event that the payment of a fine for an administrative offence has been postponed or deferred in accordance with the procedure laid down in the Republic of Lithuania Law on Tax Administration or in the Code of Administrative Offences, the right to enforce the unpaid fine for an administrative offence is acquired by the tax administrator the day after the termination of the agreement on the tax loan or the expiration of the term of the payment, deferral or staggering the administrative offence fine.

Methods of enforced tax arrears recovery

According to Article 106(1) of the Republic of Lithuania Law on Tax Administration, the recovery of arrears in payments may be enforced as follows:

  1. by instructing a credit, payment and/or electronic money institution to write off the amounts of arrears from personal account(s), in accordance with the procedure laid down in Article 63 of Republic of Lithuania Law on Tax Administration;
  2. by filing a request with the guarantor to discharge the obligations of the taxpayer and pay his/her arrears (where the discharge of tax obligations is ensured by a suretyship or guarantee);
  3. by instructing a credit, payment and/or electronic money institution to write off the amounts of arrears from the account of the guarantor in the event that the guarantor fails to fulfil the requirements laid down in of Article 106(2) of the Republic of Lithuania Law on Tax Administration, in accordance with the procedure laid down in Article 63 of this Law;
  4. by adopting a decision to enforce the recovery of arrears from the assets of the taxpayer or guarantor. This decision is enforced by bailiffs in accordance with the procedure laid down in the Code of Civil Procedure;
  5. by adopting a decision to enforce the recovery of arrears secured by means of mortgage (surety) from pledged assets. This decision is an instrument permitting the enforcement, and is implemented in accordance with the procedure laid down in the Code of Civil Procedure. 

The provisions of Article 106(1) of the Republic of Lithuania Law on Tax Administration also apply when the tax administrator, in cases provided for by law or international treaties, enforces recovery in favor of another state.

The tax administrator may transfer the right of recovery to another state in cases provided for by law or international treaties.

The provisions of the Republic of Lithuania Law on Mutual Assistance in Recovery of Taxes apply in the execution of requests received from EU Member States for the recovery of arrears claimed.

In recovering tax arrears and monetary amounts claimed by EU Member States, the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania uses the following Forms approved by three orders of the Head of the State Tax Inspectorate under the Ministry of Finance, Order No V-11 of 14 January 2003, Order No VA-142 of 19 July 2004, and Order No VA-143 of 30 December 201: Decision to recover tax arrears and stop issuing and transferring money from bank accounts (Form FR0492), Decision to recover tax arrears from assets (Form FR0497), Decision to recover tax arrears of the taxpayer from the bank accounts of a surety/guarantor (Form FR0744), Decision to recover tax arrears of the taxpayer from the assets of a surety/guarantor (Form FR0749), Decision to recover tax arrears at the request of a foreign state (Form FR1068).

Decisions to impose fines issued in accordance with the Code of Administrative Offences are enforced in accordance with the procedures laid down in Article 676 of this Code.

Suspension of enforced tax arrears recovery

According to Article 110 of the Republic of Lithuania Law on Tax Administration, enforced recovery of tax arrears is suspended in the following cases:

  1. unless a specific tax law provides otherwise, the submission of an appeal in the event of a tax dispute suspends the enforced recovery of disputed taxes, penalties and late payment interest as well as the crediting of tax overpayment (tax difference) against the said amounts (except for cases where the crediting is done at the request of the taxpayer);
  2. the conclusion of a tax loan agreement suspends the enforced recovery of taxes and related amounts where the time limit for the payment thereof is deferred;
  3. the tax administrator, acting in compliance with the criteria of prudence and economic feasibility, has the right at its own initiative not to initiate or to suspend the enforcement proceedings.

According to Item 27 of the Rules for Deferral or Staggering of Payment of Tax Arrears or Administrative Offence Fines, approved by Order No 268 of the Minister of Finance of the Republic of Lithuania of 17 November 1998 (version of the Order No 1K-293 of the Minister of Finance of the Republic of Lithuania of 21 July 2016, as of 1 January 2017), in accordance with Article 110(3) of the Republic of Lithuania Law on Tax Administration, the tax administrator has the right not to initiate or to suspend the recovery of tax arrears or administrative offence fines where the application for the deferral or staggering of the respective payment is made, from the date of receipt of the application to the date of adoption of the decision granting or rejecting the application for the deferral or staggering of the respective payment. However, this does not preclude the application to the tax arrears of any of the security measures provided for in the Republic of Lithuania Law on Tax Administration.

According to Item 55 of the Rules for Deferral or Staggering of Payment of Tax Arrears or Administrative Offence Fines, approved by Order No 268 of the Minister of Finance of the Republic of Lithuania of 17 November 1998 (version of the Order No 1K-293 of the Minister of Finance of the Republic of Lithuania of 21 July 2016, as of 1 January 2017), the recovery of an administrative offence fine for which an application for the deferral or staggering of its payment has been made under the simplified procedure may be suspended or stayed from the date of receipt of the application until the date of adoption of the decision granting or rejecting the application for the deferral or staggering of the respective payment.

According to Item 26 of the Rules for Deferral or Staggering of Payment of Tax Arrears or Administrative Offence Fines, approved by Order No VA-144 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 26 July 2004 (version of Order No VA-89 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 1 October 2012), upon the request of the taxpayer or upon the initiation of the procedure for exemption from fines, late payment penalties and/or interest on the initiative of the tax administrator, the procedures for the enforced recovery of such fines, late payment penalties and/or interest are not initiated, and those initiated must be suspended until the date of the adoption of the relevant decision of the tax administrator.

In the event of a decision of the tax administration not to waive the fines, late payment penalties and/or interest, the recovery of such tax arrears is carried out in accordance with the procedure laid down by the legislation.

However, the suspension of the enforced tax arrears recovery does not preclude the application of the methods of securing the fulfilment of the tax obligation provided for in Article 95 of the Republic of Lithuania Law on Tax Administration.

Deferral or staggering of tax arrears payment

The Republic of Lithuania Law on Tax Administration also provides for the possibility to grant tax benefits to taxpayers with temporary financial difficulties. The tax administrator, in accordance with the procedure established by the Minister of Finance, may defer or stagger the respective payments (Article 88 of the Republic of Lithuania Law on Tax Administration). Such tax benefits may be used by taxpayers only if it is established that the immediate payment of tax arrears would result in the financial situation of the taxpayer becoming critical or that the taxpayer would have serious difficulties in meeting his/her other financial obligations, whereas the deferral or staggering of the arrears would enable the taxpayer to stabilize his/her financial situation, and pay the arrears later.

The payment of tax arrears is deferred or staggered by a decision of the tax administration, on the basis of which a tax loan agreement is concluded between the taxpayer and the tax administration. The tax loan is subject to interest, the amount of which is determined by the Minister of Finance, taking into account the weighted average of the annual interest rate of the State Treasury Bills of the Republic of Lithuania issued by auction in the previous calendar quarter. If the taxpayer fails to pay the instalments on time in accordance with the payment schedule approved by the tax loan agreement, increased interest will be charged, and in the event of failure to pay the interest in accordance with the tax loan agreement, default interest on interest will be charged, both accrue until the relevant amounts are paid (credited), and both are equivalent to the amount of default interest on taxes which have not been paid in due time.

Taxpayers may request the tax administrator to defer (up to one year) or stagger the payment deadlines for tax arrears or administrative offence fines. The payment of administrative fines may be deferred for a maximum period of two years from the date of the request for deferral or staggering of the respective payment.

The request for a deferral or staggering of the respective payment may be submitted after the adoption of the decision imposing the fine, within 20 days prior to the payment deadline provided for in Article 675 (2) of the Code of Administrative Offences. Persons subject to administrative liabilities must pay fines within forty days from the date of dispatch or issue of the decision imposing the respective fine, and in case of appeal against the decision imposing the fine, within forty days from the date of dispatch or issue of the decision rejecting the appeal.

Taxpayers may apply to the tax administration with a request to defer or stagger the payment of tax arrears or administrative offence fines.

Taxpayers must attach to the application documents (depending on the scope and nature of the particular activity of the taxpayer, the amount of the tax arrears to be deferred, such as written free-form explanations or commitments by the taxpayer to pay the tax arrears in the future, contracts, letters of intent, business plan and/or other) proving that they have a realistic prospect of being able to settle the tax in case of a deferral or staggering of their tax arrears. Documents substantiating debts owed by managers of appropriations to the requesting taxpayer as a result of unfulfilled financial obligations and to be covered by the budget are in all cases regarded as evidence of a realistic prospect of being able to settle the arrears to the appropriate extent. In this case, the tax authorities do not normally require any other documents.

Owners of sole proprietorships, members of partnerships, as well as taxpayers, natural persons (including persons who have been fined for an administrative offence), must submit a questionnaire in a form prescribed by the Central Tax Administrator, together with their application, containing data on the financial situation of the taxpayer. The data contained in the questionnaire must be documented if the tax administration has no prior information on it.

Taxpayers may be requested to provide additional information/documents necessary for the adoption of a decision to defer or stagger the payment of tax arrears or administrative offence fines.

LEGAL INFORMATION

The Law of the Republic of Lithuania on Tax Administration.

Order No 268 of the Minister of Finance of the Republic of Lithuania of 17 November 1998 on the Approval of the Rules for Deferral or Staggering of Payment of Tax Arrears or Administrative Offence Fines (version of the Order No 1K-293 of the Minister of Finance of the Republic of Lithuania of 21 July 2016, as of 1 January 2017).

Order No 236 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 3 October 2001 on the Approval of the Forms of a Tax Loan Agreement and of a Questionnaire for Natural Persons.

Order No VA-65 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 26 May 2011 on the Approval of the Forms.

Tax arrears recognition as bad debt

Pursuant to Article 13 of the Republic of Lithuania Law on Tax Administration, unless a specific tax law provides otherwise, taxpayer arrears in payments are recognized as bad debt where it is impossible to recover such arrears due to objective reasons or where it is unfeasible in social and economic terms to enforce their recovery for the following reasons:

  1. no property of the taxpayer is identified or the property identified is non-liquid (of small liquidity) (Article 113(1)(1) of this Law);
  2. enforcement expenses exceed the arrears in payments (Article 113(1)(2) of this Law);
  3. it is unfeasible to enforce the recovery of the arrears due to difficulties in the economic (social) position of a natural person: the natural person needs state support (he/she has reached retirement age, he/she has disabilities, he/she requires medical treatment, preventive medical care and rehabilitation, he/she is unemployed, he/she receives social benefits) or such support is already provided to him/her. Such grounds for the recognition of arrears as bad debt is applied to only those taxpayers who are natural persons or where there are difficulties in the economic (social) position of the owners of individual (personal) enterprises or members of partnerships (Article 113(1)(3) of this Law).

Pursuant to Article 113(1)(1) and (2) of the Republic of Lithuania Law on Tax Administration, the local tax administrator may recognise tax arrears as bad debt at its own initiative, and pursuant to Article 113(1)(3) of this Law, the taxpayer must submit a request to the local tax administrator to declare the tax arrears as bad debts, together with documents issued by the competent authorities confirming that the natural person or the owner of an individual (personal) enterprise or a member of a partnership has reached the retirement age, has disabilities, requires medical treatment, preventive medical care and rehabilitation, is unemployed, receives social benefits, as well as documents containing data on the income received and property owned by the natural person and his/her family.

According to Article 113(2) of the Republic of Lithuania Law on Tax Administration, if, in the course of enforced recovery, no assets and/or funds of the person are identified from which the fine for an administrative offence may be enforced, the unrecovered fine or any part thereof is declared bad debt when the bailiff returns to the tax administrator the decision of the tax administrator on the enforcement of the fine with a notation that recovery is not possible.

According to Article 113(5) of the Republic of Lithuania Law on Tax Administration, the unpaid fine or part thereof may be repeatedly handed over to the bailiff for enforced recovery in the cases and according to the procedure laid down in Article 676 of the Code of Administrative Offences.

LEGAL INFORMATION

Republic of Lithuania Law on Tax Administration.

Order No VA-92 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 12 may 2004 On the Approval of the Rules on the Recognition of Tax Arrears as Bad Debts, their Revision and Accounting and the Methodology for the Calculation of the Costs of Enforced Tax Arrears Recovery.

Order No VA-104 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 24 May 2004 on the Approval of the Forms.

Applying a limitation period for enforced tax arrears recovery

Pursuant to Articles 107 and 108 of the Republic of Lithuania Law on Tax Administration, an important institute that alleviates the situation of the taxpayer is the establishment of a statute of limitations for enforced recovery. Upon the expiry of the five-year limitation period for enforced recovery of tax, the tax administrator may not take any recovery action, nor may the tax administrator, on its own initiative (without the request or consent of the taxpayer), set off any overpayment of tax (or difference) held by the taxpayer against the tax arrears for which the limitation period for enforced recovery of the tax has expired. However, the expiry of the limitation period does not prevent the taxpayer from voluntarily discharging his/her tax obligation, i.e. from paying the tax arrears himself/herself. A limitation period for enforced recovery of fines imposed for administrative offences is set out in Article 672 of the Code of Administrative Offences.

LEGAL INFORMATION

Republic of Lithuania Law on Tax Administration.

Take-over of tax arrears

Pursuant to Article 86 of the Republic of Lithuania Law on Tax Administration, taxpayer arrears in payments may be taken over by other persons in accordance with the procedure established by the Government or an institution authorized by it, with the permission of the tax administrator. These persons refer to legal entities or another organizations, or natural persons, except for third parties with the status of a company going bankrupt or being liquidated, third parties against whom restructuring proceedings have been initiated, as well as third parties with tax arrears.

Another person cannot take over tax arrears which are subject of a dispute. 

The take-over of tax arrears is based on a Tax Arrears Take-over Agreement, concluded between the taxpayer and the assignee of the debt, or on a Tax Arrears Take-over Undertaking, signed by the owner of a sole proprietorship intending to take over the tax arrears of his/her sole proprietorship under the agreement of the tax administrator.

The taxpayer or the assignee of the debt must submit to the tax administrator a duly completed and signed application in the form established by the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania for giving consent to take over the respective tax arrears of the respective taxpayer.

The tax administrator, when examining the application, may ask the taxpayer and the assignee of the debt to submit additional documents (e.g. certificates from other asset registers, financial statements, declarations, a confirmation from the bailiff that the respective taxpayer has paid all the costs of the enforcement proceedings, etc.).

LEGAL INFORMATION

Republic of Lithuania Law on Tax Administration.

Order No 51 of the Minister of Finance of the Republic of Lithuania of 25 February 2002 on Approval of the Rules for Taking Over Tax Arrears of a Taxpayer.

Order No 127 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 17 May 2002 on the Approval of the Description of the Procedures for Taking Over Tax Arrears of a Taxpayer.

Order No 86 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 29 March 2002 on the Approval of Agreement Form for Taking Over Tax Arrears, the Request for Consent to the Take Over Tax Arrears and the Decision to Take Over Tax Arrears.

Payment of tax and related amounts on behalf of the taxpayer

Pursuant to Article 83(3) of the Republic of Lithuania Law on Tax Administration, tax and tax-related amounts (including tax arrears) may be paid on behalf of the taxpayer by third parties in accordance with the procedure established by the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania.

Another person may pay taxes, administrative offence fines and other contributions on behalf of the taxpayer by completing the original payer section of the payment order form, or any other section of the payment order used to indicate the details of the taxpayer on whose behalf the payment is made, or the field used to indicate the unique payment code.

The following must be entered when completing the payment order form:

  1. the name of the recipient (State Tax Inspectorate under the Ministry of Finance);
  2. the code of the recipient from the Register of Legal Entities (code of the State Tax Inspectorate under the Ministry of Finance from the Register of Legal Entities: 188659752);
  3. the number of the budget revenue collection account of the recipient. The budget revenue collection accounts of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania are publicly available on the website of the State Tax Inspectorate (www.vmi.lt);
  4. the identification number of the person paying on behalf of the taxpayer (the code from the Register of Legal entities for legal entities of Lithuania, personal identification number for residents of Lithuania, taxpayer identification number provided by the Register of Taxpayers for foreign legal entities);
  5. the title, first name and last name of the entity/person paying on behalf of the taxpayer;
  6. the payment code (must be entered in the structured payment destination field);
  7. the payment amount;
  8. the identification number, title, first name and last name must be indicated in the original payer section of the payment order form or in another section of the payment order for the taxable person on whose behalf the payment is made.

When paying fines for administrative offences on behalf of the taxpayer, the taxpayer on whose behalf the payment is made, the object identification code of the Register of Administrative Offences (ROIK), or the number of the document on which the administrative offence fine was imposed, must be entered in the field of the payment order form for the unique payment code.

LEGAL INFORMATION

Republic of Lithuania Law on Tax Administration.

Order No VA-6 of the Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania of 30 January 2006 On the Approval of the Description of the Procedure for Payment of Tax and Tax-Related Amounts on Behalf of the Taxpayer and the Annulment of Certain Orders of the Head of the State Tax Inspectorate under the Ministry of Internal Revenue to the Ministry of Finance.