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The result of the EU Case – Republic of Lithuania Law on Value Added Tax is repairable

Raimda auditas UAB has already written about the Case No C-587/10 of the Court of Justice of European Union, in which it was allowed to apply zero-rate of VAT without providing VAT identification number of a final buyer. It took 12 years to solve the case between German Company Vogtländische Straßen-, Tief- und Rohrleitungsbau GmbH Rodewisch (VSTR) and Plauen Tax Inspectorate Finanzamt Plauen. The final decision made in 2012 is still ignored in Lithuanian legal system, so Raimda Auditas UAB proposed couple of questions to the State Tax Inspectorate Under the Ministry of Finance of the Republic of Lithuania (later STI) concerning acts of the latter case. The purpose of this article is to summarize the correspondence between Raimda Auditas UAB and STI, providing the content of requests and responses. 

On 16 April 2015 Raimda Auditas UAB sent a request with description of the case, and the following question relating it:

Can the parallel case be applied to the transactions of Lithuanian Company “X” if following conditions are met:

a)Lithuanian company “X” has VAT identification number;

b)Lithuanian company “X” sells goods to taxable person who carries out economic activity but has no VAT identification number;

c)Taxable person who carries out economic activity but has no VAT identification number provides the company “X” the VAT identification number of the final buyer registered in one of the Member States for VAT purposes.

d)The supply of the goods is organized either on:

i.Taxable person’s name/initiative, or

ii.Company’s “X” name/initiative.

On 14 January 2016 Raimda Auditas UAB sent a request concerning the preparation of response, for 8 months had passed since the request was sent and there was not a sign. On 11 February 2016 Raimda Auditas UAB received a letter form STI saying that the answer was being delayed because they are still waiting for the comments from the other Member States. Original response is the following:

State Tax Inspectorate Under the Ministry of Finance of the Republic of Lithuania, after analyzing your request proposed on 16 April 2015 and collecting practice of other Member States, will prepare You an answer according to the Rules Point 38.  

The answer to the request sent on 16 April 2016 was provided the second day after the letter quoted above was received. Extracts from Article 49 of the Law on Value Added Tax (later LVAT) was given and explained:

Under the provision of Chapter 1 Article 49 of LVAT, when applying zero-rate of VAT, charged goods are supplied to taxable person of any other Member State who is identified for VAT purposes and are transported to other Member State (without considering who (supplier, buyer or company contracted by any of these parties) transports the goods).

Therefore, under the provision of Chapter 1 Article 49 of LVAT, zero-rate of VAT is associated with these criteria: the supply of goods is considered to be effected within territory of the country (Lithuania); goods are supplied to other Member States’ VAT payer; goods are exported to other Member State; the exportation of the goods is organized on the initiative of the seller or the third part contracted by the seller, or exportation is organized on the initiative of the buyer or the third part contracted by the buyer.

The VAT payer who applied the zero-rate of VAT pursuant to Article 49 must posses proof that the goods have been transported from the territory of the country, and in the cases where the zero rate of VAT is applied to the supply of goods to a VAT payer identified for VAT purposes in another Member State – also proof that the person for whom the goods have been dispatched is a VAT payer identified for VAT purposes in another Member State (LVAT, Article 56).

Hence VAT payer of the Republic of Lithuania, wishing to apply zero-rate of VAT for supply of the goods, has to follow the provisions of Chapter 1 Article 49 of LVAT, that is the supply of the goods cannot be charged with zero-rate of VAT if the buyer is not identified for VAT purposes in Member State.

However, the answer provided on 12 February 2016 is in no ways linked with the practice of other Member States, neither is it stated that data are collected or analyzed on. 

Second request, sent on 21 February 2016, was replied on 21 March 2016. STI said that Chapter 1 Article 49 of LVAT is still relevant and must be held true. Nevertheless, there is a reference to possible alterations. Though there is no mentioning of any practice of other Member States, a notice is provided that due to the decision of the Case No C-587/10 of the Court of Justice of European Union there is a need to revise relevant parts of the Law on Value Added Tax:

Additionally it has to be pointed out that the Ministry of Finance of the Republic of Lithuania will be requested regarding expedience of possible changes of Chapter 1 Article 49 of LVAT.

Hence it could be assumed that STI indirectly acknowledged that judgment of the Court of Justice of European Union is not valid in Lithuania and that changes of Law on Value Added Tax might be repaired in the near future. 

Daiva Žumbakienė
Director, auditor of Raimda auditas UAB 
A member of ACCA
15 April 2016