The OECD’s base erosion and profit shifting (BEPS) project highly impacted transfer pricing legislation in the world. Lithuania is not exemption. Following BEPS actions the new transfer pricing documentation requirements were introduced 31 December 2018, and apply to related-party transactions conducted in 2019 and subsequent years.
Some highlights of the current legislation:
Master file – is required when turnover exceeds €15 million and the taxpayer is part of an international group
The Master file must be prepared by Lithuanian residents and non- residents with a permanent establishment (PE) in Lithuania that belong to an MNE group and whose revenue (attributed to a PE) in the previous tax period exceeded EUR 15 Million.
Local file – if turnover exceeds €3 million.
The Local file documentation must be prepared by Lithuanian residents and nonresidents with a permanent establishment (PE) in Lithuania whose revenue (attributed to the PE) in the previous tax period exceeded EUR 3 million, and by regulated financial and credit institutions and insurance companies, regardless of revenue.
De minimis rule
Transfer pricing documentation is not required if a controlled transaction or the sum of controlled transactions during the financial year does not exceed €90,000 per related party. Exemptions:
- Aggregate transactions with the same associate during the tax period exceed EUR 90,000;
- The transaction is inextricably linked to another transaction in excess of EUR 90,000 and must therefore be considered together; or
- The transaction is concluded with a person registered in a target area (blacklist);
The documentation must be prepared by the 15th day of the sixth month after the financial year-end.
When the economic circumstances of the transactions remain the same and the market situation does not change significantly, the transfer pricing documentation has to be renewed at least every 3 years, except for the financial data (transactions, prices, mar-ups etc.) that has to be updated on the annual basis.
Non-compliance with the transfer pricing documentation requirements will result in a penalty ranging from €1,820 to €5,590, and the penalty for repeated violations will range from €3,770 to €6,000
Besides, since 2019 the tax authorities can grant to the taxpayer the status of a non-reliable taxpayer and one of the conditions for granting such status is not having the transfer pricing documentation. This status is announced on the website of the Lithuanian tax authorities and can cause negative consequences (e.g. such companies cannot participate in public tenders, they are subject to a longer tax limitation period during which the taxes can be audited etc.).