Lithuania - State Tax Inspectorate Introduces New Control Mechanism for VAT Declarations

Lithuanian Tax Authority, State Tax Inspectorate(VMI), is an excellent example of a tax authority working devotedly to develop and enhance the digitalization of tax reporting procedures. The latest modernization of the electronic reporting system can be seen in the development of the real-time control mechanism for tax returns.

The tax authority is looking for ways to improve the effectiveness of its monitoring, controlling, and evaluation mechanism when it comes to validating the reported VAT by tax returns from registered taxable persons. Another important element within this shift is to give taxable persons another possibility to make additional checks of the submitted data and make necessary adjustments within the permitted time-frame.

Overview of New Validation Procedure

The State Tax Inspectorate has informed the interested parties that starting this September, it will roll out (pilot phase) a real-time online system for evaluating VAT returns. After receiving a concerning VAT return from the taxpayer, the system will automatically perform a cross-reference check of the reported VAT from the return with the relevant VAT data obtained through the submission of the e-invoice register.

Let’s practically explain the procedure. First, let’s give a short overview of the already-established channels for tax reporting. Registered VAT-taxable persons are obliged to report VAT through the standard VAT return(form FR0600) and digitally report invoicing data through i.SAF(electronic invoicing subsystem).

The new system will verify VAT-related data the taxable person reports through the standard VAT return in real-time, with the VAT data digitally reported. The taxpayer has an obligation to submit the return within the same timeframe(the deadline for submission and payment of owed VAT stays the same).

After submitting the VAT declaration, the real-time validation of the data will be processed within two working days from its receipt. The outcome of the comparative analysis will be shared with the taxable person via the Electronic Declaration System.

When the notification shows discrepancies between the reporting systems, the interested party may remove the inconsistencies until the prescribed deadlines.

Conclusion

Digitalizing the reporting procedures will improve the State Tax Authority's monitoring powers. This will reduce VAT fraud and late interest penalties for “conscious” taxpayers.

Lithuanian tax administration is an excellent example of a country looking to leverage technology to improve the quality of its services in establishing and maintaining tax compliance. Tax authorities will benefit from the introduction of this type of system because it will have more transparency when it comes to the “reality” of the reported VAT information, and taxable persons will have more possibilities to correct wrongly submitted returns without paying late interest penalties.

Tax advisory, Tax and Business Advisers, VAT