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European Commission Closes Infringement Proceedings Regarding Lithuania's VAT Threshold Avoidance Rule — Orbitax Tax News & Alerts

The European Commission closed infringement proceedings with Lithuania on 19 April 2023 in the case INFR(2020)4057 regarding VAT avoidance and the threshold for small enterprises. As previously reported, Lithuania was sent a letter of formal notice (infringement notice) from the European Commission regarding its anti-abuse (splitting) rule, which provided that where legal entities are controlled by the same person(s) and the combined revenue of the legal entities exceeds the VAT registration threshold, then all the legal entities are required to register regardless of whether or not an individual entity exceeds the threshold. While such anti-abuse rules are allowed, the Commission considered that excluding from the registration exemption businesses that, while financially linked, have completely independent economic activities, is disproportionate and contrary to the principle of fiscal neutrality.

In response, Lithuania amended the anti-abuse rule by adding the provision that the rule does not apply if the related entities can prove that:

  1. None of their management bodies and/or individual members of their management bodies are the same person; and
  2. Their actual economic activities are not of the same nature, and they do not act for each other's benefit or interests.

The amendment was made by Law XIV-1629 with effect from 1 January 2023. Considering this, the infringement proceedings are closed.