Transfer Pricing in Lithuania

The legal framework

Lithuania anchors transfer pricing in Article 40 of the Law on Corporate Income Tax (Pelno mokesčio įstatymas), which requires income and deductible costs from any transaction to be recognised at the 'true market price' (tikroji rinkos kaina, defined in Article 2(37)) and allows the tax administrator to add back and tax the profit that would have accrued had associated persons dealt at arm's length. Article 15(2) of the personal income tax law mirrors the rule for individuals. The operative detail sits in Minister of Finance Order No 1K-123 of 9 April 2004 — the TP Rules — rewritten by Order No 1K-470 of 31 December 2018 to introduce three-tier documentation from 2019, and amended by Order No 1K-338 of 19 October 2020 to add hard-to-value-intangibles and low value-adding services provisions.

The OECD Guidelines are not enacted, but point 96 of the Rules directs their use wherever they do not conflict, and the courts treat them as a recognised interpretive source. 'Associated persons' reach beyond shareholding: a direct or indirect 25%-plus interest in shares or votes, commitments to coordinate decisions or transfer profits, common control by the same persons or their family circle, group membership and the entity-PE relationship all qualify — tested on any day of the current or preceding tax period. Critically, the arm's length principle applies to purely domestic controlled transactions as well as cross-border ones. The Authorised OECD Approach for permanent establishments has not been implemented and there is no specific PE attribution guidance. Administration rests with the State Tax Inspectorate (VMI prie FM).

Methods, comparables and benchmarking

All five OECD methods are prescribed, and the Rules permit combining or modifying methods — exceptionally, valuation techniques — where the result remains arm's length (points 20 and 25). Selection follows the most-appropriate-method standard, but with a residual ordering the current TPG no longer carries: where methods are equally reliable, traditional transaction methods are preferred, and among them the CUP (points 20, 23). Internal comparables take precedence over external ones (point 16). There is no statutory preference for domestic comparables, but in practice VMI expects Lithuanian sets first, accepting Baltic or pan-European searches where local data run out — provided the screening criteria and accept/reject reasoning are documented. Secret comparables are not used.

The range rules deserve particular attention. Any point within a range built from equally reliable comparables complies (point 54); statistical trimming — the interquartile range in practice — applies where extreme values cannot otherwise be excluded. When VMI adjusts, it adjusts to the median unless the taxpayer demonstrates another point is more appropriate (point 56), and reduced cooperation weakens that position: the OECD profile confirms the administrator may then take any point in the range. Comparability adjustments follow the TPG, with the Rules cautioning that a need for significant adjustments signals the method itself may be wrong. Multi-year data test business-cycle effects, and tested-party selection follows OECD logic, justified in the local file's method analysis.

Documentation: what VMI expects

Lithuania runs the full BEPS Action 13 architecture with unusually clean thresholds. A master file is required only where the Lithuanian entity or PE belongs to an international group and its prior-period revenue exceeded EUR 15 million (point 84). A local file is triggered at EUR 3 million of preceding-year revenue (point 85) — though financial undertakings, credit institutions and insurers must prepare one regardless of size. Individual controlled transactions escape the local file below EUR 90,000 per counterparty per period, subject to anti-fragmentation aggregation of identical or inextricably linked transactions, and with no relief where the counterparty sits in a listed target territory (point 87). Entities transacting only with other Lithuanian entities fall outside the file obligations altogether, and taxpayers below the thresholds may substantiate their pricing in free form.

Both files must exist by the fifteenth day of the sixth month after the tax period — 15 June for calendar-year taxpayers, the CIT return date — but are filed only on demand, within 30 days, and retained for five years (points 91, 94). Documentation may be kept in any language; VMI can require a Lithuanian translation, though English is accepted in practice. A benchmarking study — the database searches and the selected comparables' data — may stand for three years where market economic circumstances are stable and the transaction is unchanged; what must be updated each tax period is the controlled transaction's own data (points 88-89). There is no TP schedule in the annual return (PLN204): compliance is pure self-assessment. CbC obligations bite at EUR 750 million of consolidated group revenue — notification by the last day of the reporting year, XML filing through e.VMI within twelve months (Order VA-47).

Audits, penalties and the enforcement climate

The exposure stack has three layers. First, an adjustment carries a fine of 20% to 100% of the underpaid tax under Article 139 of the Law on Tax Administration, graded by cooperation and mitigating circumstances under Article 140, plus quarterly-set late-payment interest. Second, documentation failure is a personal administrative offence: the manager faces EUR 1,820-5,590, rising to EUR 3,770-6,000 for repeat violations (Article 188, Code of Administrative Offences) — and a fine above EUR 1,500 can land the company on VMI's public unreliable-taxpayer list, with procurement and reputational consequences. Third, transfer pricing enjoys an extended reassessment window: the current plus five preceding years under Article 68, against the general current-plus-three, stretching to ten years where needed to implement MAP outcomes.

Enforcement is increasingly data-driven. VMI targets persistently loss-making or thin-margin Lithuanian subsidiaries, payments to target territories, and sizable management fees, interest and royalties, with inspectors trained specifically in TP and audits typically running several months. Disputes turn increasingly on comparables-search quality rather than method choice. Notably, Lithuania makes no secondary adjustments — no deemed dividend follows a primary adjustment — although Article 40 separately allows VMI to recharacterise income and payments as an anti-avoidance tool.

Dispute resolution and advance certainty

Domestically, assessments climb a well-worn ladder: complaint to the central tax administrator, then within 20 days to the Tax Disputes Commission under the Government, then within 20 days to the administrative court, ending at the Supreme Administrative Court (LVAT). The Commission matters — published TP case law is thin, and its decisions supply much of the interim guidance. The leading judgment remains Intersurgical (LVAT, October 2020, No eA-3511-968/2020), a taxpayer win on the interaction of TP adjustments, royalty characterisation and treaty withholding.

Internationally, MAP runs through three channels — the treaty mutual agreement article, the EU Arbitration Convention (90/436/EEC) and Council Directive (EU) 2017/1852 as transposed — the last guaranteeing elimination of double taxation in EU disputes. Lithuania also allows unilateral downward corresponding adjustments without a MAP, and year-end true-ups are permitted (not required) where substantiated and formalised through invoices; no adjustment is appropriate if the result already falls within the range.

Advance certainty comes through binding pricing decisions — unilateral APAs — under Article 37-1 of the Law on Tax Administration, operative since 2012, requested from VMI's Large Taxpayers Monitoring and Consultation Department (Order VA-106) with no published fee or size threshold. Bilateral and multilateral APAs, including for hard-to-value intangibles, are concluded through MAP between competent authorities.

Pillar Two and what changes in 2026

Lithuania transposed the EU Minimum Taxation Directive (2022/2523) but elected the Article 50 deferral: the IIR and UTPR are postponed for fiscal years beginning before 31 December 2029, and no domestic top-up tax (QDMTT) has been enacted, leaving in-scope groups (EUR 750 million in two of four years) with registration and reporting duties only. Transfer pricing, not top-up tax, therefore remains the operative profit-allocation constraint in Lithuania for the rest of the decade.

The bigger near-term shift is procedural. Law No XV-309 of 19 June 2025 recast the APA regime from 1 January 2026 into a dedicated Article 37-2: a 90-day examination period, roll-back to already-concluded periods where facts are identical and verifiable, annual compliance reporting during validity, and express precedence of treaty MAP over unilateral outcomes. In parallel, VMI has consulted on two draft guides — one formalising the arm's length range (interquartile trimming, three-year averaging, adjustment normally to the median), one on documentation practice — with submissions reported due 14 August 2026. Amount B remains under assessment with no adoption, though Lithuania will respect outcomes applied by covered jurisdictions. The 2026 Tax Administration Law package also expands mitigating circumstances for fines and adds DAC8 crypto-asset reporting.

How practitioners should respond

Four priorities follow. First, map the thresholds honestly: the EUR 90,000 per-counterparty test aggregates linked flows, and the domestic-only exemption disappears the moment a foreign associated party enters the chain. Second, engineer benchmark positions toward the median, not the range edge — the point 56 median-adjustment rule, about to be formalised in guidance, converts an edge-of-range result into a near-certain adjustment once comparables are challenged. Third, for intangibles and restructurings, build the ex-ante file VMI expects for HTVI-adjacent pricing: forecasts, risk weightings and probability analysis at the transaction date, since these are the only defence against the one permitted use of hindsight. Fourth, reassess advance certainty: the 2026 Article 37-2 regime, with its 90-day clock and roll-back, makes an APA materially more attractive than the old open-ended process — particularly for financing structures already squeezed by the 4:1 thin capitalisation rule and the 30%-of-EBITDA earnings-stripping limit. And respect the refresh cycle: comparables searches and data must be renewed at least every three years, and the controlled transaction's own data updated every tax period — a study left running past the three-year mark is the most common, and most avoidable, audit casualty.