Lithuania – Tax Authority and Tax Technology Tools to Combat VAT Fraud

Introduction

Lithuania is among the EU countries that have consistently invested resources into developing different tools and technologies to improve the quality of its tax reporting services. The government of this country is one of the strongest supporters of high investments in IT in general.

The State Tax Inspectorate (Lithuanian Tax Authority), which operates under the Ministry of Finance, is an example of a public institution that continuously seeks ways to upgrade its services to make the business environment less administrative, stressful, and challenging for economic operators.

Over the last ten years, the Ministry of Finance and related State Tax Inspectorate have implemented many essential digitalization projects in tax reporting and invoicing mechanisms. One of the latest noteworthy reforms in this area is the real-time auditing of the submitted transactional data.

State Tax Inspectorate (VMI) has previously introduced mandatory B2GCommerce between business to government. e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. and fiscalization for the retail sector. The biggest so far was developing and implementing the so-called Smart Tax Administration System (i.MAS).

Tax Technology Tools

Digital Reporting Requirements

Implementing the Smart Tax Administration System (i.MAS) covered the gradual adoption of three digital subsystems. These e-subsystems are the following ones:

• i.VAZi.VAZ is an electronic subsystem of Lithuania's Smart Tax Administration System (i.MAS) that enables taxpayers to submit waybill and cargo transportation document data to the State Tax Inspectorate in real-time.: A monthly report of consignment notes and other transport documentation in e-form

• i.SAFi.SAF is an electronic subsystem of Lithuania's Smart Tax Administration System (i.MAS) that enables taxpayers to submit invoice data to the State Tax Inspectorate in real-time.: Monthly reporting of the invoice ledger (consisting of both issued and received invoices)
• SAF-TSAF-T (Standard Audit File for Tax) is a file type based on the XML standard. It is created in a standard readable format from data exports taken from accounting records. SAF-T is used internationally to ensure the fast and secure digital transfer of tax information. It is known for its high level of security, ability to simplify the collection of tax data and simple readability due to its standardised format.: Standard Audit File for Tax, accounting, and financial data file that should be generated and submitted to different state institutions upon demand for auditing purposes

The idea behind modernizing and digitalizing tax compliance was to increase transparency in economic operators’ accounting and financial data. The introduction of digital reporting of the invoicing ledgers and SAFT files was a great success for VMI.

The reports clearly show that tax fraud, evasion, and increased tax revenue collection levels have continuously improved since the enforcement of the digital reporting tax tools.

The obligation to submit transactional data through i.SAF reporting system mandates that almost all taxable persons registered for VAT submit a monthly report of all invoices issued and received. Foreign taxable persons registered for VAT are also part of the group mandated to submit monthly invoice reports. However, foreign taxable persons who are registered for LT VAT only for the reasons of intra-community acquisitions are free of this obligation.

The i.SAF file is declared electronically with a monthly reporting frequency, with an exclusion of natural persons who submit this reporting file biannually.

Lithuania SAF-T

The Standard Audit File for Tax (SAF-T) is a standardized data form implemented by the OECDOrganisation for Economic Co-operation and Development. The OECD is an international organisation that promotes economic growth, social progress, and environmental sustainability through data, analysis, and policy advice. It has 38 member countries and focuses on topics like climate change, artificial intelligence, and gender equality in 2005. Since then, many countries have adopted this format to simplify tax audits and improve tax compliance practices.

This type of file is, in a nutshell, a standard accounting data file, which contains validated accounting data related to the economic activity of taxable persons, exported from the taxpayer’s accounting system, covering a specific period.

Since the OECD introduced this standard, the wave of adoption of SAFT reporting within the EU has become increasingly popular. One thing that should be considered is that most countries that have mandated the introduction of SAFT have reshaped the OECD standard by their accounting standards.

Lithuania’s technical specifications have reshaped the OECD standard to some extent. The LT SAFT file must be extracted from the accounting system only on the demand of the state authorities. It should be noted that different authorities, not just the Tax authority, can demand the submission of the SAFT file.

The file should be exported within ten days from the initial request of the state authorities.

E-Invoicing

The Law on Public Procurement mandates issuing structured e-invoices for B2G transactions. The country has adopted centralized approaches through the previously called eSaskaita (now SABIS) eInvoicing portal, following the UBLUniversal Business Language is an international standard in XML format specifically designed for electronic documents. v2.1 standard. The Ministry of Finance manages, monitors, and communicates with external stakeholders regarding the platform’s functioning.

However, the new e-invoicing platform (SABIS) has been fully implemented since September 1, 2024. This new central e-invoicing platform replaces the eSaskaita, which has been operational for almost a decade.

The new eInvoicing platform allows users to submit invoices manually through the portal’s UI, through an APIApplication Programming Interface. APIs are an accessible way to extract and share data within and across organisations. connection, or by Peppol. Accepted invoice formats include Peppol BIS Billing 3.0 and Peppol BIS Billing CII Invoice.

Real-time VAT Assessment

Last September, VMI introduced a pilot version of the real-time VAT assessment tool as an additional tax tech instrument to digitalize the tax control infrastructure. This modern, practical, and time-efficient solution will enhance the quality of validating, cross-checking, and evaluating transactional VAT-relevant data submitted by taxable persons.

Let’s illustrate practically how the real-time VAT control tool will function. The taxable person must submit two types of monthly VAT-relevant reports to the tax authority.  The first is the monthly VAT declaration(submitted by the 25th of the following month), and the second is the electronic submission of the i.SAF file to the e-reporting system, with the deadline on the 20th of the following month.

After receiving both reports from the respective taxpayer, the real-time assessment tool will cross-check validated VAT-relevant data from both sources to evaluate the possibility of any discrepancies. The respective taxpayers will be notified through the Electronic Declaration System (EDS) if differences are noticed.

The taxpayer will have a prescribed amount of time to correct the mistake and submit the corrected report, allowing it to protect itself from potential penalties and interests for late or omitted returns.

Conclusion

The Lithuanian Ministry of Finance and State Tax Inspectorate strongly supports the modernization and digitalization of the VAT compliance infrastructure. This can be unquestionably concluded when taking into account the number of projects that have been completed in this area.

The reform of the B2G e-invoicing system and the introduction of real-time checks of VAT reports in the second part of 2024 are directly related to the Ministry of Finance’s idea to make compliance less burdensome and more transparent for all interested parties.

It remains to be seen what tax technological tools the tax authority will develop and introduce next year to decrease the national VAT gapThe difference between the amount of VAT revenue due to a tax authority and the amount actually collected and ease compliance.