INTRODUCTION
We are happy to share with you that Leinonen has helped one of our clients recover an incorrectly calculated corporate income tax (CIT). The company became a Leinonen client in 2020 when CIT and VAT reports for this company were submitted by another accounting firm.
situation overview
The client is a company registered in Lithuania. The economic activity in Latvia and Lithuania is performed through a permanent establishment (PE) registered in the particular country.
A separate account has been opened in Latvia for the PE, which is registered in Latvia, to ensure its economic activity and relations with the State Revenue Service.
In order to optimise the costs of economic activity and provide for the business quality, a part of business functions is organised centrally on the basis of geographical region. In the Baltic region, several Lithuanian employees are correspondingly involved in ensuring the economic activities in Latvia and Estonia. As a result, the costs of Lithuanian employees who are involved in the economic activities of permanent establishments in Latvia and Estonia are partly applied to the Latvian PE.
The share of the eligible costs is determined once in a quarter and an invoice is issued for these costs together with an annex detailing the total employee costs and the proportion applied to the Latvian PE.
Before the client started using Leinonen’s services, these costs were included in the CIT-taxable base of the Latvian PE, and CIT was calculated on these costs.
After the initial work with this client, we concluded that these costs that are attributable to the Latvian PE should not be included in the CIT-taxable base and that CIT on these costs should not be paid.
RESULT
To recover the incorrectly calculated VAT, which had been paid into the State budget, CIT reports for years from 2018 until 2021 were adjusted accordingly.
As a result of this adjustment, we helped the client to recover around EUR 100 000 paid in CIT.
