GOVERNMENT OF THE REPUBLIC OF LITHUANIA RESOLUTION No 321 of 5 March 2002 ON THE APPROVAL OF THE PROCEDURE FOR determini

(5)and

(2)of the Law of the Republic of Lithuania on Corporate Income Tax (Valstybės žinios (Official Gazette) No 110-3992, 2001), the Government of the Republic of Lithuania h a s r e s o l v e d:

1. To approve the following documents (as appended): 1.
2. The Procedure for Determining the Deductions Related to Income Earned through Permanent Establishments; 1.
3. The Procedure for Determining the First and Last Tax Periods of a Permanent Establishment.
4. The provisions of this Resolution shall be applicable to the calculation of the taxable profit of a foreign taxable entity earned through permanent establishments in the Republic of Lithuania for the tax period beginning with 2002 and subsequent tax periods. Prime Minister Algirdas Brazauskas Minister of Finance Dalia Grybauskaitė APPROVED BY Resolution No 321 of the Government of the Republic of Lithuania of 5 March 2002 PROCEDURE FOR DETERMINING DEDUCTIONS RELATED TO INCOME EARNED THROUGH PERMANENT ESTABLISHMENTS
5. The purpose of this Procedure is to determine deductions related to income earned by a foreign taxable entity (hereinafter referred to as a foreign entity) through a permanent establishment in the Republic of Lithuania, and to lay down the rules of calculation of such deductions.
6. For the purpose of calculating the taxable profit of a foreign entity earned through permanent establishments in the Republic of Lithuania (hereinafter referred to as a permanent establishment), the following may be deducted from the income of a permanent establishment, specified in Article 4

(1)of the Law of the Republic of Lithuania on Corporate Income Tax (Valstybės žinios (Official Gazette) No 110-3992, 2001): non-taxable income specified in Article 12 of the Law, allowable deductions of limited amounts specified in Article 17

(2)of the Law, and allowable deductions relating to a permanent establishment specified in Paragraph 3 of this Procedure.

1. The allowable deductions relating to a permanent establishment shall include: 3.
2. usual costs actually incurred by a permanent establishment for the purpose of earning income or receiving economic benefit for the permanent establishment; 3.
3. other costs actually incurred by a foreign entity otherwise than through a permanent establishment but directly related to the permanent establishment, or a part thereof, calculated proportionately to the ratio between income of the foreign entity and income of the permanent establishment, including: 3.2.
4. interest paid on a loan used for a permanent establishment, or a part of such interest proportionate to the part of a loan used for a permanent establishment; 3.2.
5. royalties (including remuneration for the related rights granted), payments for the right to use industrial property, franchise payments or remuneration for information on industrial, commercial or scientific experience (know-how), and compensations for violation of copyright or related rights, paid/made for the rights or information used in a permanent establishment, or a part of such royalties, payments, remunerations or compensations calculated proportionately to the ratio between income of the foreign entity and income of the permanent establishment; 3.2.
6. a part of the costs incurred by a foreign entity for the acquisition (creation) of intellectual property, if the property is used for a permanent establishment. A part of the acquisition (creation) costs of intellectual property, calculated in proportion to the ratio between income of the foreign entity and income of the permanent establishment, may be included in the costs of the permanent establishment only in the tax period in which the intellectual property was acquired (created) and only provided that it is used for the purpose of earning income of the permanent establishment.
7. For the purpose of calculating the taxable profit of a permanent establishment, the costs, or a part thereof, actually incurred by a foreign entity otherwise than through the permanent establishment but directly relating to the permanent establishment, referred to in Paragraph 3

(2)of this Procedure, may be deducted from the income of the permanent establishment only provided that for the purpose of calculating the taxable profit of the foreign entity such costs are deducted once. 5. The provisions of Paragraph 3

(2)of this Procedure shall not apply to the calculation of the profit of a permanent establishment where the foreign entity carrying out its activities through the permanent establishment is registered or otherwise organised in target territories.

1. For the purpose of calculating the taxable profit of a permanent establishment, the following may not be deducted from the income of the permanent establishment: 6.
2. the non-allowable deductions specified in Article 31 of the Law of the Republic of Lithuania on Corporate Income Tax; 6.
3. the costs actually incurred by a foreign entity, relating to the control of the permanent establishment (decision-making in respect of the activities of the foreign entity); 6.
4. interest paid by the permanent establishment to its foreign entity, excluding interest, taxed at source, paid by permanent establishments of foreign entities (credit institutions) on the use of capital of the said foreign entities (credit institutions) for the purpose of earning income of the permanent establishments or receiving economic benefit for the said establishments; 6.
5. royalties (including remuneration for the related rights granted), payments for the right to use industrial property, franchise payments or remuneration for information on industrial, commercial or scientific expertise (know-how), and compensations for a violation of copyright and related rights, paid/made by the permanent establishment to its foreign entity where the entity is the recipient of the said royalties, payments, remunerations or compensations.
6. Where a foreign entity carries out its activities through several permanent establishments in the Republic of Lithuania, their profit shall be calculated and taxed separately provided that both of the following conditions are met: 7.
7. the activities carried out by the foreign entity through the said permanent establishments are clearly distinct; 7.
8. the permanent establishments, through which the clearly distinct activities are carried out, are controlled separately.
9. Where a foreign entity carries out its activities through several permanent establishments in the Republic of Lithuania and the conditions of Paragraph 7 of this Procedure are met, for the purpose of calculating the taxable profit of the said permanent establishments, the non-taxable income specified in Article 12 of the Law of the Republic of Lithuania on Corporate Income Tax, of one permanent establishment may not be deducted from income of another permanent establishment, and the allowable deductions of limited amounts specified in Article 17

(2)of the Law and the allowable deductions specified in Paragraph 3 of this Procedure, relating to one permanent establishment may not be deducted from income of another permanent establishment. –––––––––––––––– APPROVED by Resolution No 321 of the Government of the Republic of Lithuania of 5 March 2002 Procedure for determining the First and Last Tax Periods of a Permanent Establishment

1. The purpose of this Procedure is to determine the first and last tax periods of the activities carried out by a foreign taxable entity (hereinafter referred to as the foreign entity) through permanent establishments in the Republic of Lithuania (hereinafter referred to as a permanent establishment).
2. The starting date of a permanent establishment shall be the date of its first transaction, and the ending date shall be the date of completion of all transactions. If a permanent establishment suspends its activities (for seasonality, changes in meteorological conditions, shortage of work and capital), the permanent establishment shall not be deemed to have been ended.
3. The tax period of a permanent establishment shall be a fiscal year, which shall coincide with the calendar year. If the tax period of a foreign entity is a fiscal year which does not coincide with the calendar year, a different tax period of the foreign entity may, upon request, be determined in accordance with Article 6

(2)of the Law of the Republic of Lithuania on Corporate Income Tax (Valstybės žinios (Official Gazette) No 110-3992, 2001).

1. The first tax period of a permanent establishment shall be the calendar year in which the permanent establishment was or was to be registered. Where the tax period determined for a permanent establishment does not coincide with the calendar year, the first tax period shall be a period from the beginning of the calendar year in which the permanent establishment was or was to be registered in the Republic of Lithuania to the beginning of the tax period determined.
2. The last tax period of a permanent entity shall be a period from the beginning of the tax period in which the permanent establishment ends or is transferred to a Lithuanian entity or in which a foreign entity carrying out its activities through the said permanent establishment ends, to the ending date of the permanent establishment or the date of its transfer to a Lithuanian entity or the ending date of the foreign entity carrying out its activities through the said permanent establishment.
3. Where a permanent establishment is transferred to another foreign entity and the tax period of that other foreign entity does not coincide with the tax period of the permanent establishment, the tax period of the permanent establishment may be re-determined in accordance with the provisions of Article 6

(2)of the Law of the Republic of Lithuania on Corporate Income Tax. ––––––––––––––––––