Transferring of losses in Lithuania
The general rule is that operating losses may be carried forward indefinitely as long as the company continues the activities that caused the losses. However, losses carried forward cannot offset more than 70% of taxable income for the entity in any tax period. On the other hand losses can be transferred within a group of companies if the criteria provided below are met.
Criteria to transfer losses within a group of companies
The Art. 56(1) of the Law on Corporate Income Tax provides criteria to transfer losses within a group of companies, otherwise known as intra-group transfer of losses. This allows groups to balance profits and losses within them. If not transferred within a group, operating losses can be carried forward for an unlimited period of time.
To be eligible for intra-group transfer of losses:
- The group parent company should directly or indirectly hold at least 2/3 of shares in all companies participating in the loss transfer, and
- Companies participating in the loss transfer should have formed part of the same group for not less than 24 months without interruptions including the moment when the loss transfer takes place, or
- A company (companies) participating in the loss transfer has formed part of the group from its establishment and will remain in the group for not less than 24 months without interruptions, calculated from the moment of establishment of the company.
The moment of transfer
The moment when losses are transferred is regarded to be the date of signing the loss transfer agreement. The agreement should be signed before filing the annual corporate income tax return the losses of which are being transferred. Consequently, to transfer losses from 2015, an agreement should be signed until June 1, 2016.
In case the tax years of the companies participating in the loss transfer do not coincide, the losses may be transferred only after the tax year of the company transferring the losses is over. As for the entity that takes over the losses, only taxable income of the tax year that began in the tax year during which the losses accrued for the company transferring the losses may be reduced.
It shall be noted that the company taking over the losses may not carry forward those losses into the next year, while losses incurred in earlier tax years may not be transferred at all. This is because the general rule states that the company taking over the losses may only use those losses to offset taxable income of the tax year when the loss transfer took place. Therefore, in essence, losses may be transferred only to a profitable group company. However, the Law on Corporate Income Tax does not prevent a company from transferring part of its losses or transferring losses to several group companies.
It shall also be noted that a Lithuanian company may take over losses from a company established in another EU member state only on the condition that all possibilities to use or carry forward those losses were fully exhausted in that EU member state under its legislation.