OECD research report: tax environment - one of the most important factors affecting investment decisions and choice of the country

2017-03-28 08:00
Tax news

Usually simple, clear and stable taxes help to attract investments, it is confirmed by this year on 18 March Economic Co-operation and Development (OECD) report, which revealed that the country's tax and VAT system clarity is very or even extremely important in making investment decisions and the choice of jurisdiction. OECD report revealed that more than 80% of respondents give high or very high priority to fiscal clarity tax administration. In assessing Lithuania (as future member of the OECD) tax system in this context, the question arises whether Lithuania can be seen as attractive to investors? Are plans to reform the tax system actually would ensure a clearer tax environment and greater legal certainty for investors?

OECD report

OECD – a forum where successful congenial public debate and share best practices. OECD conducted a comprehensive multidisciplinary research is valued and considered authoritative in the world.
Mentioned OECD report preparation was inspired by an increasing tax clarity meaning in international trade and investment, particularly in the context of international taxation.Increasing internationality of business and the emergence of new business models, and in the face of aggressive tax planning and legislators only fragmentary regulation of these aspects resulted in the need of seeking to increase clarity of taxation.

OECD report reveals information from more than 700 businesses – representing annual turnover of more than 17 trillion USD and companies headquartered in 62 different jurisdictions. This report explores the nature of tax uncertainty, its main sources and effects on business decisions and outlines a set of concrete and practical approaches to help policymakers and tax administrators shape a more certain tax environment. Legislators proposed to simplify the legislation, making it clearer, the tax authorities – to increase the predictability and consistency, and judicial bodies to ensure effective dispute resolution mechanisms, as they play a critical role in ensuring clarity. In mentioned OECD report it is also stated that the fight against tax uncertainty can be particularly important in the international context.

The OECD study also indicates that the overall tax environment is one of the most important factors influencing investment and local choices in addition to other important factors such as corruption and political certainty.

Legal tax regulatory clarity in Lithuania

Lithuanian legislators also pay attention to tax clarity. The Republic of Lithuania Law on Tax Administration (hereinafter – LTA) Article 9 consolidated taxation clarity principle is elaborated in LTA comment by stating that tax legislation must be clearly defined tax liability thing., it is, the tax liability of the content, its appearance, performance, termination procedures and grounds, because only in this way can be ensured by correct and timely execution of its. In other words, this principle should lead to tax consistency and minimal interpretive possibilities. However rare, not only taxpayers, but tax consultants in Lithuania probably would dare to assert that taxes in Lithuania are clear. The fact is likely to contribute to the laws change and they provided the wording, but also often unpredictable tax administration practices. These trends do not contribute to the European Court of Justice practice, where Court regularly highlights protection of legitimate expectations and legal certainty assurance, and has a negative impact on both the Lithuanian companies and foreign investors opinion about the investment attractiveness of Lithuania.

Although in order to ensure tax clarity in Article 37 part 1 of the LTA it is established  one of the Lithuanian tax administrator's officer duties – to provide advice for taxpayers on specific tax issues and as stated in the Head of the tax inspectorate act – written inquiry must be examined and advice enquirer given no later than 20 working days after receipt, but in practice is often that mentioned interpretations of tax taxpayers have to wait a month or two, there are also situations where explanations are contradictory. Such situation certainly does not contribute to the tax system clarity and stability, so it is likely that an investor's choice of a number of possible alternatives for their investments, will turn to more clear tax environment country.


Tax clarity – is important for investors making decisions on potential business development trends. This is confirmed in this March, when the OECD published a report, which should be expected to be useful for our legislators, planning reform the tax system and the tax authorities to ensure a clearer tax environment. The creation of such an environment would allow taxpayers to properly fulfill their duties and to attract investment, to ensure greater legal certainty for investors. On the other hand, it is necessary to take into account that this report for Lithuania is also important because since 2018 Lithuania's membership in the OECD is expected. Quite often, the membership of this organization seen as a good state of economic stability and reliability of the index, and for Lithuania it could have a positive impact on attracting investment and international borrowing costs.