In a recent podcast episode of 'Pro Mikroskopu' by the portal 'Mokesčių sufleris', attorney Indrė Ščeponienė from Sorainen highlighted that the thin capitalization rules are significant for about every second or third company in Lithuania. Ignoring these rules may lead businesses to pay more corporate income tax than necessary. The thin capitalization rules in Lithuania, officially known as the rule for re-characterization of income or payment, were established via a specific governmental resolution, but confusion remains about their application since their implementation in 2003.

Despite the ongoing uncertainty and the lack of a fully developed judicial practice, tax administrators have adopted a more 'creative' perspective on certain aspects of applying these rules. This situation necessitates that companies pay closer attention to the tax risks associated with borrowing, and in some cases, they may need to defend their interests through legal avenues. The primary aim of thin capitalization rules is to prevent tax avoidance by ensuring that companies do not deduct excessive interest expenses from their taxable income.

The discussion raises critical implications for businesses in Lithuania, as failing to comply with these rules could lead to significant financial penalties and increased tax liabilities. Companies, particularly those that rely heavily on borrowing, need to be vigilant and informed about their rights in regard to tax administration. As legislation evolves and more case law develops, businesses must adapt to ensure compliance and effectively manage their tax burdens.