Georgia

Corporate - Group taxation

Last reviewed - 30 December 2024

Georgian law does not provide for taxation of groups.

Transfer pricing

The transfer pricing rules introduced in the tax code are broadly based on the OECD arm’s-length principle adopted in tax treaties and by most countries when they implement domestic transfer pricing rules.

The law recognises the five OECD transfer pricing methods for evaluating whether prices are at arm’s length:

Comparable uncontrolled price method.
Resale price method.
Cost plus method.
Transactional net margin method.
Profit split method.

The tax code stipulates that in accordance with the Ministry of Finance (MoF) instructions, the tax authority may recalculate the taxes if they can prove that the prices applied by related parties to transactions differ from the market prices.

According to the instructions issued by the MoF, the methods for assessing the transfer pricing assessment rules have been explained, and the following procedures have been established:

Determination of comparability of independent transactions.
Transaction adjustment procedure.
Information to be represented by the parties of the transaction to the tax authority.
Documentation list.
Sources of information on market prices.
Price range application procedure.

The taxpayer becomes liable to present documentation to the tax authority in support of one’s position in considering income received to be consistent with market principles within 30 days of the formal request of the Revenue Service. The report can be written in both Georgian and English but should be translated to Georgian in case it is requested by the Revenue Service. The companies also have an option to sign an Advance Pricing Agreement (APA) in which the transfer pricing methodology will be agreed for specific transactions with the tax authority, who will no longer have the right to charge fines/taxes on these transactions.

Under the new CIT system, transfer pricing adjustment is subject to immediate taxation.

The following general penalties, determined by tax legislation, apply for non-compliance with the arm’s-length principle or failing to prepare or submit transfer pricing documentation:

An understated tax liability (e.g. VAT, CIT) is subject to a penalty of 10%, 25%, or 50% of the understated tax if it is not more than 5% of the total tax amount in the same tax return, is more than 5% and less than 20%, or is more than 20% of the total tax amount in the same tax return, respectively.
Late payment of taxes is subject to interest at a rate of 0.05% per overdue day.
Failing to submit a required document is generally subject to a penalty of GEL 400.

Country-by-country (CbC) reporting

Starting from 1 January 2025, updated rules for CbC reporting became applicable to MNE Groups.

Updated rules apply to MNE Groups with total consolidated revenue of EUR 750 million or more in the fiscal year immediately preceding the reporting year. According to the updated rules, every Georgian tax resident constituent entity of an MNE Group is required to submit a notification to the Georgian tax authority by 31 December of the fiscal year. The notification must include:

The entity’s status as the ultimate parent, surrogate parent, or another reporting entity; and
The identification details of the reporting entity and its jurisdiction.

In addition to the notification requirement, Georgian tax resident entities that are part of an MNE Group may have further obligations depending on their role within the group:

Ultimate parent and surrogate parent entities – must submit the CbC report.
Other constituent entities – may be required to submit the CbC report depending on specific circumstances (e.g. if the ultimate parent entity is not required to file a CbC report in its jurisdiction; if there is a valid international agreement between parent entity jurisdiction and Georgia but no activated competent authority agreement for automatic exchange; etc).

The submitted reports should comply with the guidelines provided in Annex III of Chapter V of the OECD Transfer Pricing Guidelines.