Georgian law does not provide for taxation of groups.
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
From July 2020, a new rule was introduced for multinational enterprises (MNEs) that are residents of Georgia. Namely, parent entities are required to submit a CbC report to the tax authorities by 31 December following the reporting year.
This requirement applies to MNE groups with total consolidated group revenue of the previous fiscal year higher than EUR 750 million.
Apart from this, the ultimate parent company or surrogate parent entity, which is part of the MNE group and simultaneously the resident of Georgia, is required to notify the tax authorities regarding its obligation of CbC reporting by the end of the reporting year.
No thin capitalisation rules are applicable in Georgia.
Controlled foreign companies (CFCs)
Georgia tax legislation does not provide CFC rules.