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Legal ReferenceTax Code Article 127 – General principles of transfer pricing

Article 127 – General principles of transfer pricing

Legal ReferenceDecree #423 of the Finance Minister December 18, 2013, Tbilisi

The principles of the TP Instructions are based on the 2017 OECD Transfer Pricing Guidelines. If there is no difference between the Tax Code rules and domestic TP instructions (Articles 126-1291 of the GTC (Tax Code of Georgia) and Decree #423 of the Finance Minister December 18, 2013) and the 2017 OECD Transfer Pricing Guidelines, then the 2017 OECD Transfer Pricing Guidelines is to be applied. Moreover, if the domestic law and regulations of Georgia do not contain specific guidance on certain topics, Georgia relies on the 2017 OECD Transfer Pricing Guidelines as an explanatory instrument.

Legal ReferenceTax Code Article 126 – Meaning of the concepts for the purposes of this Chapter

Article 126 of the Tax Code states that: 1. Two persons shall be related if: a) one person directly or indirectly participates in the management, control or capital of the other person; b) the same persons directly or indirectly participate in the management, control or capital of two persons. 2. A person directly or indirectly participates in the management, control or capital of an enterprise if: a) he/she directly or indirectly owns over 50% of an enterprise; b) he/she actually controls the business decisions of an enterprise. Please note that the ownership reference in 2(a) above refers to economic ownership.

Legal ReferenceTax Code Article 128 – Transfer pricing methods Guidance on the application of Articles 126-1291 of Georgian Tax Code and Transfer Pricing Decree N 15609

Guidance on the application of Articles 126-1291 of Georgian Tax Code and Transfer Pricing Decree: 4.2.6 Other Methods 4.44 - In accordance with the Article 8(6) of the Decree #423 of the Finance Minister, taxpayers are allowed to apply a method other than those listed in Article 128(1) of the GTC, provided the following conditions are met: a) none of the approved transfer pricing methods can be reasonably applied to determine the market conditions for the controlled transaction; and, b) such other method yields a result consistent with that which would be achieved by independent enterprises engaging in comparable uncontrolled transactions under comparable circumstances. 4.45 Where a taxpayer is seeking to apply an “other method” the burden of proof is on a taxpayer to demonstrate that the above conditions are met. 4.46 It is the view of the GRS (Georgia Revenue Service) that the application of the “other method” should be applied in exceptional cases only.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (provided)

Legal ReferenceTax Code Article 128 – Transfer pricing methods

The arm’s length price of a controlled transaction shall be determined by the method that best suits each particular transfer pricing instance.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (if so, please explain) (not selected)

There is no specific guidance on commodity transactions in Georgian domestic law. However, Georgia relies on the OECD TPG.

• For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (selected)
• Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (if so, please explain) (not selected)
• Other (if so, please explain) (not selected)

The guidance and standard for performing a comparability analysis in Georgia is fully aligned with the guidance outlined in Chapter III of the TPG.

Legal ReferenceDecree #423 of the Finance Minister December 18, 2013, Tbilisi Article 7 - Sources of information on comparable uncontrolled transactions

Article 7 (Sources of information on comparable uncontrolled transactions) of the Decree #423 of the Finance Minister states that: Recognizing the difficulties in obtaining information on comparable uncontrolled transactions in Georgia, the use of foreign comparables will be accepted by the Revenue Service, provided that the impact of geographic differences and other factors on the financial indicator being examined under the appropriate transfer pricing method are analyzed, and that, where appropriate, comparability adjustments are made in accordance with the guidance provided in Article 6 of these Instructions.

Legal ReferenceDecree #423 of the Finance Minister December 18, 2013, Tbilisi Article 10 - Sources of information on comparable uncontrolled transactions

Article 10 (Market range) of the Decree #423 of the Finance Minister states that: 1. A market range is a range of relevant financial indicator figures (e.g. prices, margins or profit shares) produced by the application of the most appropriate transfer pricing method as set out in Article 8 of these Instructions to a number of comparable uncontrolled transactions, which must be determined: a) with reference to the results of all the comparable uncontrolled transactions, when the information on the controlled transaction and comparable uncontrolled transaction is sufficiently complete that it is likely that all material differences have been identified, each such difference has a definite and reasonably ascertainable effect on the relevant financial indicator, and, where appropriate, comparability adjustments have been made to eliminate the effect of each such difference. b) with reference to the interquartile range of the results of comparable uncontrolled transactions of a similar level of comparability and reliability that are selected with reference to Article 127(4) of the GTC and Article 5 of these Instructions, but that do not meet the conditions in subparagraph “a” of this paragraph. 2. A controlled transaction, or a set of controlled transactions that are combined according to Article 11 of these Instructions, shall not be subject to an adjustment under Article 127(3) of the GTC where the relevant financial indicator derived from the controlled transaction or set of controlled transactions and being tested under a transfer pricing method selected in accordance with Article 8 of these Instructions is within the market range.

Legal ReferenceDecree #423 of the Finance Minister December 18, 2013, Tbilisi Article 10(1)a - Sources of information on comparable uncontrolled transactions

Article 10(1)a of the Decree #423 of the Finance Minister states that: With reference to the results of all the comparable uncontrolled transactions, when the information on the controlled transaction and comparable uncontrolled transaction is sufficiently complete that it is likely that all material differences have been identified, each such difference has a definite and reasonably ascertainable effect on the relevant financial indicator, and, where appropriate, comparability adjustments have been made to eliminate the effect of each such difference.

Georgian domestic legislation does not contain specific guidance on the pricing of controlled transactions involving intangibles and tends to rely on the OECD TPG.

There are no specific legislation or regulations in Georgia dealing with HTVI. However, Georgia follows the OECD TPG in this respect.

Georgian domestic legislation does not contain specific guidance on the pricing of controlled transactions involving services and tends to rely on the OECD TPG.

Legal ReferenceDecree #423 of the Finance Minister December 18, 2013, Tbilisi

In practice, tax administration and taxpayers use the simplified approach. Technically, there is no specific domestic legislation in this regard, but the principles of the local TP Instructions are based on the 2017 OECD Transfer Pricing Guidelines. If there is no difference between the Articles 126-1291 of the GTC and these instructions and the 2017 OECD Transfer Pricing Guidelines, then the 2017 OECD Transfer Pricing Guidelines is to be applied.

GRS follows the 2017 OECD Transfer Pricing Guidelines and the OECD Transfer Pricing Guidance on Financial Transactions.

There is no specific legislation or regulations in Georgia regarding cost contribution agreements. However, Georgia follows the OECD TPG in this respect.

Legal ReferenceTax Code Article 701 - Country-by-Country reporting of the MNE Group Decree #423 of the Finance Minister December 18, 2013, Tbilisi Article 17 - Transfer Pricing Documentation Article 2(ii) of the Regulation (Rules) For Country-by Country Reporting (in Georgian, no English translation available yet)

Article 701 (Country-by-Country reporting of the MNE Group) of the Tax Code states that: 1. Ultimate Parent Entity of an MNE Group that is resident for tax purposes in Georgia shall file a Country-by-Country Report, with the tax administration of Georgia, not later than December 31 of the next year of the Reporting Fiscal Year of the MNE Group. 2. Any Constituent Entity of an MNE Group that is resident for tax purposes in Georgia shall notify the Tax Administration of Georgia whether it is the Ultimate Parent Entity or the Surrogate Parent Entity no later than the last day of the Reporting Fiscal Year of such MNE Group. Moreover, Article 17 (Transfer Pricing Documentation) of the Decree #423 of the Finance Minister provides for transfer pricing documentation, as follows: 1. For the purpose of Article 129(1) of the GTC, a request by the Revenue Service to provide an explanation regarding the ground based on which it considers its profit consistent with the market principle shall be considered satisfied where: a) The Georgian enterprise has prepared transfer pricing documentation in accordance with this article and b) The documentation is provided to the Revenue Service within 30 calendar days of receipt of the request in writing.

• Master file consistent with Annex I to Chapter V of the TPG (not selected)
• Local file consistent with Annex II to Chapter V of the TPG (not selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (not selected)
• Other (specify) (selected)

Legal ReferenceDecree #423 of the Finance Minister December 18, 2013, Tbilisi

The documentation is provided to the Revenue Service within 30 calendar days of receipt of the request in writing. Moreover, the country-by-country report should be submitted not later than December 31 of the next year of the Reporting Fiscal Year of the MNE Group. Transfer pricing documentation may be submitted in Georgian or English, however, at the request of the Revenue Service translation of English documents into Georgian is required at the expense of the Georgian enterprise.

Legal ReferenceTax Code Article 2791 - Failure to submit Country-by-Country Report of an MNE Group in due time or a complete Report

Article 2791 (Failure to submit Country-by-Country Report of an MNE Group in due time or a complete Report) of the Tax Code states that: Failure to submit to the Tax authority the Country-by-Country Report of an MNE Group provided in article 701 in a due time defined by this code, or failure to submit complete or correct CbC Report, shall entail imposing a fine in the amount of GEL 5 000 (approximately EUR 1 400)

Legal ReferenceGeorgia’s MAP Profile Decree #45 of the Ministry of Finance, 2 March 2021 Decree #423 of the Finance Minister December 18, 2013, Tbilisi

Upon the taxpayer's request, the Head of the Revenue Service is authorized to enter into an advance pricing agreement with the taxpayer for the purposes of an internationally controlled operation. Georgia’s Ministry of Finance published decree #45, amending Georgian transfer pricing rules concerning the unilateral advance pricing agreement (APA) procedure. The period covered by the unilateral APA shall not exceed 3 years and no rollback is allowed. The fee to apply for an APA is GEL 30 000. Moreover, companies are entitled to apply for a unilateral APA in Georgia regardless of the value of the expected controlled transactions.

• Rulings (selected)
• Enhanced engagement programs (not selected)
• Advance Pricing Agreements (APA) (selected)
• Mutual Agreement Procedures (selected)
• Other (please specify) (not selected)

There is no requirement to make year-end adjustment, but if it contributes to reach an arm’s length price then it could be accepted.

There is no any mention about AOA in Georgian legislation, and all Georgian tax treaties are based on the old version of Article 7. However, in practice, Georgia Revenue Service and taxpayers in Georgia apply the AOA for profit attribution to PEs.

Legal ReferenceDecree #45 of the Ministry of Finance, 2 March 2021.

Georgia Revenue Service started receiving APA requests. On March 2, 2021 Georgia’s Ministry of Finance published decree #45, amending Georgian transfer pricing rules concerning the unilateral advance pricing agreement (APA) procedure. The period covered by the unilateral APA shall not exceed 3 years and the price of application is GEL 30 000.