Georgian transfer pricing law has been in effect since the end of 2013, following the publication of Transfer Pricing Decree #423 by the Ministry of Finance of Georgia. The following legislative norms govern transfer pricing issues in Georgia:

• Georgian Tax Code;
• Transfer Pricing Decree of Georgia;
• OECD Guidelines (which address transfer pricing issues not covered by the Georgian Transfer Pricing Decree);
• Internal Guidelines of the Georgia Revenue Service regarding transfer pricing.

The practical application of transfer pricing law in Georgia began in 2014, actively from 2015 with the establishment of a special transfer pricing division at the GRS. Notably, Gela Barshovi, our company’s founder, was the first tax inspector who conducted Transfer Pricing inspection in Georgia, also he served as a group leader in this division from its inception.

Under Georgian Transfer Pricing law, a local company or a Georgian branch of a foreign entity conducting controlled transactions, is required to submit transfer pricing documentation to the Revenue Service (GRS) within 30 days of a request. Interestingly, the law also mandates that this documentation be prepared before the GRS issues its request. This seemingly contradictory requirement highlights the necessity of proactive compliance with transfer pricing regulations in Georgia.

It is advisable to prepare the Transfer Pricing documentation either before the end of the relevant fiscal year or immediately afterward. The law stipulates that Transfer Pricing documentation should be ready at the time of GRS’s request. Also, if you choose to begin preparation only after receiving such a request, it can be extremely challenging to produce high-quality documentation within the 30-day timeframe. The preparation process involves multiple steps and thorough analysis, both of which require adequate time to ensure compliance and accuracy.

The Georgian Transfer Pricing law includes a specific exception regarding Transfer Pricing reporting obligations for companies with low annual turnover. If a Georgian entity’s annual turnover is less than 8 million GEL (approximately 2.7 million euros), it is only required to update its benchmark using external comparables once every three years. This is contingent on the condition that there have been no significant changes in the business operations of the Georgian enterprise, comparable companies, or relevant economic conditions.
However, this provision presents a paradox: without conducting annual benchmarks, how can one be certain that no changes have occurred in the operations of comparable companies? In our view, relying on this exception places an undue burden of proof on taxpayers. In practice, tax authorities may still scrutinize each year independently.
Therefore, it is strongly recommended that Transfer Pricing documentation be prepared annually and kept ready for submission. Assumption: The volume of controlled transactions is not immaterial.

Under Georgian Transfer Pricing law, there is no specific threshold for turnover or the volume of controlled transactions that would exempt a Georgian company from preparing Transfer Pricing documentation. However, if the volume of controlled transactions is so low that the cost of preparing documentation is disproportionate to the expected benefits, it may be more prudent to seek general consultation or analysis regarding transfer pricing issues from an expert instead of preparing full transfer pricing documentation. This approach can help avoid incurring unjustifiable expenses associated with the preparation of a full Transfer Pricing report.

Completed Transfer Pricing documentation must be submitted to the Georgian tax authorities within thirty days of their request. Failure to comply with this requirement may result in fiscal penalties, including a fine of 400 GEL and a repeatable penalty of 1,000 GEL for each next instance of non-compliance with the request.

In addition to these fiscal penalties, the most significant consequence of failing to fulfill Transfer Pricing reporting obligations is that the burden of proof regarding the application of market prices shifts to the company rather than remaining with the Georgian Revenue Service (GRS). This shift creates considerable room for subjective assessments of the company’s Transfer Pricing case by the GRS, thereby increasing the risk of additional tax charges, penalties, and late payment interest.
It is strongly recommended that companies prepare Transfer Pricing documentation annually and keep it ready for submission.

For further information about transfer pricing law in Georgia, you can read our article HERE.