Why does relatedness matter?

It turns an international transaction into a controlled one subject to the arm's length principle; the threshold is often a share of at least 20 percent.

What does not create a permanent establishment?

An independent professional intermediary, mere ownership, secondment, mere control and preparatory-auxiliary activity.

How is a market price fixed?

By the most appropriate of five methods; the criteria are determined by the minister of finance.

With whom is an advance agreement concluded?

Only with the taxpayer concerned; the head of the Revenue Service concludes it upon application before transactions begin.

International Tax Planning in Tbilisi, Georgia

Related Persons

International tax planning rests on the concept of relatedness: related persons are those between whom a special relationship may influence the conditions of their activity or of persons they represent. The law treats as such, for example, founders of one enterprise whose aggregate share is not less than 20 percent; the direct or indirect participation of one person in the enterprise of another with the same threshold; control; official subordination; kinship; and membership in a partnership. Relatives of the first line are the spouse, parent, child, sister and brother; of the second line, their spouses, parents, children, sisters and brothers; guardianship is equalled to family unity. For the purposes of these norms, control means membership of a supervisory board, directorship, the right to appoint persons to these positions, and the holding of a voting share or 20 percent of shares.

Permanent Establishment

The tax footprint of a non-resident in Georgia often begins with a permanent establishment: a fixed place through which a foreign enterprise or a non-resident individual carries on economic activity in the country in whole or in part, including through a dependent representative. A construction, installation or assembly site with related supervisory activity, rigs and ships used for the exploration of natural resources, a place of management, branch, representative office, division, office, agency, workshop or mine are all equalled to it. By a special rule, the management of the foreign enterprise by another person for more than 3 months also constitutes a permanent establishment. At the same time, no permanent establishment arises from an independent intermediary of professional status, from mere ownership of securities, shares or property, from the secondment of employees or from mere control; nor does an establishment used only for storage, display, purchasing, collection of information or generally preparatory and auxiliary activity qualify. The duty of registration lies on the tax authority, and the establishment counts as such from the moment of registration, authorization or the start of representative activity.

International Tax Planning