Tax structuring of merger and acquisition (M&A) transactions in Georgia rests on those norms of the Tax Code that govern the exchange of assets for shares, the reorganization of legal persons and the carryforward of losses. Applying these norms correctly when structuring an operation changes the determination of tax so that the transaction remains within lawful tax benefits.
Contributing assets in exchange for a share
The transfer of assets by a person to a legal person in exchange for a 50 percent or greater share (shares) in it, with or without debt, is not a supply of assets — such an exchange is therefore not taxed as a supply. In that case the value of the assets for the receiving party is the same as for the transferring party at the moment of transfer, and the value of the share received equals the value of the assets transferred minus the debt. Exceptions exist: assets subject to depreciation by the group method are excluded, unless all assets of a group depreciated at a single rate are transferred simultaneously — in which case the group's depreciated value balance counts as the value. A separate exception concerns assets with a legal deficiency: these requirements do not apply to their transferor where the debt exceeds the value of the assets transferred.
The tax regime of reorganization
Upon reorganization, the value of property and shares equals their value before the reorganization, transfers between the parties are not regarded as realization, and the exchange of shares likewise does not constitute realization. The distribution of a share giving rise to a similar right in another party of the reorganization is not a dividend. Reorganization comprises the merger of two or more residents, the acquisition or connection of 50 percent or more of voting shares and of a partner's share with a total value of 50 percent or more, the acquisition of 50 percent or more of the assets of a resident legal person in exchange for voting shares, and division into two or more residents. A party to the reorganization is any resident legal person directly involved in it, directly owning a person involved, or itself owned by such a person; ownership means holding 50 percent or more of the voting shares and 50 percent or more of the value of all remaining shares. Upon distribution of a share, the original value is allocated to the distributable share by a coefficient built on the ratio between the market values of the distributed and original shares. If the tax authority establishes that the purpose of the operation is the avoidance of taxes, this reorganization regime does not apply.