Transfer Pricing Advisory is a critically important service for multinational groups and companies involved in international transactions in Georgia. Transfer pricing refers to setting prices for transactions between related parties (e.g., parent and subsidiary companies). Georgian legislation requires such transactions to be conducted in accordance with the "Arm's Length Principle"—meaning at prices and conditions that independent parties would agree upon in an identical situation. Violation of this principle leads to tax base adjustments and serious financial penalties. The absence of transfer pricing documentation or incorrect methodology is one of the most common causes of tax disputes in global business, and Georgia is no exception, where the Revenue Service increasingly audits such operations.
What Does Transfer Pricing Service Cover?
Specialists on Legal.ge offer comprehensive services ensuring your transactions comply with Georgian and international (OECD) standards. The service includes:
- Preparation of TP Documentation: Compiling the Local File and Master File in accordance with Georgian legislation.
- Benchmarking Analysis: Using specialized databases to find comparable independent transactions and determine the market price range.
- Methodology Selection: Choosing the most appropriate method (e.g., CUP, Resale Price, Cost Plus, etc.) based on transaction specifics.
- Functional Analysis: Detailed study of the distribution of functions, risks, and assets among group members.
- Advance Pricing Agreement (APA): Representation in the process of pre-agreeing pricing methodology with the tax authority to rule out future risks.
Common Situations and Scenarios
Transfer pricing risks often hide in seemingly simple operations. For example, a Georgian subsidiary receives management or marketing services from a foreign parent company. If the fee for these services exceeds the market value, the tax authority will deem that the company artificially reduced its profit and will impose profit tax on the difference. A second scenario involves taking a loan from a founder: if the interest rate differs significantly from the market rate, this is also subject to adjustment. Also, problems are common when exporting goods at a low price to a related distributor, which reduces taxable income in Georgia. In all these cases, the absence of appropriate justification (documentation) automatically creates grounds for penalties.
Georgian Legal Framework
The field is regulated by a special chapter of the Tax Code of Georgia on transfer pricing and the Order of the Minister of Finance of Georgia "On Approval of Instructions on Transfer Pricing for International Controlled Transactions". These regulations are largely based on OECD (Organisation for Economic Co-operation and Development) guidelines, meaning Georgian practice aligns with international standards. Legislation obliges companies to submit documentation upon request (usually within 30 days) proving that their transactions were conducted in compliance with the arm's length principle.
Step-by-Step Service Process
Working with a transfer pricing expert on Legal.ge requires a highly professional approach. The first stage involves identifying and classifying all transactions with related parties. In the second stage, specialists conduct functional and economic analysis, select the best method, and search for comparable data on international databases (e.g., Amadeus, Bloomberg). The third stage includes preparing a comprehensive report (TP Study), which serves as the main evidence during a tax audit. If necessary, the specialist also assists the company in developing internal policies for future transactions.
Why Choose Legal.ge?
Transfer pricing is one of the most complex and niche specializations in tax law. Legal.ge gives you access to experts who have access to expensive international databases and master OECD methodology. Specialists chosen on our platform will help you not only in formal documentation preparation but also in arranging real business processes to minimize tax risks at a global level.
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