Transfer Pricing Disputes — the Tax Code Framework
A transfer pricing dispute arises when the tax authority considers an operation between related persons inconsistent with the arm's length principle and adjusts taxable profit. Such disputes are governed by a combination of distinct norms of the Georgian Tax Code: the definition of related persons, the concepts of controlled transactions, the general principle and methods of valuation, and the rules of administrative proceedings. On this page these norms are analyzed in detail from the practical standpoint of how a taxpayer can defend its position at every stage of the dispute.
The essence of a transfer pricing dispute is simple: the state considers that a price or other condition agreed between connected persons differs from what would have applied between independent enterprises, and taxes the profit lost through that difference. To mount a defense, the taxpayer needs to know three things: who counts as a related person, by what standard the operation will be evaluated, and within which formal rules the complaint must fit.