Transfer Pricing Disputes represent one of the most complex and high-risk categories of tax law for multinational companies operating in Georgia. Transfer Pricing regulates the prices of transactions between related parties (e.g., parent and subsidiary companies). According to Georgian legislation, such transactions must be conducted in compliance with the "Arm's Length Principle." When the tax authority (Revenue Service) believes that a company has violated this principle and artificially reduced taxable profit, a tax dispute arises. Such disputes often involve multi-million GEL penalties and tax adjustments. The approach of the Revenue Service is becoming increasingly aggressive, utilizing sophisticated methodologies and databases to detect discrepancies. Qualified legal defense is vital for a company, as mishandling a dispute can lead not only to financial loss but also to reputational risks on a global level.
What Do Transfer Pricing Dispute Services Cover?
Specialists registered on the Legal.ge platform offer full legal support at all stages of a dispute. The services include:
- Tax Audit Support: Representing the client during the audit initiated by the Revenue Service, answering auditors' inquiries, and managing strategic communication.
- Administrative Appeals: Appealing tax audit acts to the Revenue Service and the Dispute Resolution Council under the Ministry of Finance of Georgia.
- Court Representation: If the dispute moves to court, preparing lawsuits and defending interests in all instances.
- Alternative Methodological Justification: Refuting the pricing method used by the tax authority and presenting a more relevant method or comparable data.
- Mutual Agreement Procedures (MAP): Resolving disputes at the international level within the framework of Double Taxation Avoidance Treaties when adjustments affect two countries.
Common Situations and Scenarios
Disputes over transfer pricing often arise due to specific transactions. One of the most common scenarios involves paying "Management Fees" to a parent company. The tax authority often challenges the reality or value of such services, viewing them as a mechanism for profit shifting. A second scenario relates to financial transactions—if a subsidiary takes a loan from a founder at a high interest rate, or conversely, issues an interest-free loan, this triggers immediate adjustments. Disputes are also frequent regarding the export of goods, where a Georgian enterprise sells products to a related distributor at a low price. Auditors use prices from international markets and penalize the company for the difference. Another complex area is fees for the use of intangible assets (royalties, trademarks), where determining the "market price" requires special expertise.
Georgian Legal Framework
Disputes are regulated by the Tax Code of Georgia and the Order of the Minister of Finance of Georgia on Transfer Pricing. These legal acts are based on the OECD (Organisation for Economic Co-operation and Development) guidelines. In the dispute process, the Administrative Procedure Code of Georgia is critical, as it defines the allocation of the burden of proof. According to the Tax Code, if a company has not submitted complete documentation, the burden of proof effectively shifts to it, making it harder to win the dispute. Also important are International Agreements on the Avoidance of Double Taxation, which provide for tax adjustment mechanisms between partner countries.
Step-by-Step Service Process
Working with a specialist on Legal.ge begins with a detailed analysis of the tax audit act or the interim audit report. In the first stage, the lawyer and tax expert assess the weaknesses in the auditors' arguments and verify the calculations used. In the second stage, a strategy is developed—whether to litigate or seek a settlement (tax agreement). The third stage involves preparing the complaint and gathering evidence (including independent expert opinions). During the dispute hearing stage, specialists actively participate in oral hearings, defending the client's position at the Ministry of Finance or in court until a final result is achieved.
Why Choose Legal.ge?
Transfer pricing disputes require specific knowledge that goes beyond general tax law. Deep knowledge of economic analysis, international standards, and procedural norms is required. Legal.ge gives you access to experts who have years of experience in participating in such disputes and a track record of successful cases. Specialists selected through our platform ensure that your arguments are solid, substantiated, and maximize your chances of concluding the dispute in your favor.
Updated: ...