---
title: "Transfer Pricing Disputes"
url: "https://legal.ge/en/service/tax-law-en/transfer-pricing-disputes-en"
field: "Tax Law"
description: "Transfer pricing disputes under the Tax Code: Articles 19, 126, 127, 128, 296 and 300 on related persons, arm's length principle and appeals. Legal.ge."
reviewed: "2026-06-27"
updated: "2026-11-07"
publisher: "legal.ge"
---

# Transfer Pricing Disputes

> Source: legal.ge, https://legal.ge/en/service/tax-law-en/transfer-pricing-disputes-en

## 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.

## Related Persons and Controlled Transactions

Under the Code, related persons are those between whom the existence of special relationships may influence the conditions or economic results of their activity or of persons they represent. Special relationships include, for example, the case where persons are founders (participants) of one enterprise, if their aggregate share is not less than 20 percent; where one person participates directly or indirectly in the other person's enterprise with a like share; where a person exercises control of an enterprise; where an individual is subordinate to another individual by position; and also kinship and membership in a partnership.

The circle of kinship is broadly defined: for the purposes of Georgian tax legislation, relatives include the first line — spouse, parent, child, sister, brother — and the second line as well. Control, for the purposes of these norms, means membership of a supervisory board, directorship and the right to appoint persons to these positions, as well as holding 20 percent of a voting share or shares. An individual is also treated as an indirect holder of a share where it is held by his relative.

The concept of the subject matter of the dispute — the controlled transaction — is likewise defined by the Code: two persons are related if one participates directly or indirectly in the management, control or capital of the other, or if the same persons participate in the management, control or capital of two persons. A person participates in the management, control or capital of an enterprise if it directly or indirectly holds more than 50 percent of the enterprise or practically exercises control over its entrepreneurial decisions. Any transaction between related persons is controlled — and it is from here that the tax authority's power of examination begins. A transaction in which one party is a resident of a country with preferential taxation is treated as controlled regardless of relatedness.

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### Which transactions are controlled?

Any transaction between related persons is controlled; a transaction between independent persons is independent. A transaction with a resident of a preferential-tax country is also treated as controlled.

### What is the participation threshold for relatedness?

Special relationships include founding an enterprise with an aggregate share of not less than 20 percent and participation with a like share; control includes holding 20 percent of a voting share or shares, and under the valuation chapter participation also means holding more than 50 percent of an enterprise.

### By which methods is a controlled transaction valued?

The Code names the comparable uncontrolled price, resale price, cost plus, net margin and profit split methods; the arm's length price is determined by the most appropriate method.

### Where is a tax dispute heard?

A tax dispute may be considered within the Ministry of Finance system and in court; at any stage of the administrative proceedings the complainant may apply to a court.