Transfer Pricing Documentation is a mandatory and critically important tool for member companies of international groups operating in Georgia. Georgian legislation requires that companies conducting transactions with foreign related parties justify that their prices comply with the Arm's Length Principle. To prove this, it is necessary to prepare specific documentation consisting of a "Local File" and a "Master File." The absence of documentation or its flawed preparation gives the auditor the right during a tax audit to use their own assessment and impose significant penalties on the company. Proper documentation serves as your "insurance policy" against tax risks, because when it exists, the burden of proof remains with the tax authority.
What Does Documentation Preparation Service Cover?
Experts on Legal.ge offer comprehensive services ensuring full compliance with OECD standards and Georgian legislation. The service includes:
- Functional Analysis: Detailed study and description of the company's business model, functions, risks, and assets employed.
- Economic Analysis (Benchmarking): Searching for comparable independent companies or transactions using licensed international databases (such as Amadeus, Bloomberg).
- Methodology Selection: Selecting and justifying the most optimal method from the 5 permitted by the Tax Code (CUP, Resale Price, Cost Plus, TNMM, Profit Split).
- TP Report Compilation: Preparing a comprehensive document that includes industry analysis, financial data, and justification of pricing policy.
- Annual Updates: Periodically updating documentation in accordance with changes in financial data and the market.
Common Situations and Scenarios
Many companies mistakenly believe that documentation is only for "giants." For example, a medium-sized Georgian company buys raw materials from its Turkish partner (founder). If the price of raw materials even slightly exceeds the market rate, the tax authority will consider this profit hiding. Without documentation, the company cannot prove the price is real (e.g., due to quality or delivery terms). Another scenario is an IT company providing services to a foreign head office using the "Cost Plus" method. If the markup is not justified by a benchmarking study, the auditor will increase it and impose tax. Royalty payments are also critical: paying fees for brand usage without documentation almost certainly leads to penalties.
Georgian Legal Framework
The obligation for transfer pricing documentation is outlined in the Tax Code of Georgia and detailed in the Minister of Finance's Decree on Approving Instructions on Transfer Pricing for International Controlled Transactions. The legislation is based on the OECD Guidelines. It is important to know that submitting documentation is mandatory within 30 days of a request from the tax authority. Due to this short timeframe, documentation must be prepared in advance, before filing declarations. The documentation must be in Georgian (or translated), which also requires time.
Step-by-Step Service Process
When hiring a specialist on Legal.ge, the process begins with a "Gap Analysis." In the first stage, transactions within the group are identified and risks assessed. In the second stage, the expert gathers information from company management and conducts interviews for functional analysis. The third stage is dedicated to working with databases and economic analysis, which is the most labor-intensive part of the process. In the final stage, a unified report is compiled, delivered to the client, and kept in anticipation of a tax audit. The specialist also provides recommendations on how to adjust prices in the future to avoid problems.
Why Choose Legal.ge?
Preparing quality TP documentation is impossible without expensive international databases (licenses for which cost tens of thousands of dollars annually) and specific knowledge. Legal.ge gives you access to experts who possess both these resources and the necessary experience. Documentation prepared through our platform meets the strictest requirements of the Revenue Service and protects you from unforeseen financial losses.
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