VAT-related tax disputes are the most frequent and financially painful category for businesses in Georgia. During an audit by the Revenue Service, the correctness of input VAT credits is the first thing checked. Credits are often disallowed on the grounds of so-called "commodityless operations" (sham transactions) or fictitious deals. Also, disputes often concern the qualification of a VAT-taxable operation—for example, when a company believes an operation is exempt, but the auditor considers it taxable. In such cases, the company is liable not only for the principal tax amount but also for substantial penalties (up to 50% of the principal) and interest. Successfully concluding a dispute requires not only knowledge of the Tax Code but also mastery of procedural norms and evidence standards, as the burden of proof often shifts to the taxpayer.
What Does VAT Dispute Resolution Service Cover?
Specialists on Legal.ge offer full legal support at all instances of a dispute. The service includes:
- Analysis of Tax Audit Act: Legal and factual assessment of audit results and development of an appeal strategy.
- Administrative Appeal: Preparing and filing a complaint with the Revenue Service and the Dispute Resolution Council under the Ministry of Finance of Georgia.
- Court Litigation: Preparing lawsuits and defending the client's interests in all three instances of common courts (City, Appellate, Supreme).
- Alternative Audit: Preparing an independent audit report to refute the tax authority's arguments (e.g., to confirm the reality of a transaction).
- Tax Agreement: Negotiating with the state to conclude a tax agreement, which is often the best way to reduce or waive penalties.
Common Situations and Scenarios
The most common scenario is a "commodityless operation": a company purchased services from a contractor and claimed input VAT. Later, the tax authority audited the contractor, found irregularities, and deemed your transaction fictitious as well, cancelling your credit and imposing a fine. You must prove that you actually received the service. A second scenario is "exemption qualification": a private school believes all its income is exempt, but an audit finds that the school rents out space on weekends, which is a commercial activity and should have been taxed with VAT. A third scenario is a "reverse charge dispute": a company receives consulting from abroad and does not pay VAT, believing the place of supply is abroad. The audit argues that the service was rendered in Georgia.
Georgian Legal Framework
The dispute resolution process is regulated by the Tax Code of Georgia (Chapters XLI-XLII) and the Government Resolution "On Approving the Rules of Operation of Tax Dispute Resolution Bodies." At the court stage, the Administrative Procedure Code of Georgia applies. It is important to know that you have 30 days from receiving the tax demand to appeal. Missing this deadline automatically means acknowledgment of the debt and the start of the enforcement process (seizure of accounts/assets).
Step-by-Step Service Process
Working with a dispute specialist on Legal.ge begins with studying the case materials (audit act, order). In the first stage, the prospect of winning the dispute is assessed. In the second stage, a substantiated complaint is prepared, accompanied by evidence (contracts, acceptance acts, expert opinions). The third stage involves representation at the Dispute Resolution Council hearing, where oral arguments are presented. If the result is negative, the case moves to court, where the process can last several years.
Why Choose Legal.ge?
Success in a tax dispute depends on details. Legal.ge gives you access to lawyers and tax experts who have rich practice in winning similar disputes. Specialists on our platform know what arguments work in the Dispute Council and how to present evidence to protect your business from unfair assessments.
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