Transfer Pricing in Georgia

The legal framework

Georgia's transfer pricing regime is compact. The arm's length standard sits in Chapter XVII of the Tax Code, Articles 126 to 129-1 — titled in the Georgian original "Assessment of International Controlled Transactions", with "Transfer Pricing" only matsne's English rendering. The chapter was inserted in 2011 and amended in 2012 and 2016; the operative detail is in the Instruction on the assessment of international controlled transactions, approved by Minister of Finance Order No 423 of 18 December 2013 and amended in 2019, 2021 and 2024. The Revenue Service, a legal entity of public law within the Ministry of Finance, administers it.

Scope is narrower than newcomers assume. Article 127(1) catches a Georgian enterprise transacting with a related non-Georgian enterprise, Article 127(7) its dealings with its own permanent establishment, and Article 127(5) any transaction with a resident of a preferential-tax jurisdiction listed under Article 134(5), related or not. Purely domestic related-party transactions fall outside the chapter. Relatedness under Article 126 means participation in management, control or capital, which exists above 50% direct or indirect ownership or on de facto control of business decisions — not the 20% test in Article 19, which governs elsewhere in the Code and is routinely confused with it.

The most important recent change never touched the Tax Code. Order No 331 of 2 October 2024 restated Article 1(2)-(3) of the Instruction so that it rests on the OECD Transfer Pricing Guidelines with no year specified, and the tax authority may apply the latest edition in force at the moment of the audit. Commentary calling Georgia a 2010 or 2017 Guidelines jurisdiction, including the OECD's own December 2021 country profile, is out of date. The reference is ambulatory: the 2022 Guidelines, and the Amount B material folded into them, reach Georgian audits without any further domestic step.

Methods, comparables and benchmarking

Article 128 lists the five OECD methods and directs the taxpayer to whichever suits the case, with no statutory hierarchy. The Instruction supplies two tie-breakers that function as a soft one: where CUP and another approved method are equally reliable, CUP must be used; where a traditional transactional method and a profit-based method are equally reliable, the traditional method must be used (Article 8(2)). An unlisted "other method" is available under Article 8(6)-(7) only where the taxpayer proves both that no approved method can appropriately be applied and that the alternative delivers an arm's length result.

Where a one-sided method is used, Article 9 requires a tested party consistent with the functional analysis, normally the least complex party. A foreign tested party is expressly permitted on three conditions. That is a permissive rule administered restrictively: inspectors reportedly prefer a Georgian tested party. On comparables the law is candid — Article 7(3) allows foreign comparables precisely because Georgian data is scarce, provided geographic and other differences are analysed and adjusted under Article 6.

Article 10 defines the market range. The full set of results may be used only where every material difference has been identified, quantified and adjusted; otherwise the interquartile range applies, which is where any database study lands. A result inside the range attracts no adjustment; one outside it moves to the median unless the facts clearly indicate another point, and whichever party argues for that point bears the burden. Intangibles and services have domestic articles — Article 16's dual-perspective valuation, Article 15's four-part benefit test — and intra-group debt now has Article 14-1, while commodities, hard-to-value intangibles and cost contribution arrangements have none and run on the Guidelines.

Documentation: what the Revenue Service expects

Nothing is filed with the return, which misleads groups into treating documentation as reactive. It is not. Under Article 2(i) the documentation must exist before the tax return is filed, and Article 17(1) imposes two cumulative conditions: the Article 129(1) requirement to explain why profits are arm's length is met only where the enterprise has prepared documentation under Article 17 and provides it within 30 calendar days of a written request. A file assembled after the letter arrives fails the first condition even if it meets the second.

Article 17(2) is a local file in all but name: business overview and the economic factors driving pricing; organisational structure; the transaction and the Article 5 comparability analysis, with group pricing policy where relevant; method and reasons; the comparability analysis, including the rejection of internal comparables and the external search; any relevant APA or ruling; and a conclusion on arm's length compliance and year-end adjustments. There is no master file requirement and no de minimis exemption from preparing documentation. The single relief is Article 17(3): below GEL 8,000,000 turnover, the external comparables search may be refreshed every third year absent material change.

Country-by-country reporting is the only group-level deliverable. Article 70-1 requires a Georgian-resident ultimate parent of a group above EUR 750,000,000 to file within twelve calendar months of the end of the reporting year — the November 2025 amendment (Law No 1061) replaced the old 31 December of the following year that the OECD's December 2021 profile still quotes — with notification before the end of the reporting year. Note a gap: the statute obliges only a resident ultimate or surrogate parent to notify, while the Revenue Service FAQ requires every resident constituent entity to notify, and sets out full secondary local filing. Follow the FAQ.

Audits, penalties and the enforcement climate

A transfer pricing examination is not an incidental audit item. Article 129(4) provides that controlled transactions may be examined under Chapter XVII only on the decision of the Head of the Revenue Service, and a dedicated transfer pricing function has operated since 2015. The recurring themes reported locally are intra-group financing and services benefit testing. On financing, note what Georgia does not have: no thin capitalisation rule and no 3:1 debt-to-equity ratio, Article 123 having been repealed with the Estonian-model reform in 2016. What bites instead is the Article 113(1) interest rate cap, the Article 113(2) earnings-stripping rule and the new Instruction Article 14-1 power to requalify debt as equity.

There is no transfer pricing penalty as such. A primary adjustment feeds the general understatement regime in Article 275: 10% where the understatement follows a change of period, 10% where it is within 5% of the tax declared, 25% between 5% and 20%, and 50% otherwise, with total audit fines capped at the tax assessed and understatement above GEL 100,000 carrying criminal exposure. Penalty interest runs at 0.05% a day, roughly 18.25% a year.

Documentation failures look cheap: GEL 400 under Article 279, GEL 1,000 for repeats, and GEL 5,000 for a late or incomplete country-by-country report. The real consequence is evidential — without a file prepared before the return and produced within thirty days, the Article 129(1) explanation is not treated as given and the taxpayer argues against the Revenue Service's range from a standing start. Article 269 offers relief, including cancellation of half the audit fines on payment within thirty days, but there is no documentation-based penalty protection.

Dispute resolution and advance certainty

Advance certainty in Georgia means a unilateral APA. Instruction Chapter V governs unilateral agreements only; bilateral and multilateral APAs may be considered on written request under procedures the Revenue Service may announce separately. An APA must be requested before the covered transactions are carried out, binds only the Georgian applicant, runs for a maximum of three years, and carries no rollback. A pre-filing meeting is available, and a refusal to continue must come within 45 calendar days with reasons. An annual compliance report is then due by 1 April, audits of covered transactions are limited to APA compliance, and renewal must be requested six months before expiry. On cost, read the two numbers separately: the Instruction itself sets neither a fee nor an access threshold, the GEL 50,000,000 threshold was deleted from Article 20(1) in 2021, but the GEL 30,000 application fee is current and payable under the separate Revenue Service service-fee schedule.

Where a treaty partner adjusts first, Article 129(2) obliges the Revenue Service, on request, to test that adjustment against the arm's length concept and correct accordingly. Instruction Article 37 demands a full evidential pack — residence certificate, evidence and basis of the foreign adjustment, method and comparability factors, and confirmation that the foreign enterprise will not pursue further relief abroad — against a six-month response deadline. A refusal is itself a trigger for mutual agreement procedure under Article 38, as is a primary adjustment under Article 127(3); the MLI has applied to Georgia's treaty network since 1 July 2019. Domestically, a decision is appealed within 30 days to the Revenue Service dispute body, decided within 20 days, with 20 days onward to the Ministry of Finance Tax Dispute Resolution Council or to court. No Georgian transfer pricing judgment is publicly citable, which tells you where these cases are actually resolved.

Pillar Two, Amount B and what changes in 2026

Two changes reshape the compliance year. The first landed on 1 January 2025, when Order No 331 inserted Article 14-1, giving the Revenue Service an express power to requalify cross-border intra-group debt as a capital contribution — in whole or in part, and across credit, overdrafts, letters of credit, credit lines, guarantees and debt securities. Twelve criteria run from repayment schedule and enforceability to covenants, genuine need and convertibility. Requalification needs at least three, one of which must be the ability to repay principal and interest out of operating profit or the borrower's capital structure, plus a reasoned written conclusion. This makes intra-group financing the most exposed category in Georgia.

The second is disclosure. Order No 52 of 24 February 2026 added an annex to the profit tax declaration for international controlled transactions, required where their aggregate calendar-year value exceeds GEL 500,000 — a test that counts free-of-charge and barter transactions and outstanding balances. It applies first to the 2025 year, due 1 April, or 15 April for distributed-profit taxpayers. Per counterparty it asks for identity and residence, relationship, category and amount, balances, start date, and — the field that matters — whether transfer pricing documentation has been prepared, is in preparation, is planned, or has not been prepared. Ticking the last box volunteers an audit selection criterion.

On the international agenda Georgia is unhurried. The GloBE rules are not enacted, unsurprising for a distributed-profit corporate tax at 15% that does not map cleanly onto a GloBE effective rate. Amount B has not been adopted domestically either, though Georgia appears on the Inclusive Framework's June 2024 covered-jurisdictions list; given the ambulatory Guidelines reference there is a respectable argument that Amount B is available as gap-filling material in a Georgian audit, but it is untested.

How practitioners should respond

The programme is short. Prepare the file before the return is filed, not when the letter arrives: the thirty-day clock governs delivery, while preparation is tested against the filing date. Reconcile the new disclosure annex to that file before either is submitted, because the annex is now the Revenue Service's map of who has documentation and who does not. Re-paper intra-group loans against the twelve Article 14-1 criteria, with contemporaneous evidence of debt capacity and capital structure.

On benchmarking, build the study the law allows — foreign comparables and, where the functional analysis supports it, a foreign tested party — but assemble the information Article 9(4) requires and expect to defend the choice. Where a transaction stream is large and genuinely uncertain, a three-year unilateral APA is the only certainty on offer, at a GEL 30,000 application fee. Finally, diarise the Guidelines question: because the Instruction now points to the edition in force at the time of the audit, a policy defensible when written can be judged against a later text, and a file recording which edition it was built on is the cheapest insurance in this jurisdiction.