Georgia has recently introduced a direct link between transfer pricing and customs value, thus increasing a potential tax exposure for businesses engaged in cross-border related-party transactions. Importing companies may now face additional import VAT, penalties, and cash flow impacts in cases when pricing is not aligned with market conditions.
- New requirement to adjust customs value
Following amendments introduced by the Minister of Finance of Georgia on February 16, 2024, the taxpayers are now obliged to adjust the customs value of importing goods in cases which involve international controlled transactions. This means that transfer pricing adjustments may impact not only profit tax but also import VAT as well as the related charges.
Under Chapter XVI of the Tax Code of Georgia, international controlled transactions generally refer to transactions between a Georgian resident and a related party, or a company registered in a preferential (low tax) jurisdiction – an offshore. In such cases, the importing company may be required to provide transfer pricing documentation within 30 days to prove that transactions are conducted at market price.
- Impact on import VAT and penalties
Should the price not reflect market conditions, the Revenue Service of Georgia may adjust it accordingly and impose additional taxes and penalties. This typically arises where goods are purchased at an artificially low price from related parties.
So, in cases when the goods are imported from a related party at a value below market:
- The customs declaration must be corrected and the value increased
- Additional import VAT (and possibly related charges) will apply
- No penalties apply if the declarations get corrected voluntarily
- Penalties may apply if inconsistencies are identified during the inspection.
On the other hand, if the declared value is higher than the market value, no downward adjustment is allowed, and no refund mechanism is provided, since in such cases taxes are not underpaid
- One-directional adjustment rule
As described above, the rule operates in one direction only – adjustments are required only when the value should increase and this creates a clear financial risk and potential overpayment exposure for companies importing goods at non-market prices.
Eurofast’s Take
These changes significantly increase the risk of additional import VAT, penalties, and cash flow impact for businesses with related-party transactions. Transfer pricing adjustments now have direct customs implications, requiring a more integrated approach.
Eurofast supports clients in reviewing intercompany pricing, aligning transfer pricing policies with customs declarations, and identifying exposure areas before they trigger tax adjustments. We also assist with documentation, voluntary corrections, and ongoing compliance with the Revenue Service of Georgia requirements.
Contact
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