In October 2024, Georgia introduced a landmark change to its transfer pricing framework, one that significantly reshapes the way cross-border financing arrangements are evaluated. With the addition of Article 141 to Order №423 of the Ministry of Finance, the Revenue Service has been granted explicit authority to reclassify certain loans as equity contributions. This change marks a decisive step in aligning Georgian practice with evolving international standards, particularly the OECD Transfer Pricing Guidelines, while also addressing longstanding disputes between taxpayers and the tax authorities.
The new rules, which have taken effect on 1 January 2025, are expected to influence how multinational enterprises structure and document intra-group loans. While Georgia has long relied on the OECD Guidelines in transfer pricing matters, this amendment elevates the issue of debt versus equity into the core of the legislative framework, introducing a structured, criteria-based test for requalification.
Historical and Regulatory Context
Georgia’s transfer pricing regime is primarily embedded in Chapter XVII of the Tax Code of Georgia, which establishes the arm’s length principle for controlled transactions. More detailed procedures are found in Order №423 of 18 December 2013, which provides instructions for assessing international controlled transactions.
From the outset, the Order has referred to the OECD Transfer Pricing Guidelines (TPG). Initially, the 2010 edition was incorporated, later replaced by the 2017 version. In 2020, the OECD released its updated guidance on financial transactions, consolidated in the 2022 TPG. This document offered comprehensive criteria for analysing whether a purported loan should, in substance, be regarded as debt or equity. Although Georgian law still formally referenced the 2017 Guidelines, the Revenue Service increasingly applied the 2022 TPG in practice, resulting in tension with taxpayers who questioned the legal basis for this approach.
The October 2024 amendments resolved this ambiguity. The Order now authorizes the tax authorities to apply the most recent edition of the OECD Guidelines available at the time of audit, and Article 141 expressly codifies the framework for reclassifying loans as equity contributions.
Key Features of Article 141
Article 141 applies exclusively to international controlled transactions and casts a wide net over what constitutes a “loan,” including overdrafts, guarantees, debt securities, letters of credit, and other forms of financing. It requires the Revenue Service to examine a series of economically relevant characteristics when determining whether a loan should, in substance, be treated as equity.
The factors mirror those set out in the OECD’s 2022 Guidance and include: the presence of a repayment schedule; accrual and payment of interest; enforceability in case of default; subordination of claims; collateral or covenants; the borrower’s capacity to repay; the debt-to-equity ratio; the necessity and purpose of the financing; postponement of obligations; the lender’s involvement in management; proportionality of lending to ownership; and the possibility of converting debt into equity, etc.
The framework does not require every factor to be present. Rather, the Revenue Service may reclassify a loan if at least three of the criteria are satisfied, provided that one of them relates either to the borrower’s ability to service the loan or to its market debt-to-equity ratio. Importantly, the reclassification takes effect from the moment the loan is executed, underscoring the emphasis on the transaction’s economic substance at inception.
Practical Implications for Taxpayers
The introduction of Article 141 significantly raises the stakes for companies financing their Georgian subsidiaries or affiliates through debt. What might once have been regarded as a flexible intra-group loan can now be subject to scrutiny under a detailed set of tests.
The most critical factors will be the borrower’s financial capacity and capital structure at the time of execution. Companies must be prepared to demonstrate, with contemporaneous documentation, that the borrower could reasonably be expected to service the loan and that its leverage ratios were within market range. Absent such evidence, loans risk being reclassified as equity, with the consequence that paid interest is reclassified as profit distributions, subject to Corporate Income Tax.
The focus on the time of execution also means that restructuring or renegotiating loan terms at a later stage will not cure initial deficiencies. For taxpayers, this places a premium on careful planning and documentation before any funds are advanced. At the same time, certain supplementary criteria – such as whether enforcement rights are exercised, or repayment deadlines extended – can only be assessed in retrospect, giving the Revenue Service flexibility to revisit the transaction as it unfolds.
Alignment with International Standards
By introducing Article 141, Georgia has formally embedded into its domestic law concepts that have long been debated at the OECD level. Paragraph 10.12 of the 2022 Guidelines emphasizes that the delineation of an advance of funds must consider features such as repayment obligations, enforceability, subordination, covenants, collateral, and the borrower’s ability to obtain financing from independent lenders. Georgia’s new framework reflects these principles almost verbatim, while adding local adaptations to ensure enforceability under domestic law.
This alignment strengthens Georgia’s credibility as a jurisdiction committed to international best practices in transfer pricing, while also equipping the Revenue Service with clear statutory tools to challenge aggressive debt financing structures.
Entry into Force and Transitional Rules
Article 141 entered into effect on 1 January 2025. For loans concluded before this date, the new framework applies only to interest accrued after 1 January 2025, even if the interest is paid later. Interest accrued before this date remains unaffected.
The October 2024 amendments to Order №423 represent one of the most consequential developments in Georgia’s transfer pricing landscape in recent years. By codifying the authority to reclassify debt as equity, the Ministry of Finance has closed a gap that previously gave rise to disputes and uncertainty. Going forward, multinational groups operating in Georgia must carefully assess the commercial rationale, structure, and documentation of all intra-group financing arrangements.
The message from the Revenue Service is clear: substance matters more than form. Loans that fail to meet arm’s length standards or that resemble capital contributions in economic reality will be treated as such. For taxpayers, the imperative is equally clear: proactive compliance, rigorous documentation, and a thorough understanding of the new rules are essential to avoid reclassification risks.
About Andersen in Georgia
Andersen Georgia is part of Andersen Global, an international association of independent member firms providing expert tax and legal services worldwide. Our team combines local knowledge with international expertise to advise clients on complex cross-border matters, including transfer pricing, financing structures, and tax controversy.
For tailored advice on capital gains taxation and investment structuring in Georgia, please contact us at tax@ge.andersen.com.
Note: This article is based on Georgian legislation and administrative practice as of September 2025. Readers are encouraged to seek professional tax advice tailored to their specific circumstances.