In today’s globalized economy, multinational enterprises often operate across several jurisdictions, engaging in cross-border transactions within their corporate groups. While these arrangements are a natural part of international business, they also create the risk of shifting profits to low-tax jurisdictions. Recognizing these risks, Georgia has developed a comprehensive transfer pricing (TP) framework that closely follows the OECD Transfer Pricing Guidelines and the principles of the Base Erosion and Profit Shifting (BEPS) project.
To learn more about Georgia’s overall tax regime, including details on corporate income tax, VAT, and taxpayer obligations, read our General Overview of Georgia’s Tax System.
Definition of Related Persons and Controlled Transactions
The starting point for transfer pricing analysis in Georgia is determining whether parties are considered related. Under the Tax Code, two persons are regarded as related if one directly or indirectly participates in the management, control, or capital of the other, or if the same individuals or entities exercise such participation in both. Ownership of more than 50% of an enterprise or actual control over its business decisions is sufficient to establish this relationship.
Once a relationship is established, transactions between the parties are defined as controlled transactions. Importantly, the scope of controlled transactions is broader than just dealings between related parties. It also includes any transaction where one of the parties is a resident of a jurisdiction with preferential (offshore) tax treatment, regardless of whether the parties are otherwise related. The Government of Georgia maintains and updates the official list of such jurisdictions.
Controlled transactions may include the sale or purchase of goods, the provision of services, licensing of intellectual property, intra-group financing, cost-sharing agreements, and management fee allocations. In essence, any arrangement that could influence the allocation of profits is potentially subject to transfer pricing rules.
The Arm’s Length Principle
At the heart of Georgia’s TP regime lies the arm’s length principle. Transactions between related parties – or with residents of preferential tax jurisdictions – must reflect conditions that would have been agreed upon between independent parties in comparable circumstances.
Where the contractual terms deviate from this standard, the Georgian Revenue Service may adjust the taxable profits of a company to reflect the amount that would have arisen under arm’s length conditions. Notably, because Georgia applies an Estonian-style corporate income tax system, any discrepancy between the contractual price and the market price that reduces a Georgian company’s income is immediately taxed at the standard 15% rate.
Accepted Transfer Pricing Methods
To test whether a controlled transaction meets the arm’s length standard, Georgian legislation recognizes the same methods endorsed by the OECD:
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
The law requires that the method chosen must be the one most appropriate for the specific circumstances of the case, based on the nature of the transaction and the reliability of available data.
Procedural Aspects and Documentation
Taxpayers engaged in controlled transactions may be required by the Revenue Service to justify why they believe their profits comply with the arm’s length principle. This includes providing sufficient information and analysis, supported by relevant comparables and transfer pricing documentation.
The Ministry of Finance has issued detailed rules governing the application of methods, the determination of comparability, adjustments, the range of acceptable results, and procedural timelines. Controlled transactions are formally examined under the authority of the Head of the Revenue Service.
Advance Pricing Agreements (APAs)
To reduce uncertainty, Georgian law permits taxpayers to enter into advance pricing agreements (APAs) with the Revenue Service. These agreements, signed before a transaction takes place, define the criteria and assumptions used to determine arm’s length pricing for a fixed period of time.
An APA offers certainty to businesses, as the tax authority cannot later impose adjustments or penalties that contradict the terms of the agreement, provided the taxpayer has complied with its conditions. APAs thus play a vital role in long-term business planning and dispute prevention.
Georgia’s transfer pricing framework represents a balance between international best practice and domestic tax policy. By aligning with the OECD Guidelines, implementing BEPS minimum standards, and extending TP rules to offshore transactions, Georgia ensures both fairness and transparency in taxation.
For Georgian companies, especially those operating under the Estonian-style CIT system, it is crucial to understand that any deviation from arm’s length pricing that reduces profits will trigger immediate taxation at a rate of 15%. At the same time, the possibility of advance pricing agreements provides predictability and stability for businesses seeking to avoid disputes.
About Andersen Georgia
At Andersen Georgia, we assist multinational enterprises in navigating Georgia’s transfer pricing framework. Our services encompass every stage of compliance, from identifying related-party transactions and applying the arm’s length principle to selecting the most suitable pricing method and preparing documentation in accordance with OECD standards. We also advise on advance pricing agreements (APAs), dispute resolution, and cross-border tax planning.
Note: This article is based on Georgian legislation and publicly available information as of September 2025. It is intended for informational purposes only and does not constitute legal or tax advice. Readers should seek professional guidance tailored to their specific circumstances before making any decisions based on the information herein.