A Tax Audit in Georgia: How It Runs, Your Rights and the Dispute Route

In the country of Georgia a tax audit is a procedure with written limits, not an open-ended visit. The Tax Code names two kinds of audit, a desk audit run from the Revenue Service's own office and a field audit at the company, and for the second it fixes a notice period and a maximum length. It also bans auditing the same question for the same period twice without a judge's order. A company that files on time and can produce its documents within a day has little to fear from either.

The three kinds of check the Revenue Service runs

The Code calls the whole field tax control and gives it to the tax authority alone: other controlling and law-enforcement bodies may not carry it out. Current control procedures are unannounced and aimed at daily operations, among them timed observation of sales, a test purchase, a check of cash-register rules and an inventory of stock. They run on the order of an authorised official while the business is working and can end in a protocol the taxpayer is asked to sign. A tax audit examines returns and accounts, and it is either a desk audit or a field audit.

What accountants call a counter-check has no chapter of its own in the Code. It is a request for information: the Revenue Service is auditing one of your customers or suppliers and asks for the contract, invoices and payment records of your dealings with it. It rests on the tax authority's general right to require accounting documents and tax-related information from any person, in full and on time. At the time of writing, not answering carries a fine of GEL 400, and GEL 1,000 for each repeat. Bank records are different: during an audit they are obtained from the bank, as a rule, on a court decision.

What starts an audit, and how far back it can reach

How a company is chosen is decided inside the Revenue Service. Its own site says that its Analytical Department selects taxpayers for tax control and determines the risk criteria and principles for audits, so selection can be expected to follow the data the Service already holds. In practice accountants associate an audit with a VAT refund claim, returns that disagree with the invoices in the system, losses year after year, large payments to related parties or abroad, an audit of a counterparty, and liquidation.

The limitation period for an audit, and for assessing tax and sending a tax notice, is three years from the end of the calendar year concerned, so a return for March 2023 can be audited until the end of 2026. The Code extends the period in defined cases, for example where a corrected return is filed in its last year or losses are carried forward. A notice posted on the company's page in the Revenue Service portal counts as served when it is opened, and a field-audit notice also on the 30th day after posting if nobody has opened it. Other documents left unopened for 30 days can be served by public notice, so a company whose portal login sits with a former accountant can be notified without its director knowing; our article on the Revenue Service portal covers this.

The audit that comes without notice

An urgent field audit runs without written notice, but only with a court's permission: the Code gives the tax authority 48 hours from the start to apply for and obtain it, and until then the auditors may only seal the documents and stock the audit needs. The grounds include significant breaches found at the last audit, reliable information that casts doubt on the origin of funds, returns or documents not filed, and information that the person plans to avoid tax by leaving Georgia, transferring assets or destroying documents.

What the auditors may ask for, and what you may ask of them

During a field audit the taxpayer must give the auditors the working conditions that normally exist in its own office. They may require duly certified copies of accounting documents and tax-related information; if copies are not provided they may take the originals against a seizure report, and must return them when the audit ends. Control must not unreasonably disrupt the business or stop it. The taxpayer has rights worth using:

• to ask for the basis on which the control is carried out;
• to be present at the field audit and to act through a representative, such as the accountant or an advocate;
• to give explanations while the audit is running, not only after the report;
• to refuse tax documents to any other controlling or law-enforcement body, unless the Code gives it the power;
• to appeal the result and to claim compensation for damage caused by an unlawful decision.

The three records that decide most audits

In a small foreign-owned company the argument usually comes down to three sets of paper.

1. Bank statements for every account, reconciled to the returns. Each credit is income, a loan, capital or a refund, and the file says which; an unexplained credit can be treated as taxable income.
2. The paper behind each expense: contract, invoice and evidence that the service was received, above all for payments abroad and to related parties. Under the distributed-profit model an expense unrelated to economic activity is taxed, and a service bought from abroad raises the reverse-charge VAT question.
3. The decisions that moved money to the owners: a partners' decision for each dividend, with the amount and the date, taken before payment; a written agreement for each loan to or from a founder; payroll records for the director's salary.

The Tax Code requires the documents needed to establish the tax base to be kept for three years from the end of the calendar year of the period they relate to; the accounting law requires accounting documents and financial statements to be kept for six years after the reporting period. Follow the longer rule. Correct errors when you find them: at the time of writing, a corrected return filed before the decision to audit is served removes the fine for the error, though not the interest. Once that decision or notice is placed on the company's portal page, no return for the audited period can be filed until the tax notice is served.

The audit report, the tax notice and the dispute route

An audit ends in a tax audit report setting out the facts and evidence that mattered, the provisions relied on and the calculation of tax and fines. On its basis an authorised official decides to assess, or not to assess, tax and sanctions, and the decision reaches the taxpayer with a tax notice. The three are appealed together:

1. 1

   Within 30 days of service, choose: pay and acknowledge, or file a complaint. A missed period closes the Ministry of Finance route unless the delay was outside your control or new evidence has emerged.

2. 2

   File with the Revenue Service, normally electronically and in Georgian, signed, with the contested decision attached and, where a representative files, proof of authority.

3. 3

   The Revenue Service has 20 days to decide, and the clock stops while further information is collected (45 days at most). Inside the Ministry of Finance system a dispute may not, as a rule, leave you worse off than the notice did.

4. 4

   If the answer is unfavourable, you have 20 days from service to go to the Dispute Resolution Council at the Ministry of Finance or directly to court. A Council decision can be taken to court within a further 20 days, and you may turn to the court at any stage.

5. 5

   Keep to every period: a dispute not continued in time is treated as an acknowledgment of the debt.

On payment during a dispute the Code says two things and does not reconcile them. The dispute chapter says that appealing a decision of the tax authority does not suspend it. The enforcement chapter says that the duty to pay a disputed tax debt, meaning an assessed tax or sanction that is not acknowledged and has been appealed under the Code, is treated as suspended from the day the dispute begins until it ends, while the tax authority may secure the debt by seizing property and, in defined cases, bank accounts. Neither provision refers to the other, and the provision on interest does not mention disputes, so ask the adviser handling the dispute how they are applied before relying on the suspension. Our article on late filing and late payment covers the fines and the daily interest.

What this article does not answer

Whether a particular expense relates to economic activity, how transfer pricing applies inside a group, and customs control are separate questions. So is criminal liability: the Tax Code treats an understatement of more than GEL 100,000 in a return as evasion. An audit in Georgia also settles nothing at home: if you are tax resident elsewhere, your own tax office may ask about the same payments. We can tell you where a Georgian audit is likely to look; the answer for your home country comes from an adviser there.