BDO Tax & Legal Newsletter / November 2021 No.7
Mariam Khuskivadze / Manager, TAX
Amendment to the Order
By the order №275 (20.10.2021) of the Minister of Finance of Georgia, the amendment was made to the Order №996 of December 31, 2010 of the Minister of Finance of Georgia on Tax Administration. In particular, the amendment was affected to the part 49 of the article 112, according to which, while carrying out transportation of goods and directly related services, if the value of such services is included in the customs value of goods defined by Customs Code of Georgia, it is considered as the part of the operations (placement/before placement of goods under the import, customs warehousing, temporary admission, inward processing or free zone procedure, carriage of goods between the points located within the territory of Georgia) envisaged under the paragraph 4 (‘f’ and ‘g’) of the article 172 of the Tax Code of Georgia and is subject to exemption from VAT with the right of deduction. According to the old edition, this privilege was only appropriate for placement of goods under the import.
The order came into force from October 22, 2021 and is valid for legal relations arising from January 1, 2021.
By the order №269 (13.10.2021) of the Minister of Finance of Georgia, an amendment was made to the Order №996 (31.12.2010) of the Minister of Finance of Georgia on Tax Administration, specifically, the paragraphs 3 and 4 of the article 921.
The amendment determins that if as a result of the tax audit the market price of the property was estimated at less than the book value of the property calculated by the person as a result of evaluation (conducted with appropriate established coefficients) envisaged under the paragraph 1 of the article 202, then the tax obligation is defined with market price. In other words, in this case, the tax authority has the right to reduce taxable base. However, there will be no reduction, if the difference between the market price and the book value calculated base on evaluation coefficients is not more than 10%, that is if the market price is not less than the book value assessed with increased rates, with more than 10%. For reference, here are the evaluation coefficients set by the paragraph 1 of the article 202:
- For assets acquired before the year 2000 - by 3 times
- For assets acquired from the year 2000 until 2004 - by 2 times
- For assets acquired in the year 2004 - by 1.5 times
- For assets with undefinable acquisition date is - 3.
Before the amendment this article ruled only the case where the market price was more than book value.
The order came into force from September 16, 2021.
Amendments in Methodical Reference
Determining a person's tax liabilities in particular cases
On October 22, 2021 the order №22708 (08.07.2019) of the Head of Revenue Service on approval of methodical reference for determining the tax liabilities of a person in certain cases was published. Methodical references are related to the following cases specifically:
- Taxation of accounts receivable balance, in accordance with Annex №1
- Taxation of receivables recognized as bad debts, in accordance with Annex №2
- Taxation of cash fixed balances, in accordance with Annex №3
- Taxation of the balance recorded on the accountable person, in accordance with Annex №4.
On October 29, 2021 the order №39866 (11.11.2019) of the Head of Revenue Service was published, according to which the following methodical references were added to the order №22708:
- Taxation of difference in income detected using the indirect method in comparison with accounting documents, in accordance with Annex №5
- The taxation of the difference in the costs detected by the indirect method of the inspection compared with the accounting documents, in accordance with Annex №6
- Taxation of disposable funds calculated by the indirect method of inspection in the absence of accounting documentation, in accordance with Annex №7.
The methodical reference came into force from July 9, 2019 and the addition to the methodical reference is in force from November 12, 2019.
Insignificant losses not qualifying as shortage
On 22 October, 2021 the head of Revenue Service issued an order №15464 (21.05.2021) “on approving methodical reference on business transactions with insignificant economic impact, for the purposes of determining the tax liabilities.”
With this order, the previous order №18363 (07.07.2020) on the same matter was declared invalid and new methodical reference was then established. The amendment has been made to the article 6, which determines the rule of recalculating transactions with insignificant economic impact, If the total value (without VAT) of goods sold during the current calendar year, including goods taxed as losses (without VAT), significantly differs (by 10 percent or more) from the same data of the previous calendar year. In the previous edition of the article, the reporting period for the taxation/cancelation of the shortages associated with the recalculation of losses were not defined. The new edition now specifies that if the turnover comparing with the previous year:
a) Increased by 10% or more, shortages already taxed in the current calendar year are subject to reduction through adjustments to the tax returns for the months when the shortages were taxed
b) Decreased by 10% or more, shortages not yet taxed during the current calendar year, are subject to reflecting in tax return for the month of December of that calendar year.
Paragraph 5 was also added to the article 7 of the new methodical reference, which establishes the rule of defining losses, if the identified shortage includes the goods that are taxed with VAT and also the goods exempt from VAT. Specifically, if the shortage includes both goods taxed with and exempt from VAT, for each shortage, first goods that are taxed with VAT would be deemed as insignificant loss. At the same time, for the purposes of annual recalculation, the same order would apply for each shortage.
Methodical reference will be used for the shortage of goods identified from the 1 January, 2020.