If you’ve spoken to a qualified tax attorney in Georgia, then you probably already know that the Georgian Tax Code is often anything but straightforward, and many very important parts of it are open to multiple (frequently completely different) interpretations.
This has created a situation where a large number of well-intentioned taxpayers are simply unaware of their exact tax liabilities – and the best any tax attorney can give them is their opinion/interpretation of the law.
Revenue Service to the Rescue (or not)
If you come from a Western country and have dealt with similar situations there, you’re probably used to a process that looks something akin to this:
- Parliament passes a (tax) law that’s open to interpretation.
- You or your attorney then reach out to the tax authorities to find out about their position.
- They share their position, either verbally or in writing, and you can sleep at night knowing that this is exactly how the law will be applied.
- As a bonus, you can often also expect the legislation itself to be clarified in due time.
Sadly, this isn’t quite how it works in Georgia yet.
As many of those who’ve tried can attest to, the Revenue Service (RS) is mostly relatively unhelpful when it comes to clearing up dilemmas of this nature.
To make matters worse – they do often offer their interpretation verbally, **but then go back on it and change their mind** – turning the situation from bad to worse. And there’s no way for you to prove that the discussion ever took place.
The one alternative, to send a written (email) information request, also fails to deliver most of the time. While the Revenue Service is legally required to respond to requests of this nature, in our experience, these responses rarely provide any actual clarity, and in most cases just tend to repeat the same (ambiguous) legislation.
So, what are the options here?
There aren’t any great ones, I’m afraid. But a few are worth looking at.
Many taxpayers who find themselves confused by the unclear legislation and want some guarantees to be able to sleep at night, opt to order a Tax Opinion from a reputable law firm.
Our attorneys often write up Tax Opinions, and while they’re an absolute necessity, in terms of providing guarantees, a Tax Opinion can only deliver partially.
While having a professional analyze the entire situation (not just your position and the corresponding law itself, but also case law, historical track record, etc.) is useful and magnitudes better than making a structuring decision based on a hunch, an attorney can go only so far when interpreting legislation that simply has multiple, equally plausible, interpretations.
In these situations, the best tax attorney in the world won’t be able to give you certainty, as it’s simply a case of lacking information. Think of it this way – you can be the top poker player on earth, but you won’t be able to win the game if you can’t see your cards. The game is rigged against you.
However, a tax opinion still has a place, even in this scenario. It provides you with additional ammunition, should the tax authorities issue you an unexpected tax notice. While simply waving around a Tax Opinion isn’t going to release you from tax liabilities, it can have an impact in demonstrating your “good faith” and may provide a useful tool to reduce (or eliminate) penalties.
For those with less at stake (lower income businesses etc.) a tax opinion may be as far as you would want to go to mitigate risk at a price that makes economic sense. You can contact ExpatHub to start the process for a tax opinion, by sending us an email.
However, if your tax bill could vary by thousands of dollars, depending on the interpretation of certain ambiguities, then considering an Advanced Tax Ruling may make sense.
Advanced Tax Ruling
Since obtaining a Tax Opinion is only a partial solution, we need to look further.
At this stage, the only *real* alternative is something called an Advanced Tax Ruling (or ATR, for short).
An ATR is, essentially, the Revenue Service itself providing you a written, legally binding, opinion on your tax question.
In theory, the process behind the ATR is quite simple:
You begin by describing your exact (proposed) situation/structure in a letter to the Revenue Service. Also, you have to provide your own opinion about the answer to your question. Keep in mind that your opinion could potentially influence the RS’s binding decision about your situation. For this reason, it’s important to have a tax attorney prepare your request.
The Revenue Service’s lawyers will then analyze the situation and respond to you with their detailed opinion on how they would rule in your proposed scenario. Crucially, this opinion is **legally binding**, so they can’t go back on their word, like with verbal “consulting”.
The reality is, however, somewhat more complex. The complexity we’re dealing with is two-fold: time and money.
While the RS is legally required to respond to ATRs within 90 days, in our experience, this rarely happens.
You’re more likely to be waiting for their response for anywhere from 4 to 6 months, depending on the complexity of your case and how busy the relevant department happens to be.
Needless to say, waiting 6 months (or in rare cases, more than 12 months) is not a great prospect for someone who is looking to relocate their business to Georgia immediately, or (worse) who is already operating here.
Given the significant workload that goes into preparing an ATR, it can also be an expensive process.
The government itself charges a 10,000 GEL flat fee for the service (reduced to 5,000 GEL if the ATR is for an individual, and if that individual has been a Georgian tax resident since the year prior to the year of submission).
In addition, you can expect to rack up anywhere from 10-50 hours of legal work (depending on the complexity of your case) to get the documents prepared for submission, as they need to be **extremely** detailed and thoroughly considered for the ATR to be useful. Mess up this part of the process and you may as well hold on to your money, as a poorly drafted ATR request will provide no legal clarity.
If you do it right, however, you’ll end up with an “insurance policy” in your pocket, allowing you to finally rest easy that no surprise retroactive taxes may be applied to your business in relation to the topic of the ATR.
For this reason it’s clear that shelling out 15,000 GEL or more is simply not going to be feasible for smaller businesses, leaving them at the mercy of the less-than-ideal options discussed above.
ExpatHub helps its clients achieve legal clarity by assisting them through the ATR process. Please schedule a call with one of our Tax Attorneys to analyze the feasibility of it and discuss your options further.