Results of Tax Disputes in Georgia (November 2025 – January 2026)

09.03.2026

In the fourth quarter of 2025 and early 2026, the Dispute Resolution Council under the Ministry of Finance of Georgia considered a number of disputes related to the application of tax legislation. Key trends included authorities' focus on reclassification of expenses, the widespread use of indirect calculation methods (when documents are not provided), the identification of unrecorded income, VAT deduction issues, and clarifications on sanctions. Using these examples, we analyzed the positions of tax authorities and the Council and formulated recommendations for businesses.

Why this matters for businesses

Recent dispute practice indicates increased scrutiny by Georgian tax authorities, particularly in relation to expense classification, VAT deductions and accounting documentation. Businesses may face a higher risk of tax reassessments where supporting evidence is incomplete or inconsistently maintained.

Main trends

• Reclassification of expenses and benefits. Authorities have strengthened controls to ensure that expenses are classified according to their true economic nature. For example, expenses for corporate restaurants and providing undocumented meals to employees were recognized as personal benefits rather than business expenses, leading to additional tax assessments and the cancellation of VAT deductions. The Finance Ministry's Council confirmed that without proper evidence, expenses for entertainment services cannot be recognized as related to business activities.

Practical implication: Companies should review employee benefits and entertainment expense policies to reduce the risk of reclassification during tax audits.

• Indirect calculation methods. In the absence of reporting and proper documentation, authorities resorted to the indirect calculation methods. The tax service independently determined revenue by analyzing cash data and bank transfers, and the Council approved actions based on Articles 49(e) and 61(3) of the Tax Code of Georgia: "In the absence of accounting documents, the tax authority has the right to calculate liabilities based on available data." Thus, in one case, the taxpayer failed to provide the requested documents (accounting data and cash reports), and therefore the tax service was forced to use an indirect method of revenue calculation—that is, it determined income based on indirect data.

Practical implication: Failure to maintain accounting documentation may allow tax authorities to assess liabilities using indirect methods beyond the taxpayer’s control.

• Unreported income. Audits revealed undeclared sales and unrecorded receipts. For example, during an audit of online sales, "cash balances" were deemed received and subject to tax and a fine, which the Council confirmed. This approach serves as a reminder that, in the event of failure to comply with accounting obligations, all income can be recovered administratively.

Practical implication: Regular reconciliation of cash balances and sales records can help prevent administrative reconstruction of income.

• VAT Deductions. In VAT disputes, the Council required careful justification for the introduction of deductions. In one case, a company challenged an additional VAT assessment on imported clothing and the incomplete recognition of input VAT. The tax service agreed to partially reduce the additional assessment after recalculation (the deductions increased by several tens of lari), but the company was unable to substantiate the remaining amount. The Council emphasized that the submitted electronic invoices had already been taken into account, and no additional adjustments were required. Therefore, VAT deductions are only possible with reliable documentary evidence.

Practical implication: VAT deductions should be supported by consistent documentary evidence and internal verification procedures.

• Penalties and appeal deadlines. Requests to cancel fines (Article 269-7 of the Tax Code) require proof of the taxpayer's "good-faith error." The Council under the Ministry of Finance consistently refuses to cancel penalties without clear confirmation that the tax violation was not the entrepreneur's fault. Furthermore, failure to file a complaint within the deadline results in the complaint being dismissed without consideration (Articles 301-305 of the Tax Code).

Practical implication: Businesses should closely monitor appeal deadlines and document good-faith compliance efforts when seeking penalty relief.

Illustrative cases

Case 1

Reclassification of business meals and entertainment expenses. 

Key takeaway: Lack of supporting documentation may result in employee-related expenses being reclassified as taxable benefits.

A concrete manufacturing company recorded employee meals as business expenses, incurring restaurant expenses. The audit included the cost of the meals in employee income and assessed additional VAT and income tax on these amounts, while classifying the restaurant expenses as personal consumption, writing off the input VAT. The taxpayer contested this, but the Council under the Ministry of Finance upheld the tax authorities' position: expenses without supporting documents cannot be considered commercial. Specifically, under Article 136 of the Tax Code, an entity is required to document expenses, and if the form of the transaction does not correspond to the content, the tax authority has the right to reclassify the transaction. Ultimately, the complaint was dismissed: restaurant services were deemed unrelated to the business.

However, the Council noted that the complaint regarding employee meals had already been partially satisfied by the service's decision (additional charges were reduced), and no changes were required.

Case 2

Indirect Method in Retail Trade. 

Key takeaway: Refusal or inability to provide accounting records significantly increases the likelihood of indirect tax assessments.

In a dispute over cash balances, an individual entrepreneur refused to provide bank statements and financial statements. Tax authorities, using cash register data and receipts, determined revenue using the indirect method and assessed additional taxes. The complaint was reviewed by the Council, which cited Articles 49(e) and 61(3) of the Tax Code, which authorize the tax authority to independently determine a taxpayer's tax liability based on available information in the absence of the necessary documents. The Council concluded that fiscal system data and other information allowed for the accurate determination of turnover, and the entrepreneur's objections were not supported by evidence.

Therefore, the additional assessments under the indirect method were upheld.

Case 3

Requests for exemption from fines. 

Key takeaway: Ignorance of tax obligations is unlikely to qualify as a good-faith error for penalty relief purposes.

An entrepreneur requested that fines under Article 269-7 of the Tax Code be written off as the result of misconduct due to ignorance. The Council refused, stating that it found no grounds to consider the violation a "good mistake" on the part of the taxpayer. The Council believes that a lack of documentation and procedural compliance is interpreted as negligence, not legal malpractice, and the tightened controls remain in place.
Overall, recent months' experience demonstrates a consistent approach by tax authorities and the Council under the Ministry of Finance: a strict assessment of formal assumptions made by businesses and a strict requirement for evidence from parties in disputes. It's important for consultants and accountants to remind clients: it's better to prepare comprehensive documentation in advance and proactively cooperate with audits than to have to justify themselves to tax authorities later.

When should you seek tax advice?

You may consider obtaining professional advice if:

• your company provides employee benefits or covers hospitality expenses;
• accounting documentation is incomplete or maintained across multiple systems;
• a tax audit is ongoing or anticipated;
• tax authorities have applied indirect assessment methods;
• penalties or reassessments are being challenged.

Businesses operating in Georgia should proactively assess their tax risk exposure in light of recent dispute practice. Our tax disputes team supports clients at all stages of tax audits and appeals, from preventive compliance reviews to representation before dispute resolution bodies.

How we can help

REVERA advise clients on:

• tax audit preparedness and risk assessments;
• dispute strategy and representation before Georgian tax authorities;
• VAT and expense classification reviews;
• documentation and compliance framework improvements.

For further information, please contact REVERA Georgia team

 

Author: Melano Svanidze, Oksana Iashagyan.