Analyses of Tax Dispute Cases

Project Description:

The objective of this project is to analyze tax dispute cases, particularly those resulting from tax audit reports, dealt with by the Revenue Service Dispute Resolution Department, Ministry of Finance’s (MoF) Dispute Appeal Council and the Court. It also aims to identify the most frequently disputed areas of the tax legislation and to analyze whether the justifications of decisions across the relevant bodies are consistent. In addition it seeks to develop recommendations on how to address the identified deficiencies in both legislation and practice (including dispute resolution practice).

The tax dispute resolution system within the MoF consists of two tiers. It starts with the submission of a complaint to the Revenue Service Dispute Resolution Department. In the event of an unsatisfactory decision, the taxpayer has the right to lodge an appeal to the next tier – the Tax Appeal Council under the MoF.

The number of tax disputes, including appeals to the Court is increasing every year (1340 registered cases within the MoF system in 2012; 1875 in 2013; 1940 in 2014). On the one hand, the dispute resolution system has become overloaded resulting in delays, and on the other hand the taxpayers spend significant resources (time and finances) on disputes which could potentially be avoided.

Due to the large number of decisions, the MoF has never conducted a qualitative analysis to identify the gaps in the tax legislation and to recommend improvements. The MoF publishes the Tax Appeal Council’s Annual Reports on its website which are purely quantitative analyses including only the number of registered applications, hearings, disputes, decisions and the list of disputed topics. Meanwhile, the court decisions are seldom analyzed except for a limited number of cases considered by the Supreme Court. The most complex disputes usually relate to tax audit decisions.

In order to facilitate in-depth analysis of tax dispute cases, PMCG is conducting the following activities:

a. Screen tax dispute cases (registered in 2014 or after) in order to identify those, that:

• Have been considered by the Revenue Service Dispute Resolution Department, the MoF’s Tax Appeal Council and the courts
• Relate to tax audit decisions
• Remain relevant in light of the planned changes to the Corporate Income Tax (CIT)

b. Conduct in-depth analysis of selected tax dispute cases (up to 300 cases in total) to:

• Identify most frequently disputed provisions, concepts and areas of tax legislation
• Analyze whether the justifications of decisions across the relevant bodies of dispute resolution are consistent

c. Suggest recommendations on:

• Necessary amendments to the Tax Code
• Necessary secondary tax legislation (public rulings, etc.) to support interpretation of ambiguous provisions of primary legislation
• Improving the tax administration practice including the dispute resolution practice

Background Information:

Governing for Growth in Georgia (G4G) is a five-year multi-million dollar USAID project designed to support the Georgian government to create a better enabling environment in which legal and regulatory reforms are fairly and transparently conceived, implemented and enforced through consultative dialogue.

One of the major areas of reform supported by G4G in the energy sector of Georgia is the introduction of the Electricity Trading Mechanism (ETM) to enable competitive electricity trading in the domestic and export (primarily Turkish) markets. The ETM will enable the simultaneous foreign trade of electricity as opposed to the one-directional transactions that are currently the norm. The new ETM system is expected to be launched in 2019.

Follow the links below for more detailed information:
Governing for Growth in Georgia (G4G)
Assessment of Customs Procedures for Cross-Border Electricity Trading
Good Governance Fund
Support to Public Finance Policy Reform (PFM)
Support to Approximation of Georgian VAT Rules with EU VAT Legislation