The Ministry of Finance announced the criteria for individual consideration of several persons engaged in VAT evasion.

On October 2024, 16, an amendment to the instruction "On tax administration" approved by order N996 of the Minister of Finance was published and entered into force immediately after its publication, as a result of which the criteria were clarified, in the case of which the revenue service is able to consider several taxpayers as one taxpayer and, in case of VAT evasion, charge the aforementioned taxpayers Tax and penalty amounts.

Several taxpayers will be considered as one person (one business) in the case of the real owner of the business  Business registration will be done for more than one payer, in order not to exceed 100 GEL of VAT turnover and to avoid the obligation to pay VAT, if both of the following prerequisites are fulfilled:

1. The mentioned business entities are managed by the same person.
2. The place of activity, form and content of the mentioned business entities are identical.

Example 1: Let's assume that I/M and LLC operate as independent business entities and are not VAT payers.  Let's assume that the accumulated VAT taxable turnover of I/M during 12 continuous calendar months is 95 GEL, and the turnover of LLC during the same period is 000 GEL. If it is considered by the Revenue Service that the mentioned two business entities are managed by the same person  And if it is considered that the activities of LLC and I/M  The place of activity, form and content are identical - revenue service for both taxpayers will set up as a VAT payer and charge the VAT and corresponding penalty amounts, even though the turnover of each of them is less than 100 GEL.

1. Existing approach to change

Multiple payers  One personal review  Regulation  It came into force in April 2023, on the basis of which  Business  Remodenime on the payer  In case of artificial division, the revenue service was allowed to sum up the turnovers of the mentioned payers when calculating the 100 GEL VAT limit if it was fulfilled  2 conditions mentioned above.

However, despite the aforementioned, the aforementioned legal norm has not been implemented until now, due to the fact that the Minister of Finance had to define the criteria in which cases the Revenue Service would have the right to do so, i.e. what cases would be  Considered to be the management of several business entities by the same person, as well as what would be considered the same type of activity. For this purpose, a few days ago, a new 996 was added to the order N46 of the Minister of Finance¹Article

1. The approach used after the change is implemented

As a result of the change, specific assessment criteria were defined by the Ministry of Finance according to which  ეIn case of signing the same business to a new person,  if it happens  If the total VAT turnover of all such persons exceeds the limit of 100 GEL and evades the payment of VAT, the Revenue Service will conduct an individual review of the aforementioned several payers. After that, the revenue service is authorized, if the above-mentioned prerequisites are met, to sum up the VAT taxable turnovers and charge the relevant tax and sanction amounts to such persons.

According to the rule defined by the instruction, for the purpose of prevention of VAT evasion, the tax authority is authorized to consider any number of persons based in the territory of Georgia as one taxable person if all the following conditions are met:

a) the main decisions related to their activities/management are made by the same person;

b) their place of business is identical;

c) the form and content of their activities are identical;

d) Any participating member of the group is not registered as a VAT payer.

According to the amendment to the order, it is considered that the main decisions related to the activities/management of persons are made by the same person, if A decision shall be made by the same person on at least two of the following matters:

• Selection of contractors and making deals with them;
• determining the price of goods/services;
• selection of employed persons and determination of the terms of the employment contract to be signed with them;
• appointment and dismissal of the head person;
• dividend distribution;
• reorganization of the enterprise;
• making investments;
• making commitments;
• securing obligations;
• Decisions related to other issues that are essentially related to the activity and/or management of the person;

but, The form and content of the activity are identical if one of the following conditions is present:

• Individuals provide the same, similar or similar goods and/or services;
• persons carry out similar or similar main activities related to the same economic sector;
• The activities of individuals are focused on the same target customer;
• persons own and/or use the same basic means;
• Another circumstance that indicates the identity of the type and content of the activity.

Therefore, in order for the tax authority to consider a group of persons (several limited liability companies or limited liability companies) as one taxable person, all the conditions specified in points "a"-"d" must be met. In addition, it will be considered that the main decisions related to the activity/management are made by the same person if the said person makes a decision regarding at least two of the above-mentioned issues, and the type of activity will be considered identical if at least one condition from the listed points is fulfilled. In relation to the above-mentioned, we believe that the defining criteria of "identical activity" and "management by one person" defined by the instruction still contain some ambiguity, since the issue of what can be considered similar/similar goods/services and activities raises questions, and it is also unclear what is meant. In those other circumstances that indicate the identity of the activity.

In case of consideration of a group of persons as one taxable person, for the purpose of mandatory registration of each member of the group of persons as a VAT payer, when determining the total amount of taxable transactions, the total amount of goods supply/service operations carried out by all members of the group is taken into account, except for the supply of goods carried out between members of the same group / Amounts of service provision operations, Accordingly, if the total turnover of all mentioned persons exceeds 100 GEL, all persons will be registered as VAT payers at the same moment, namely, the total VAT turnover is 000 GEL.  from the moment of transition.

In order to determine the moment of VAT registration of each person, the following example is given in the order of the Minister of Finance No. 996:

Example 2 - Gaga, a natural person registered as an I/M-ed, started entrepreneurial activity in February 2024. It was registered in June of the same year  LLC "Gaga", of which he owns 100% of the shares, and in July he registered "Guga" LLC with his wife with a 50/50-percent share. The type of activity is identical for all three persons and none of them is registered as a VAT payer. In addition, it was established that Gaga made the main decisions related to her own and the activities of the enterprises. The turnovers carried out by them amount to:

As a result, the tax authority has the right to consider individual entrepreneur, LLC "Gaga" and LLC "Guga" as one taxable person, because in this case, there is a new 46¹ All the conditions stipulated in the first paragraph of the article. Accordingly, the date of mandatory registration as a VAT payer and the tax obligations for each member of the group are determined by taking into account the total amount of taxable transactions carried out by all three persons - from the August transaction, according to which the total amount of taxable transactions exceeded 100 GEL. Therefore, the individual entrepreneur, LLC "Gaga" and LLC "Guga" will be obliged to register for VAT on August 000, 2024.  by operation. The tax authority is obliged to register each member of the group as a VAT payer. In this case, on the operation carried out on August 2024, 20, LLC "Gaga", and on every subsequent taxable operation individual entrepreneur Gaga, LLC "Gaga" and LLC "Guga", will be considered VAT payers.

According to the amendment made in the order, one taxable person is considered Members of a group of persons can be both individuals, enterprises and organizations, as well as associations of persons, which independently participate in legal relations, but do not have the status of a legal entity. In addition, the place of establishment of each of them must be located in the territory of Georgia, or, in the absence of such, their permanent address or place of residence must be in Georgia.

In addition, determining the existence of the conditions defined by the order and, accordingly, identifying the group of persons should be carried out only and only within the framework of the tax audit.