Issue 2, 2014. April-May



Ambiguities over the interpretation of the tax code and concerns over its consistent application have been among the biggest problems facing businesses in Georgia for many years. The Council of Tax Appeals (hereinafter "the council") is crucial to giving businesses confidence in the tax system as, for many years, it has been one of the primary mechanisms for resolving disputes between taxpayers and the government. An alternative to the Council is to take disputes into the courts. However, in Georgia this was rarely used as the courts were not considered to be technically competent to professionally adjudicate disputes.

In 2013, PwC conducted research to investigate best practice and business opinions about the council. This research was funded by the Open Society Georgia Foundation and the EU, and supported by the Minister of Finance and AmCham, the Business Association of Georgia, the Georgian Small and Medium Enterprise Association and the Georgian Bankers Association. The research included an international comparison that looked at the way the systems for dispute resolution operated in other countries, an online survey of 142 companies and semi-structured interviews with 23 companies. The full research can be provided on request from AmCham or PwC.


One of the key concerns about the council is that it operates inside the Ministry of Finance (MoF) and is largely made up of existing MoF employees. PwC's research showed that international examples were of little help in clarifying best practice as dispute resolution structures in other countries operate under a range of institutional structures, some of which closely align with the finance ministries and the tax authorities of those respective countries.

However, businesses generally do not like this operating arrangement. Slightly over half of interviewees said that they did not believe that the current system allowed for independent decision making and over 75 percent of that group believed this was the result of their institutional affiliation with the MoF. Two-thirds of respondents said that the Dispute Resolution Council should be fully separate from the MoF.

Nonetheless, there are practical challenges to securing independence of the council. First, the Georgian constitution excludes an entirely institutionally separate judicial or quasi-judicial "tax court." Second, the MoF has clearly stated it is not interested in this option. Finally, starting an entirely new institution may create bigger hurdles than creating greater independence inside the MoF.

Therefore, PwC's research also looked at other ways in which greater independence could be created inside the current council structure, without formal separation from the MoF.

Four main mechanisms were considered as potential examples of best practice for securing greater independence and were tested by the survey. First, in Georgia the appointments to the council are made for indefinite terms, but PwC's research found that in every case study, except Singapore, the members of the councils have fixed terms. This is generally considered to create more independence as it liberates members from threat of dismissal. It was also supported by 85 percent of survey respondents with 28 percent wanting one year, 42 percent suggesting three years and 16 percent suggesting five year terms.

Second, in Georgia members have other professional positions at the same time as they work on the council. Restricting members of the council from holding other positions was used by California, Massachusetts and New Zealand as a mechanism for avoiding conflicts. Seventy-three percent of survey respondents believe that the council should be the sole occupation of its members. This could increase independence and could create a more clearly defined group for training and professional development.

Third, in all of the case studies, members of the council were protected from dismissal/prosecution when decisions were made in good faith.

Fourth, in Georgia, appointment to the council is done by the government. While there is no consistency of international best practice on this issue, 99 percent of surveyed companies did not agree that sole government appointment was the best method for appointments, with 65 percent of respondents expressing the view that the business community and government should together be responsible for appointments.

Recommendation: As a result of all of this analysis, PwC recommended that full institutional independence from the MoF was not necessary. However, it felt that adopting fixed-term, sole-position appointments, with protection from dismissal and business involvement in appointments, could dramatically increase independence.


Lack of predictability in interpretation of the tax code has been a consistent problem of Georgia's tax system for years. It is not only a problem for business planning but has also left the concern that the tax code might be selectively applied.

One problem that makes predictability and consistency of interpretation difficult is the lack of published guidance on the tax code, and particularly the lack of published guidance that is binding on future interpretation.

One way in which the council could help this situation, and improve the practicality and predictability of tax code interpretations would be to publish decisions and make past decisions binding for the future. There was no consistent international best practice on publication of results. Some kind of publication was generally popular with businesses. Fifty percent of survey respondents said that decisions should be made public generally (with protection of the identity of taxpayers) and the other half said that release should be subject to approval on the part of the taxpayer.

Recommendation: Decisions should be public, but personal and commercial data should be private.


On the issue of efficiency, PwC's survey results were positive. Eighty-nine percent of those surveyed said that there was no formal problem with their applications, although some said that they had difficulty presenting full evidence. One-third complained about the execution of decisions. There was still space for improvement and the project as a whole recommends a range of technical modifications to improve efficiency and equity, including the use of a faster/simpler process for small claims and the use of expert witnesses.

Recommendation: The system should be simplified for small claims and ease of providing evidence should be improved.

Following its analysis, PwC has presented its findings to the Ministry of Finance, and all of their major recommendations have been accepted. AmCham and magazine will keep track of reforms moving forward.

This report is made possible by the generous support of the American people through the United States Agency for International Development (USAID), EWMI and EPF, within the Judicial Independence and Legal Empowerment Project. The report's contents are the responsibility of AmCham and do not necessarily reflect the views of USAID, the United States Government, EWMI or EPF.

However, as mentioned earlier in the article, the research itself described in the report was carried out by PwC under grants from the EU and Open Society Georgia Foundation (OSGF).