Revenue Service Approach to Taxation of Uncollectible Receivables and Advances Paid

We inform you thatIn accordance with the order of the State Revenue Service No. 23106 dated October 29, 2024A change has been made

"On approving methodical guidelines for the purpose of determining a person's tax obligations in individual cases" in the Order of the Head of the Revenue Service No. 22708 of July 8, 2019.

A new methodical instruction on "receivables" has been defined, which can have a significant impact on the activities of each company.

unreimbursed receivable debt taxation

According to the situation manual "Writing off receivables" # 2657 issued by the Revenue Service on May 6, 2020, the write-off of receivables was not taxed in two cases:

1.     When the free supply of goods/services by the enterprise does not take place, as long as the purpose of the transaction is the supply of goods/services for a fee, and at the same time, the amount of time, human resources and/or financial costs to collect the receivables exceeds the amount of income/benefits that can be received by satisfying the demand.

2.     Free delivery of goods/services on the part of the enterprise does not take place, as long as the purpose of the transaction is the delivery of goods/services for a fee, and at the same time, the enterprise applies the appropriate legal mechanism to collect the receivables.

With the publication of the new methodical instruction "On receivables", the Revenue Service changes the approach to taxation of uncollected receivables and paid advances.

In accordance with the changes, the cases of non-payment of receivables within a reasonable period were determined, which It is possible to qualify for a director at the end of the probationary period(If there is no other identifiable responsible person)as paid wages and subject to appropriate taxation.

Invariably We offer of income service new methodical in reference brought example:

ExampleNo. 7

2023year1April appointed Ltd"A"-S2021-2022years Accountable periods tax checking.Ltd"A"-S activity the subject represents of furniture purchase-Realization.

to be checked period, 2021year1in February,Ltd"A"-M Further payment Conditionally Ltd"B"-S delivered100,000Lari value furniture.mentioned operation Ltd"A"-M reflected accounting in accounting.

2022year15in January Ltd"B"-M Ltd"A"-S compensated receivable debt part- 20,000Lari,while2023year1in March compensated10,000Lari.mentioned funds compensation is reflected Ltd"A"-S accounting in accounting.

receivable debt origin from the date reasonable within the deadline- 12calendar of the month exit then,at the same time tax checking before starting,In particular2023year1until April,Ltd"B"-S by Ltd"A"-S towards existing receivable debt remaining part- 70,000Lari no is Paid.as well,no is confirmed Delivered goods back return fact.

assessment and the result

of income job70,000GEL will be taxed income with tax,as goods of the buyer by on the company paid  and of the company on the director issued salary amount.

paid for advances taxation

According to the changes, the same approach is used by the Revenue Service in relation to paid advances.

An advance payment will be made to the enterprise in connection with the receipt of goods/services. In addition, the inspection established that the enterprise has not actually received the relevant goods/services within a reasonable period of time after the advance payment. Also, the fact of returning the advance amount/part of the amount from the person receiving the advance is not confirmed.

advance/part of advance paid by the taxpayer to the supplier,

The fact of receiving the corresponding goods/services will not be confirmed

At the time of the appointment of the tax audit, it will be qualified as the salary paid to the director of the enterprise (if there is no other identifiable responsible person) at the end of the audit period and will be subject to the appropriate taxation.

We offer of income service new Methodical from reference respectively excerpt:

ExampleNo. 5

2023year1April appointed Ltd"A"-S2021-2022years Accountable periods tax checking.Ltd"A"-S activity the subject represents of furniture purchase-Realization.to be checked period enterprise implemented has only two operation:

1. 2021year1in February,Ltd"A"-M supplier Ltd"B"-S paid Advance100,000Lari subsequently of furniture calling Conditionally.mentioned operation Ltd"A"-M reflected accounting in accounting.of the parties between decorated contract considered Ltd"B"-S by Ltd"A"-for1 000unit identical of the table delivery.
2. Ltd"B"-M2021year1in December Ltd"A"-S delivered by agreement provided for of furniture part- 300table,which is confirmed appropriate reception-passing by act,Commodity with the bill of lading and Accompanying with documents.Ltd"A"-M mentioned operation reflected accounting in accounting and At the same time of the contract conditions Accordingly,did paid for advance part- 30,000Lari reclassification/shut down.

advance payment from the date reasonable within the deadline- 12calendar of the month exit then,at the same time tax checking before starting,In particular2023year1until April,no is confirmed Ltd"B"-S by goods remaining part Ltd"A"-for delivery fact,with that,no is confirmed advance amount remaining part back return fact.

assessment and the result

of income job70,000GEL will be taxed income with tax,as of the company on the director issued salary amount.

1.     The auditor is authorized not to determine additional tax liabilities (operations shall not be subject to reclassification) with respect to the advances paid and/or the claims arising from the delivery of goods and/or services :

a) in the case of a small category taxpayer - 1,000 GEL;

b) in the case of an average category taxpayer - 10,000 GEL;

c) in the case of a large category taxpayer - 100,000 GEL.

2.     The present methodical reference does not apply to cases where the presented evidence proves beyond doubt the fact of the taxpayer using the legal mechanisms provided for by the legislation in order to satisfy the corresponding demand for the receivable debt (amount not reimbursed by the purchaser of goods/services).

3.     The auditor is entitled not to subject to the change of qualifications the part of the paid advance which, in accordance with the established practice in relation to operations of the same content and/or the evidence presented by the taxpayer, is logically/convincingly considered to be a necessary component of the business relationship between the parties.