TI-Georgia: Tax Code Amendments to Possibly Benefit Ivanishvili, Will Increase Influx of Russian Capital

Transparency International – Georgia made a statement on April 19 concerning the controversial Tax Code amendments, adopted in the third reading by the Parliament earlier the same day. The statement says that “it is possible that the reason for these legislative changes is the interests of the founder and honorary chairman of the ruling party, Bidzina Ivanishvili.” The watchdog also states that at the same time, these changes will increase the risk of inflow of criminal and Russian capital into Georgia.”

The statement notes that according to the proposed amendments, which were adopted on an expedited basis, in case of transfer of assets of a company registered in a country with preferential taxation (offshore) to a Georgian company, a number of tax benefits are established for the company.

In particular:

• Within the asset transfer operation, the income received by the offshore registered foreign enterprise and its owner natural person is exempt from profit and income tax;
• Importation of assets or goods into Georgia is exempt from import duties;
• Georgian companies, which receives assets from offshore, are exempt from property tax until January 1, 2030.

The watchdog notes that the explanatory note to the legislative amendment does not provide arguments as to why it was necessary to review the existing amendment in an accelerated manner.

Transparency International says that “the initiation of the said legislative amendment in parallel with the “Russian Law” and the accelerated proceedings raise doubts that its purpose is to facilitate the transfer of the assets of Bidzina Ivanishvili’s offshore companies to Georgia”.

The statement notes that Russian businessmen and oligarchs often use the practice of offshore companies, and with the current legislative change, they will also be given the opportunity to transfer their assets to Georgia with tax benefits.

TI-Georgia notes, that “since the tax relief applies to the import of goods owned by an offshore company, it also applies to goods that may not be related to business activities – for example, high-value and luxury items such as works of art.”

The organization cites its own 2021 study which found that Bidzina Ivanishvili owned 20 offshore companies, and notes that due to the opacity of offshore companies, TI-Georgia has for years called for the creation of a registry of beneficial owners of offshore companies, which would reduce the risks posed by anonymous ownership of these companies. Anonymous ownership, in turn, increases the risk of corruption, including tax evasion.

TI-Georgia says that the authorities became interested in the future risks of offshore companies only after the adoption of the “Russian law” significantly increased the likelihood of sanctions against Bidzina Ivanishvili and people close to him from Western countries.

The statement notes that offshore companies are often attractive to individuals with assets of questionable origin, and if Georgia implements a regime facilitating the transfer of assets from offshore, it should also set a high standard of transparency. The identity of the persons transferring assets from offshore to Georgia should be public.

TI-Georgia also notes that the hasty adoption of the law , without extensive discussion on the issue, initiative clearly shows Bidzina Ivanishvili’s influence has on the executive and legislative authorities.

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