A tax audit is a procedure conducted by the Revenue Service to verify the accuracy and correctness of a person’s tax obligations. This article outlines the main types of tax audits and the procedures associated with them.
Note: In this context, the term “person” refers to any legal form (individual or legal entity), as well as a branch or permanent establishment of a foreign enterprise, an organization, a partnership, and other similar entities.
Types of Tax Audits
Tax audits may be desk (cameral) or on-site.
1. Desk (Cameral) Tax Audit
A desk tax audit is conducted by the tax authority on the basis of an audit order, which may cover either a full period (within the statute of limitations) or a specific issue.
Full desk tax audit
In this case, the person is audited with respect to all taxes for which the person is liable under the legislation. The audit covers the entire unaudited period, within the applicable statute of limitations*.
Issue-specific desk tax audit
In this case, the person is audited in relation to a specific matter. For example, based on the audit order, the tax authority may review only:
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the correctness of VAT registration;
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the correctness of reflecting issued and/or received VAT invoices and customs declarations in the VAT return;
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the accuracy of the amount of VAT refundable from the state budget;
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the correctness of withholding taxes at source and their deduction, etc.
When conducting a desk tax audit, the tax authority is entitled, in accordance with the Tax Code, to request accounting documents and/or information related to taxation.
A desk tax audit is carried out without visiting the taxpayer’s premises, based on the information available to the tax authority, as well as on explanations and accounting documentation provided by the taxpayer.
There is no statutory time limit for conducting a desk tax audit.
2. On-Site Tax Audit
An on-site tax audit is conducted based on a decision of the tax authority. The taxpayer is notified in writing or electronically (via the taxpayer’s authorized account on the Revenue Service portal) at least 10 working days before the commencement of the audit.
The audit must begin no later than 30 days from the date the notice is delivered to the taxpayer. If the audit does not commence within this period, the notice becomes invalid.
An on-site audit may be either a full or a thematic (issue-specific) audit. It may also include current control procedures carried out in relation to the taxpayer’s activities.
From the moment the notice is received, the person is no longer entitled to amend tax returns for the period that is subject to the planned audit.
The duration of an on-site tax audit may not exceed three months. Where necessary, and with the approval of the Head of the Revenue Service, the audit period may be extended by up to an additional two months.
An on-site tax audit is conducted at the place where the taxpayer carries out its economic activities, and the taxpayer is obliged to provide the auditors with working conditions equivalent to those normally existing at its premises.
The tax authority is entitled to request duly certified copies of accounting documents and/or information related to tax liabilities. If the taxpayer fails to comply with such request, the tax authority may seize the original documents. The originals must be returned to the taxpayer upon completion of the on-site audit. A seizure report is drawn up in such cases.
Full On-Site Tax Audit
Within the defined period (the unaudited period within the statute of limitations*), a full on-site audit covers all taxes and charges administered by the Revenue Service and payable by the taxpayer.
Thematic (Issue-Specific) On-Site Tax Audit
A thematic on-site tax audit involves the review of a specific tax, transaction, or issue, for example:
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review of transfer pricing matters;
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VAT audit for a specific period;
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review of VAT credit/refund in one or several VAT returns;
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review of tax liabilities arising from a specific transaction (e.g., disposal of shares, etc.).
Current Control Procedures
Current control procedures are carried out without prior notice, on the basis of an order issued by an authorized official of the tax authority, and are conducted during the person’s working hours and/or actual operating time.
Current control procedures include:
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chronometric observation;
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tax monitoring;
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control over compliance with the rules on the use of cash registers;
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inspection of premises and assets;
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inventory taking.
3. Urgent On-Site Tax Audit
In addition to the above, an urgent on-site tax audit may be conducted without prior written notice. In such cases, the tax authority must apply to the court within 48 hours from the start of the audit and obtain the relevant authorization.
An urgent on-site tax audit is conducted if:
a) significant violations of tax obligations were identified during the last tax audit;
b) there is reliable information casting doubt on the lawful origin of a person’s financial or material resources;
c) there is reliable information about undocumented increases in assets or other taxable objects;
d) the tax returns and other documents submitted to the tax authority do not confirm the reality of taxable objects and calculated taxes;
e) tax returns or documents required to calculate and/or pay taxes have not been submitted;
f) the tax authority has information that the person intends to evade the fulfillment of tax obligations by leaving Georgia, transferring assets to another person, destroying, concealing, altering or falsifying documents evidencing tax offenses, or by other actions.
Without court authorization, the tax authority has no right to carry out an urgent on-site tax audit. Accordingly, the audit may commence only after such authorization is obtained.
Statute of Limitations
The statute of limitations for assessing taxes and issuing a tax claim against a taxpayer is three years.
For example, a full tax audit initiated in December 2025 may cover only reporting periods starting from 1 January 2022 and onwards, while an audit order issued in January 2026 may cover only reporting periods starting from 1 January 2023 and onwards.
Note: There are exceptional cases in which the statute of limitations may be extended and exceed three years.
Results of a Tax Audit and Subsequent Steps
Upon completion of a full tax audit, the audited period or issue is considered “closed”, meaning that the tax authority may not re-audit the same period without a court order.
After a thematic tax audit, only the reviewed issue is considered “closed”. The tax authority may still conduct audits for other periods or other issues. At the same time, during a thematic audit, the person may amend tax returns for periods and matters that are not under audit.
Tax Audit Report
As a result of the above audits, the tax authority issues a tax audit report.
The report describes in detail the factual circumstances and the corresponding assessment, on the basis of which additional tax may be assessed, reduced, or no change may be made.
The report specifies the additional principal tax and penalties assessed (broken down by taxes and issues). Late payment interest is calculated based on the balance reflected in the taxpayer’s personal tax account and is indicated in the “Tax Claim” document, which is sent to the taxpayer through the RS.GE portal together with the audit report and the tax assessment order.
Termination of an Audit or Change of Scope
The tax authority may terminate an audit or change its scope (for example, replace a full audit with a thematic audit, or vice versa).
As a rule, an audit is terminated when it becomes clear during the process that the company will not be subject to additional tax liabilities. In the event of termination, no tax audit report is issued and the period is not considered “closed”.
Actions After Completion of an Audit
If additional tax liabilities and related sanctions are imposed by the tax audit report, the person has several options:
Administrative appeal within the Ministry of Finance system – the tax audit report, tax claim and tax assessment order may be appealed through a two-stage administrative procedure:
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at the first stage, the appeal is submitted to the Disputes Department of the Revenue Service;
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at the second stage, the appeal is submitted to the Dispute Resolution Council of the Ministry of Finance.
Direct court appeal – the tax claim issued as a result of a tax audit may be appealed directly before a court.
Payment – the person may agree with the audit results and pay the assessed taxes and sanctions (including under an agreed payment schedule).
Tax settlement – the person may apply to the Revenue Service for a tax settlement agreement.
A person may simultaneously submit an appeal and apply for a tax settlement. However, if a settlement agreement is concluded, the appeal must be withdrawn.
Review of Information and Documents Without an Audit Order
There are cases where no tax audit order has been issued, but a representative of the tax authority contacts the person, requests certain documents and/or information and, on that basis, assesses tax risks. Such review may relate to:
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cash flows;
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the actual existence of inventories;
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correctness of sales prices, and other matters.
Requests for information or documentation may be made by email, official letter or verbally. Under Article 70 of the Tax Code, a person is obliged to provide the requested information and documents.
Deadline and penalty for submission:
In the case of an official request, the deadline for submitting documentation is generally five working or calendar days. Failure to meet the deadline results in a fine of GEL 400, and GEL 1,000 in the case of repeated non-compliance.
Extension of the deadline:
If necessary, the five-day deadline may be extended. For this purpose, a written request must be submitted to the Revenue Service, justifying the need for an extension.
Purpose:
An official request for information does not automatically constitute a tax audit. The primary purpose of such control is to conduct a preliminary analysis in order to assess the company’s risks and identify issues that may result in additional tax liabilities.
Process development:
If, during the preliminary analysis, the Revenue Service auditor identifies risks, the person is advised to voluntarily amend past tax returns and pay additional taxes.
If the person agrees:
The person amends the tax returns and pays the additional tax and late payment interest (no penalty is imposed).
If the person refuses:
If the person does not agree with the recommendation and fails to provide convincing arguments, the informal review is likely to be converted into a formal audit, followed by the issuance of an order for a full or thematic audit and, potentially, the assessment of additional tax liabilities and sanctions.
Practical advice:
Before making such a decision (whether to agree and amend returns or refuse), it is recommended to consult a tax specialist who can assess the risks and provide appropriate professional guidance.
Representation During a Tax Audit
A tax audit, which usually lasts several months, requires that all inquiries and requests from the Revenue Service be handled by a qualified tax professional.
Risk:
Responses and documentation provided without proper qualification may be used by the tax authority against the taxpayer, both when assessing taxes and during tax dispute proceedings.
General risks:
The risk of additional tax assessments exists even when a company acts in good faith and seeks to fully comply with its obligations. This is due both to the human factor and to the possibility of multiple interpretations of legal provisions.
Conclusion:
Any mistake made during a tax audit may result in significant financial losses, negative assessments and adverse consequences for the business.
The proper presentation of your company’s position and legal arguments during a tax audit is a decisive factor that directly affects the outcome of the audit. Therefore, the involvement of an appropriate specialist in the process is of critical importance.
