GLCC Law Firm and Irakli Gaprindashvili, its Managing Partner, were pursuing a court case against the Ministry of Finance and the Revenue Service of Georgia since 2013 to relieve one of the construction companies of excessive taxation.
The case was about participation of a construction company in a condominium and qualification of a contribution, an obligation to finance construction, as a barter transaction.
Qualification of a transaction as a barter by Audit Department of the Revenue Service was followed by additional VAT charge of GEL 2,400,000 imposed on a construction company. GLCC Law Firm, with consideration of client’s interests, appealed this decision of the Revenue Service first in the Dispute Council of GRS and after in the Court.
Note: On March 4, 2008 an agreement was signed between one of the construction companies and a condominium on joint activities aimed at building an apartment block. A new condominium was established on the basis of the agreement. A contribution of the first condominium, a party to the Agreement, in a newly established condominium was a plot of land with the value of GEL 2,500,000, while a contribution of a construction company was building an apartment block (i.e. claim), with the estimated value of GEL 6,026,000. Construction was completed and the apartment block was put in commission in April, 2012.
Position of GLCC Law Firm: argument of respondents that a contribution in the form of an apartment block in the condominium did not represent an asset was groundless and lacked rationale. According to Article 932(2) of the Civil Code of Georgia, “contribution can be made both in the form of an asset or service.” The condominium had a claim against construction company since 2008 to make a contribution i.e. build an apartment block, which the company fulfilled (made its contribution to the condominium) in 2012.
“The issue has been so important and precedential that the GRS Dispute Council transferred the case to the Dispute Resolution Council under the Ministry of Finance, which changed the initial qualification of the tax authority followed by reduction of charge by GEL 1,280,000. Dispute over the remaining amount continued in the court” – said Irakli Gaprindashvili Managing Partner of GLCC Law Firm.
A Judge of Administrative Cases Board of Tbilisi City Court, following long discussions and explanations provided by parties, as well as analysis of the evidence, made decision on July 10, 2015 on full allowance of the GLCC suit and invalidated the acts issued by the Revenue Service and the Ministry of Finance on imposing additional charge on the construction company.
Later on this decision of the Tbilisi City Court was appealed by the Ministry of Finance and the Revenue Service. “Although the Appeal Court slightly amended decision of the first instance court, its main substance regarding annulment of disputable acts of the Revenue Service and the Ministry of Finance were retained in force under its decision of February 11, 2016. Finally, the case was reviewed by the Chamber of Administrative Cases of the Supreme Court of Georgia on June 23, 2016, which retained decision of the Appeal Court” – explained Irakli Gaprindashvili.
As it turned out, the court fully shared arguments of the GLCC Law Firm and allowed it. Finally, the court considered a contribution of a construction company as a claim against the latter, which was realized over time and expired in 2012, and resolved that a contribution to the condominium – building an apartment block represented contribution in the form of an asset and did not represent a transaction subject to VAT under Article 225 (3) of the 2004 -year version of Tax Code (tax legislation effective as of emergence of the tax liability).