Georgia's tax code gamble with offshores
Thursday, 30 May, 2024

The recent amendment to Georgia’s tax code, known as the “offshores law,” has sparked significant concern regarding the integrity of Georgia’s financial system. This policy brief examines the implications of this amendment in the context of Georgia’s recent political and regulatory developments, which have raised alarms about the potential risks of money laundering and sanctions evasion.

The tax code amendment incentivizes the relocation of assets from tax havens into Georgia. An analysis of the foreign direct investment dynamics from offshore jurisdictions reveals that such investments often involve high turnover and short-term financial maneuvers, rather than contributing to long-term economic growth. This mostly does not translate into sustainable development or job creation; thus, it raises concerns about the true economic rationale of attracting offshore capital into the country. Additionally, it could risk the country’s reputation by potentially facilitating the inflow of dubious capital, seeking to exploit Georgia’s financial system to circumvent international sanctions.

Furthermore, this policy shift in Georgia occurs within a context where global initiatives aim to combat offshore financial malpractices. In light of these concerns, this amendment to the tax code could potentially violate international standards, such as the OECD’s BEPS Actions and FATF Recommendations, by creating a favorable regime for tax avoidance and undermining due diligence efforts. In summary, even if the stated intent behind Georgia’s tax code amendments is to boost foreign direct investment, the associated risks and negative perceptions far outweigh the potential benefits, and this policy brief recommends abolishing the law in the best interests of the country.