EY GEORGIA TAX & LAW BRIEF

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1 EY GEORGIA TAX & LAW BRIEF DECEMBER, 2016 Expected Amendments to the Organic Law of Georgia on the National Bank of Georgia On 22 December 2016 a bill on Amendment to the Organic Law of Georgia on the National Bank of Georgia was submitted to the Parliament of Georgia. According to the bill, Article 34 has been expanded to include Paragraphs 2 1 and 2 2, which stipulate that if property is sold or/and service is provided on the territory of Georgia, or property/service if offered/advertised for sale on the territory of Georgia the price of the property/service shall be expressed solely in GEL. The bill indicates that an exception may be made provided that the National Bank of Georgia issues a relevant legislative act. According to the bill, the above mentioned amendments shall become effective on 1 July Expected Amendments to the Civil Code of Georgia On 22 December 2016 a bill on the Law of Georgia on Amendment to the Civil Code of Georgia was submitted to the Parliament of Georgia. According to the bill the law has expanded to include Article 505 1, which stipulates that the seller shall be guided by the loan related provisions set forth in the Civil Code of Georgia with respect to interest rates, commission fees, charging penalties or any financial sanctions in the process of hire purchase of goods.

2 The bill has defined the maximum upper limit of the loan interest rate. The effective interest rate shall not exceed 100%. According to the bill, unless otherwise stated by the law, requirements of Paragraph 3, Article 625 of the Civil Code of Georgia (requirements regarding mortgage loans) shall not apply to loan agreements made by commercial banks, microfinance institutions, non-bank depository institutions credit unions and qualified credit institutions. According to the bill, it is allowed to issue funds in loan in foreign currency provided that the amount of the loan (including when the loan amount is indexed to foreign currency) exceeds GEL (one hundred thousand) according to the official exchange rate upon the issuance of loan. Moreover, an entity is prohibited to borrow funds from an individual in any form (raise funds) unless the amount of borrowed /raised funds exceed GEL GEL-limit does not apply when an entity raises funds from fewer than 20 individuals. Nor does it apply to commercial banks, credit unions, brokerage firms and the securities that were issued through public offering. The bill shall become effective on 15 January Expected Amendments to the Law of Georgia on Promissory Note On 22 December 2016 a bill on Amendment to the Law of Georgia on Promissory Note was submitted to the Parliament of Georgia. According to the bill, an entity, except for a commercial bank and non-bank depository institution credit union licensed under Georgian law, shall not issue a promissory note worth up to GEL (one hundred thousand) (or its equivalent amount in foreign currency) to an individual. This limit does not apply if an entity issues a promissory note to fewer than 20 individuals. The bill shall become effective on 15 January Expected Amendments to the Code of Administrative Offences of Georgia On 22 September 2016, a bill on Amendments to the Code of Administrative Offences of Georgia was submitted to the Parliament of Georgia. According to the bill, failure to abide by the rule of denominating the price set forth in Paragraph 2 1, Article 34 of the Organic Law of Georgia on the National Bank of Georgia, will lead to issuing a warning to an offeror or an advertising customer, while the repeated offense will lead to charging a penalty of 1000 GEL. Each subsequent case will be subject to a penalty of 5000 GEL. The bill shall become effective on 1 July 2017.

3 Expected Amendments to the Law of Georgia on Advertising On 22 December 2016 a bill on Amendment to the Law of Georgia on Advertising. According to the bill if an entrepreneur offers or/and advertises the property or/and service for sale on the territory of Georgia the price of the property/service shall be expressed solely in GEL The bill will become effective on 1 July Expected Amendments to the Law of Georgia on Insolvency Proceedings On 15 December 2016 a bill on Amendment to the Law of Georgia on Insolvency Proceedings was submitted to the Parliament of Georgia. According to the bill, information/documentation sent through the electronic system shall be deemed received by the addressee from the moment this information/documentation was placed in the system. The bill shall become effective upon publication. Source and date of publication: the website of the Parliament of Georgia, 15/12/2016. Amendments to Rules of Consumer Protection upon Provision of Service by Financial Institutions 151/04 Order of the President of the National Bank issued on 23 December 2016 amended the rules of consumer protection upon the provision of service by financial institutions. In particular, obligations of financial organizations with respect to providing customers with information on financial products were defined. Financial institutions shall inform customers about significant risks associated with specific financial products. Financial institutions will have certain obligations upon the execution of an agreement on a specific financial product in particular, the obligations related to the preamble and the mandatory information to be indicated therein. The amendments define the obligations of financial institutions after the effective date of agreements signed on specific financial products. According to the amendments, rules of accrual of commission fees on an inactive product were laid down.

4 Amendments also laid down the rules of the suspension of accrual of commission fees on an inactive product. Moreover, rules of early payment of loan were defined. Furthermore, the Customer Service Code of Ethics was provided. Amendments defined the obligations of financial organizations with respect to considering and keeping record of customer claims. Further, amendments defined financial charges. If financial institutions fails to abide by the rules and ignores its requirements and principles either directly or indirectly, the National Bank of Georgia may apply sanctions prescribed by law. The amendments shall become effective on 1 May Source and date of publication: The Legislative Herald of Georgia, Landmark Court Decision Supreme Court of Georgia has provided a significant clarification regarding confirmation of fulfilment of obligation by a debtor and creditor s acceptance of such fulfilment Background The claimant filed a suit in court requiring reimbursement of USD from the respondent. The claimant and the respondent were married under common law and lived in the claimant s house. The claimant is the sole partner and founder of LLC U, while the claimant worked as an accountant in the company. The Claimant transferred USD 7500 and USD 7000 to the respondent s account in JSC ProCredit Bank on 23 June 2008 and 27 June 2007 respectively. The respondent was supposed to deposit the above mentioned funds to LLC U s account in order to pay the budget debt of the company, however, the respondent did not deposit the funds. The respondent did not accept the claim providing the following argument: the respondent had never been LLC U s accountant and could not carry out any activities on her behalf. The respondent claims that she received the disputed amount but returned them back to the claimant after he returned to Georgia. City Court According to 30 March 2011 decision of the Civil Case Board of Poti City Court, the claim was dismissed. The claimant appealed the decision.

5 Appeals Court On 24 August 2011 the Civil Cases Chamber of Kutaisi Appeal Court dismissed the appeal. Kutaisi Appeal Court found out that on 27 June 2007 LLC D- K. D- Na. LTD Sh transferred from Turkey to the respondent s bank account USD 7000, while on 23 June 2008 USD 7500, which was received by the respondent. Based on the witness s testimony the Kutaisi Appeal Court ruled that USD 7000 and USD 7500 transferred by LLC D- K. D- Na. LTD Sh to the respondent on 27 June 2007 and 23 June 2008 respectively was transferred (returned back) by the respondent to the director of this firm the claimant. Supreme Court On 19 April 2015, Tbilisi Court of Cassation made a decision as , in which the Court provided clarification regarding confirmation of fulfilment of obligation by a debtor and the creditor s acceptance of such fulfilment. Cassation Court clarified that in order to solve the dispute, it is important to examine the part of the respondent s pleading where it claims to have repaid this amount to the claimant. Cassation Court clarified that the respondent s pleading regarding the repayment of the amount demonstrates that the respondent had the obligation to repay this amount. Cassation Court clarified that according to the law, a document shall be issued in confirmation of full or partial acceptance of fulfilment if the debtor requires it. Cassation Court found that there might be a number of reasons the debtor does not get the document confirming partial or full fulfillment. Such factors include lack of caution, too much trust in the business partner, and others. At the end of the day, these factors are all part of the risk inherent to the party and define whether the party is responsible or not. Cassation Court clarified that based on the witness evidence alone, it is impossible to confirm the fact of fulfilment of the obligation. Cassation Court stated that there is no evidence prescribed by law that would confirm the fact that the respondent has fulfilled the obligation. Cassation Court ruled in favor of the claimant and ordered the respondent to repay the amount to the claimant. Source and date of publication: Tbilisi Supreme Court webpage, Competition Law Decision on investigation of the case according to Order N178 of 13 November 2015 by the Chairman of LEPL Competition Agency Background On 5 October 2015, Duty Free Georgia LTD filed a complaint, and on 20 October 2015, an amended complaint, against JSC Tbilisi Tobacco. According to the complaint, Duty Free Georgia LTD and JSC Tbilisi Tobacco made a purchase agreement (further Agreement) on 1 January 2015 on supply of the Pirveli

6 cigarettes produced by JSC Tbilisi Tobacco to Duty Free Georgia LTD in exchange for appropriate consideration. According to the complaint, JSC Tbilisi Tobacco terminated the agreement based on a unilateral notice without citing any additional circumstances. According to the complaint, JSC Tbilisi Tobacco made an exclusive agreement with Duty Free Alliance LTD - the only competitor of Duty Free Georgia LTD - soon after. According to the complaint, with this action, JSC Tbilisi Tobacco violated Article 6 of the Competition Law of Georgia. Decision In its decision on investigation of the case according to Order N178 of 13 November 2015 by the Head of LEPL Competition Agency, the Agency clarified that considering disposition of Article 6 of the Competition Law of Georgia, the legal implications prescribed by the norm can exist if at least two major conditions are met: 1. an economic agent or a group of economic agents holding a dominant position in the appropriate market, and 2. abuse of such dominant position. The Agency clarified that the former of the two conditions is not met, as JSC Tbilisi Tobacco does not hold a dominant position in the appropriate market. The Agency found that there could be no abuse of a dominant position by an economic agent, if the economic agent does not have a dominant position. The Agency found that in the given case, violation of Article 6 of the Competition Law of Georgia cannot be verified. Source and Date: Decision on investigation of the case according to Order N178 of 13 November 2015 by the Head of LEPL Competition Agency.

7 Contact Information: Zurab Nikvashvili Partner Head of Tax & Law in Georgia and Armenia EY Georgia LLC Kote Abkhazi st. 44, 0105, Tbilisi, Georgia Office: +995 (32) Dr. George Svanadze LL.M., MLB (Bucerius/WHU) Head of Law Practice Tax & Law EY Georgia LLC Kote Abkhazi st. 44, 0105, Tbilisi, Georgia Office: +995 (32) EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EY Georgia LLC All Rights Reserved This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. The views of parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were expressed.

EY GEORGIA TAX & LAW BRIEF

EY GEORGIA TAX & LAW BRIEF MARCH, 2017 Amendments to Civil Procedure Code of Georgia On 14 March 2017, an amendment to the Civil Procedure Code of Georgia became effective. According to the amendments,