[World Tax News] Georgia Startup Relief | Japan’s Pillar 1 Stand | Pakistan’s DPPT

Editorial Team – [2025] 176 taxmann.com 351 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. Georgia introduces tax benefits for innovative Startups, SMEs, and R&D service providers

Georgia has enacted the Law on Amendments to the Law on Innovation (No. 718-IIMS-XIMP) and to the Tax Code (No. 719-IIMS-XIMP), introducing tax benefits for three categories – innovative startups, innovative SMEs, and R&D service providers.

(a) Innovative Startup

A Georgian company creating innovative products, processes, or services may qualify if it has secured at least GEL 100,000 in investment or GEL 150,000 in grants within two years prior to applying. The funds must be used for its innovative activities, and the company must be tax-compliant, solvent, and not in liquidation. Status is granted for one year, extendable up to 10 years if conditions are met.

Tax incentives:

• Years 1–3 – Salary income tax exemption within limits.
• Years 4–6 – Salaries taxed at 5%; profit tax at 5%.
• Years 7–10 – Salaries taxed at 10%; profit tax at 10%.

(b) Innovative SME

A Georgian SME qualifies if its annual R&D expenses are at least 5% of total revenue (and at least GEL 100,000) and if it holds a patent, uses copyrighted software, or purchases services from recognised research institutions or R&D providers. It must remain tax-compliant and solvent. Status remains valid if requirements are maintained.

Tax incentives:

• When paying dividends, profit tax base may be reduced by three times the previous year’s R&D costs.
• Eligible for reinvestment support per government rules.

(c) R&D Service Provider Company

A Georgian company mainly engaged in research and development (Code 72.1) with at least 80% of income from that activity may qualify if it remains tax-compliant and solvent. Status is indefinite if conditions persist.

Tax incentives:

• Salaries taxed at 5%; profit tax rate is 5%.

The new rules take effect on 27 September 2025.

Source:

• Law on Amendments to the law on Innovation (Law No. 718-IIMS-XIMP)
• Law on Amendments to the Tax Code (Law No. 719-IIMS-XIMP)

2. Japan clarifies FAQs on non-implementation of Amount B under Pillar 1

The National Tax Agency (NTA) of Japan has released FAQs addressing the implementation of Amount B, which pertains to the simplified application of transfer pricing rules under Pillar 1. Amount B is designed to offer a standardised and streamlined method for pricing specific controlled transactions involving routine marketing and distribution functions. Jurisdictions may choose to adopt Amount B for transactions involving distributors, sales agents, and brokers for accounting periods commencing on or after 1 January 2025.

The FAQs clarify that Japan will not implement the Amount B simplified approach at this stage. Key clarifications provided include:

• In cases where foreign related entities (such as subsidiaries) are located in jurisdictions applying the simplified approach to determine the arm’s length price, Japan will still require the use of standard (conventional) transfer pricing methods.
• As Japan has not adopted the simplified approach, Advance Pricing Agreement (APA) applications involving related parties in jurisdictions applying Amount B must be based on standard arm’s length pricing methods.
• Where double taxation arises in jurisdictions applying the simplified approach, Mutual Agreement Procedures (MAP) may be initiated under an applicable tax treaty. These procedures will be based on standard transfer pricing methods. However, Japan may give due consideration to the outcomes of the simplified approach, provided this is consistent with domestic law and administrative practices and in accordance with Amount B guidance.
• Transfer pricing documentation based solely on the simplified approach will generally not meet Japan’s documentation requirements. Nevertheless, such documentation may be accepted if it also includes an analysis using standard arm’s length pricing methods and the outcomes align with those under the simplified approach.

Source – National Tax Agency

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