We previously published a blog post explaining the new regulatory framework for tax liens. After these amendments to the tax code entered into force, we tried to find out whether and how the rules have been applied to financial institutions. We sent letters to a number of commercial banks (Procredit Bank, TBC Bank, Bank of Georgia, Cartu Bank, Bank Republic and Liberty Bank) requesting information about any occasions when the property of one of the bank’s debtors was auctioned in order to satisfy a tax debt which had arisen before the bank registered a lien on that specific property (that is, instances in which the new rules were applied to that bank’s assets).

Only two banks out of the six responded to our letter. These were Cartu Bank and Procredit Bank. According to Procredit’s response, no such auctions affecting that bank’s assets had occurred as of February 2, 2012. According to media reports, as of January 29, 2012, there were no cases of application of the new rules to assets held by TBC Bank either.

The story for Cartu Bank is different. According to their response to our letter, between the date the amendments to the tax code entered into force (October 28, 2011) and January 27, 2012, tax authorities discovered tax debts of 16 of Cartu Bank’s debtors, all of which arose before the registration of the bank’s lien on the debtor’s property, and which were therefore newly subject to auction to satisfy the tax debt. These debtors’ property (49 lots) was auctioned.

Based on current legislation, the starting auction price of a property is half of its market price. Nevertheless, in most cases, there was no buyer at the auction, and so the state became the owner of the assets. There were two cases when a person bought the property, but in these cases the auction price was not paid and, ultimately those assets were transferred to the state as well. According to the information received from Cartu Bank, the bank estimates the aggregate market price of the auctioned properties is GEL 112,883,000.

Based on the information we have received so far, the burden of the new regulations has fallen only on one bank, which might indicate that these laws are being applied selectively. However, without information from other major Georgian banks, it is difficult to say for sure. We hope that those commercial banks which have not yet responded to us will make information concerning these regulations public, in order to shed light on this important issue.