Tax authorities name key signs of "business fragmentation"

The State Tax Service has named the main signs of "business fragmentation."

This is stated in the report of the Tax Service, the Ukrainian News agency reports.

"Business fragmentation" is an artificial division of a large or medium-sized profitable company into several smaller business entities (most often individual entrepreneurs) registered under the simplified taxation system.

This division allows you to formally stay within the established income limits and avoid paying taxes in full. It is used solely for the purpose of minimizing tax liabilities.

Key features:

- the same IP address for bank terminals, Settlement Transactions Registrars / Software Recorders of Settlement Operations;

- a common registration address;

- one commercial premises (point of sale);

- one trademark/brand;

- a single warehouse

- common accountants, employees and other resources.

What are the risks and consequences:

- Artificial division of activities contradicts the principles of the simplified taxation system. The risk is growing every year as the state more actively controls related parties and monitors financial flows.

- Fragmentation complicates business management. Instead of one structure, you have to maintain several individual entrepreneurs: separate reporting, bank accounts, contracts, and HR documents. This increases time and resource costs.

- The massive creation of sole proprietorships can worsen a company's reputation. Counterparties often have a negative perception of such schemes, which look like tax evasion, and prefer transparent and predictable interaction with partners.

As the Ukrainian News agency earlier reported, in early February, the Tax Service identified 10 well-known retail chains that used business fragmentation schemes, and the possible tax evasion is at least UAH 1 billion.

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