Main points
- Detectives from the Bureau of Economic Security uncovered a tax evasion scheme by the EconomClass chain of stores through 530 individual entrepreneurs, which led to budget losses of over 38.6 million hryvnias.
- Law enforcement officers conducted 23 searches in five regions, seizing information related to the activities of more than 530 individual entrepreneurs who were used to reduce the tax burden.
Detectives from the Bureau of Economic Security have uncovered a large-scale tax evasion scheme in the second-hand trade. According to the investigation, the chain of stores operated through more than 530 controlled individual entrepreneurs in order to reduce the tax burden.
Which network of seconds evaded taxes?
The store chain EconomClass is likely involved. Estimated budget losses exceed 38.6 million hryvnias, BEB reported.
Law enforcement officials claim that in fact the business operated as a single structure with centralized management, but was legally divided into dozens of individual entrepreneurs using a simplified taxation system.
At the same time, as noted, after exceeding the income limits, individual entrepreneurs were not transferred to the general taxation system – they continued to be used in the splitting scheme.
According to the investigation:
- in previous years, 23 individual entrepreneurs were involved in the scheme;
- transactions worth more than 231 million hryvnias were carried out through them;
- The budget could have missed out on more than 38.6 million hryvnias in VAT.
Separately, detectives conducted 23 searches in five regions – at enterprises, at the places of residence of the suspects, and in premises that could be used to coordinate the network.
During the investigative actions, information carriers related to the activities of more than 530 individual entrepreneurs were seized.
What does this mean?
- Splitting schemes through individual entrepreneurs remain one of the main tools for minimizing taxes in retail trade
- Control over the simplified taxation system may be strengthened
- Such cases usually become the basis for new legislative changes in the field of individual entrepreneurs.
Note! BEB captures the classic scheme of splitting large businesses into hundreds of sole proprietorships. Such models allow for significant tax reductions, but are increasingly becoming the subject of criminal proceedings.
What could be the consequences for the economy of such schemes?
The chairman of the Verkhovna Rada's tax committee, Danylo Hetmantsev, considers the growth in the number of individual entrepreneurs in recent years to be abnormal, writes “Ekonomichna Pravda”.
It is an absolute anomaly when the number of individual entrepreneurs increases during the war. Our economy has collapsed. If we continue to ensure GDP growth at this pace, we will reach the volumes of 2021 (in real prices) only in 2038. Where do we get the “plus” 200 thousand individual entrepreneurs?
– the official said.
According to him, such a trend may indicate the expansion of the shadow economy, in particular “business fragmentation” schemes.
For example, in Ukraine there are a number of retail chains of stores that are not registered legally, but split their business into a number of individual entrepreneurs in order to avoid paying VAT. At the same time, there is also a “white” business that operates honestly.
By the way, The shadow economy in Ukraine causes budget losses of up to 1 trillion hryvnia , mostly due to salaries in envelopes, smuggling and excise trade. Salaries in envelopes cause budget losses of 140-280 billion hryvnia, and “gray imports” and smuggling – 120-185 billion hryvnia.
How does the “business fragmentation” scheme work?
Business fragmentation schemes work because individual entrepreneurs are not able to show their entire turnover, as well as because the tax authorities lack tools to hold them accountable. If violations are discovered, small participants in the scheme may be hit, as they are held responsible for a business they do not run themselves. About this in the comments of Channel 24 told economist Oleg Getman and tax consultant Mykhailo Smokovich.
Oleg Getman
Economist, coordinator of expert groups of the Economic Expert Platform
All these splitting schemes in restaurant and retail chains are built on the fact that they are not just split into individual entrepreneurs, but also individual entrepreneurs do not issue the vast majority of fiscal checks. That is, they do not show their turnover and thanks to this they can continue to exist as individual entrepreneurs. If you force them to show all their turnover, then the splitting scheme becomes almost uninteresting. Because the limits will end in a month or a few weeks. Too many of them will have to be changed, so it will be more profitable to switch to a common system.
Economist Oleg Getman says that the fight against this and other shadow business schemes in Ukraine depends on rebooting the tax service. To do this, draft law No. 9243 must be passed, but its consideration is being postponed.
Without a quality tax service and the Bureau of Economic Security, nothing will work at all. The bill must be passed to completely reboot the tax service. When the internationalists come, elect a new leadership, then reboot all the personnel, re-certify with the integrity commission and ethics commissions, all the scoundrels will go on vacation, and quality people will remain and recruit such specialists to the tax service,
– says the expert.
Tax consultant Mykhailo Smokovich believes that the tax office currently does not have enough resources to expose schemes, so it should receive more opportunities to hold businesses accountable.
Mykhailo Smokovich
Accountant, tax consultant
The tax office should detect such cases, but its tools are limited. If detected, it can interpret this as a fragmentation of the business and try to collect all these individual entrepreneurs together in the acts. And all the turnover that went through this store should be taxed not under the simplified system, as the company did, but under the general system. But here it is very difficult for the tax office to collect everything together, detect and hold the company itself accountable.
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What other schemes does the BEB expose?
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Law enforcement officers have uncovered a scheme to smuggle alcohol into Ukraine under diplomatic cover worth over 4 million hryvnias. Six suspects were charged, and the court set bail at almost 1 million hryvnias each.
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BEB detectives dismantled the underground production of counterfeit coffee, conducting 22 searches and seizing property worth about 20 million hryvnias. Counterfeit coffee was produced and sold through online stores, messengers, and coffee shops, using fictitious business activities.