Main points
- “Business splitting” in Ukraine is a scheme where a large enterprise is divided into several sole proprietorships to avoid paying full taxes.
- Such actions are subject to fines, additional tax assessments, and, in the case of large amounts, criminal liability.
How exactly is “business fragmentation” detected / Depositphotos
There are cases when several small sole proprietorships operate under a common signboard and brand within one business unit, such as a store or cafe. This is one of the popular schemes in Ukraine – “business fragmentation”, which hurts the state budget.
What is “business fragmentation” and what are the key signs?
“Business fragmentation” is the deliberate division of a large or medium-sized enterprise into several separate individual entrepreneurs who apply a simplified taxation system, writes “Ekonomichna Pravda”.
This approach allows you to formally stay within the income limits and reduce the tax burden, but its goal is exclusively to avoid paying taxes in full,
– the explanation says.
Among the characteristic features of a shadow scheme:
- same IP address for banks and RROs and/or PRROs
- common registration address
- one retail space (retail outlet)
- one trademark, brand
- single composition
- have common accountants and employees
What are the consequences of “business fragmentation”?
Tax evasion through artificial “business fragmentation” is subject to fines, additional tax assessments, and in the case of large amounts, criminal liability.
In addition to financial consequences, such schemes can complicate company management and undermine the trust of partners and clients, tax officials remind.
How does the scheme work?
Business fragmentation schemes allow entrepreneurs not to show the entire turnover. Economist Oleg Getman and tax consultant Mykhailo Smokovich told this in comments to Channel 24 .
Large business fragmentation schemes are particularly common in retail and food service. They become noticeable when a supermarket or restaurant issues multiple payment receipts.
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.
To combat the business fragmentation scheme, the Ukrainian tax service needs a reboot. To do this, they need to pass bill No. 9243, but its consideration is being postponed. Tax consultant Mykhailo Smokovich also believes that the tax service currently does not have enough resources to expose the schemes , so it should be given more opportunities.
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 damage do shadow schemes bring to the state?
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The shadow economy in Ukraine causes losses to the budget of up to 1 trillion hryvnia, mostly due to salaries in envelopes, smuggling, and excise trade.
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Salaries in envelopes cause budget losses of 140-280 billion hryvnias, and “gray imports” and smuggling – 120-185 billion hryvnias.