Main points
- In the Odessa region, an entrepreneur used a “business fragmentation” scheme, dividing it into dozens of individual entrepreneurs to evade taxes.
- During the searches, documents, cash, seals, and flowers totaling over 10.5 million hryvnias were seized, and the businessman was declared a suspect.
BEB caught a violator who did not pay taxes / Collage of Channel 24, photo BEB
In the Odessa region, law enforcement officers have exposed an entrepreneur who was trying to reduce taxes through a scheme called “business fragmentation.” This involves selling flowers – both retail and wholesale – through a chain of stores.
What is known about the exposure of the “business fragmentation” scheme in the Odessa region?
According to the investigation, the entrepreneur artificially “split” his business into dozens of individual entrepreneurs in order to remain on the simplified system and not show real turnover, the BEB reported.
To do this, he registered relatives, acquaintances, and even vendors as individual entrepreneurs , although in fact they all worked as part of one business. All decisions were made by the organizer:
- The business had an office in the center of Odessa and a warehouse in an industrial zone.
- Flowers were sold through shops not only in Odessa, but also in Kyiv.
- In total, more than 60 people were involved in the scheme, some of whom were registered as individual entrepreneurs.
- Payments were made without cash registers, as well as through non-cash transfers to the accounts of more than 30 controlled individual entrepreneurs.
Thanks to this, the entrepreneur was able to hide the real sales volumes and, according to the investigation, did not pay more than 10 million hryvnias in taxes.
During the searches, documents of more than 30 individual entrepreneurs, work books, 511 thousand hryvnias in cash, drafts, seals and about 91 thousand flowers were seized. The total value of the seized items exceeds 10.5 million hryvnias.
The businessman has already been charged with large-scale tax evasion. The case has been referred to court.
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.
Other illegal businesses exposed by BEB
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A “business fragmentation” scheme was exposed in western Ukraine, which allowed a supermarket chain to avoid paying taxes in the amount of over 23.7 million hryvnias.
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The Bureau of Economic Security of Ukraine has exposed the largest illegal tobacco factory, which brought in over a billion hryvnias every month. During the searches, equipment, 750,000 packs of cigarettes, and materials worth a total of over 200 million hryvnias were seized.
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In the Lviv region, a local resident was engaged in an illegal business, selling collectible coins for cash without paying taxes. As a result, the budget received more than 13 million hryvnias in taxes and military fees. During searches, a record amount of revenue was found in his possession.