Tax authorities report large-scale tax evasion schemes: what is known about “business fragmentation” in retail chains
3 February 20:43
The State Tax Service reported that it had identified 10 well-known retail chains that, according to the agency’s estimates, could have evaded taxes by at least UAH 1 billion, Komersant reports.
According to the State Tax Service, these are chains operating in the following areas:
- retail trade in household appliances and electronics,
- clothing and footwear sales,
- food retail.
To implement these schemes, the tax service claims that the companies involved more than 800 individual entrepreneurs.
What is the essence of the suspected scheme?
The State Tax Service claims that retail chains used so-called “business fragmentation” — the artificial division of a large or medium-sized company into dozens or hundreds of individual entrepreneurs who formally operate under a simplified taxation system.
The tax authorities emphasize that this practice:
- has no business purpose;
- is used solely to minimize tax liabilities;
- allows companies to remain within the income limits set for the simplified system and avoid paying taxes in full.
Why this issue has become relevant again
The tax service is paying more attention to business fragmentation schemes against the backdrop of:
- the growing role of tax revenues in financing the budget during the war;
- a review of approaches to the application of the simplified taxation system;
- demands for tax fairness between small and large businesses.
The agency notes that the use of sole proprietorships in large chains distorts the very idea of a simplified system, which was created to support small businesses.
What could threaten businesses
Although the names of the retail chains have not yet been disclosed, if violations are proven, companies may face:
- additional tax liabilities;
- fines and penalties;
- criminal liability in the event of intentional tax evasion on a particularly large scale.
Previous cases
Previously, tax and law enforcement authorities reported the exposure of a business fragmentation scheme in Transcarpathia in the food retail sector, which involved tax evasion on a particularly large scale.
