Business split scheme: signs and risks
The term “business fragmentation”
Before we talk about business fragmentation, I would like to decide on this concept, which today has become widespread both among taxpayers, tax and judicial authorities.
It should be noted that the concept of “business fragmentation” is not defined by any legal document. But, as a rule, all parties understand that the term “business fragmentation” means dividing the economic activity of an economic entity into parts according to some criterion in order to achieve certain goals.
For example, a manufacturing company allocates “salespeople” into an independent organization, registering a trading house, which is exclusively engaged in the sale and promotion of products of this company. And then the supply service is allocated, which carries out only the supply of raw materials for production, etc. All new organizations interact with each other, optimizing the production process as a whole. No one has anything against such a fragmentation of business, including tax authorities.
But, as practice shows, today business fragmentation does not always have as its aim the obtaining of an economic effect such as in the form of an increase in profit, and often the main and only meaning of the division of economic activity is minimization of tax payments. And this is due to the fact that instead of one large or medium-sized enterprise, which is a payer of VAT and income tax, several LLCs are formed, as well as individual entrepreneurs using UPDF. This is exactly the option of splitting up a business that provokes a protest from the tax authorities: they believe that as a result of applying this scheme, an economic entity receives unreasonable tax benefit by reducing the corresponding tax liability or evading it.
Thus, today the term “business fragmentation” is negative. According to the tax authorities, by dividing the business and applying special tax regimes, we emphasize that they are allowed by the current tax legislation, taxpayers abuse their rights.
For information: over the past four years, the arbitration courts have examined more than 400 cases for an amount exceeding 12.5 billion rubles, in the framework of which the non-normative acts of tax authorities disputed as a result of tax control and containing conclusions about taxpayers receiving unjustified tax benefits as a result applying a business split scheme.
We do not set as our goal to evaluate the actions of tax authorities that apply this approach. But it must be remembered that the presumption of innocence also applies to taxpayers: after all, not all of them are malicious tax evaders. And often dividing a business into parts really has an economic purpose, and if tax payments are minimized at the same time, then who will refuse it?
Although it is also not worth idealizing taxpayers: everyone wants to pay less taxes, using all possible legal methods.
Here I want to emphasize that all the “schemes” of business fragmentation ultimately boil down to one thing: the transfer of the ultimate business entity – LLC or individual entrepreneur – to the USNO or special mode in the form of UTII. Today, perhaps, even the simplified taxation system is applied more widely than the taxation system in the form of UTII. Of course, the use of simplified taxation system for an economic entity means a reduction in tax payments as a whole compared to the application of the general taxation system. But after all, USNO is a legitimate tax regime, it is not a complete tax evasion, why is the tax authorities prejudiced about the use of this special regime? This is a rhetorical question, since the goal of the tax authorities is to increase tax collection, and not to alleviate the tax burden of taxpayers. That is why now we are faced with the task of identifying signs of business fragmentation in order to obtain unreasonable tax benefits in the understanding of tax authorities; at the same time, they are recognized by the courts as unlawful. Tax authorities today pay increased attention to this issue. Where does this line go?
Signs of business fragmentation
So, since the ultimate goal of the taxpayer is to minimize tax payments through the use of the simplified tax system, which has a number of restrictions on its application, business splitting is aimed at circumventing these restrictions.
Accordingly, based on economic conditions, taxpayers divide their activities, which have certain restrictions that impede the transition to the simplified tax system.