Business fragmentation methods – Valen

There are some special regimes in the Tax Code that can help small organizations. But they are often used for the purpose of incorrect optimization of large businesses. For example, when a taxpayer does not meet the criteria for applying a preferential tax system, but at the same time uses it, while reducing the tax burden.

Business fragmentation is the division of a company and the artificial distribution of revenue between interdependent persons in order to obtain unjustified tax benefits. This is done in order to save on paying taxes under a special regime and get tax benefits.

The main signs of business fragmentation (Letters of the Federal Tax Service dated 11.08.2017 N CA-4-7/15895@, dated 10.03.2021 N BV-4-7/3060@):

• reduction of the company’s tax burden on the OSN after the appearance of new partners using special regimes or benefits;

• transfer of employees to new companies without changing functions and jobs;

• interrelated activities aimed at achieving a common result;

• common suppliers and buyers, premises, websites, contact phone numbers.

The legislation does not prohibit the creation of many interdependent companies, even those involved in a common business process.

How to properly split up a business

To avoid fines and restrictions, you need to follow simple rules:

• rent separate offices for each company;

• buy your own equipment and machinery for both companies;

• stick to the same tax burden that was before the business split;

• hire different employees. Each organization should have its own staff of people who cannot work in two companies at the same time;

• pay taxes and household expenses from your checking account;

• choose different OKVED for companies.

Mistakes when splitting up a business

The main mistakes when splitting up a business:

• a single production process for both companies controlled by the same entrepreneur;

• common property for business activities;

• creation of a new legal entity shortly before exceeding the limit prescribed in the tax code;

• identical registration addresses, IP addresses of websites, accounts in the same bank.