There are two taxation systems in Ukraine: the general system and the simplified system.
The simplified system предусматривает the use of fixed tax rates or a single tax and significantly simplifies tax accounting and reporting for business entities.
At the same time, for medium-sized and large businesses, the simplified system is often used as a tool to reduce tax liabilities through so-called “business fragmentation.” This practice is most common in the food retail sector, particularly in non-specialized retail stores, including those selling excisable goods.
The Main Department of the State Tax Service in the Odesa region notes that tax authorities continuously analyze available tax information and identify potential risks that may indicate tax evasion and the use of tax minimization schemes through artificial division of business activities.
By “business fragmentation,” tax authorities mean the formal division of a single business activity into several separate entities, primarily sole proprietors, which are фактически controlled by the same owners or management for the purpose of reducing the tax burden.
The main indicators of such activity, according to tax authorities, include:
- the use of the same IP addresses by different sole proprietors to access client-bank systems and software-based cash registers;
- registration of a significant number of sole proprietors at the same address;
- operation of several sole proprietors within the same retail premises;
- use of a common trademark or brand;
- shared employees, management processes, and logistics.
The State Tax Service emphasizes that such schemes violate the principle of equal business conditions and may serve as grounds for applying tax control measures, including documentary and on-site inspections.
