Signs of illegal business fragmentation: how the Federal Tax Service defines violations

The Tax Code of the Russian Federation (paragraph 1 of Article 54.1) defines understating the amount of taxes payable by splitting up a business as an illegal way of non-payment of taxes. Signs of illegal business fragmentation are increasingly attracting the attention of the tax service.

What does the Federal Tax Service focus on when conducting inspections:

• general approaches to determining signs of business fragmentation based on the analysis of judicial practice presented in the reviews of judicial practice (letters of the Federal Tax Service of Russia dated 07/16/2024 No. BV-4-7/8051@, dated 08/11/2017 No. CA-4-7/15895@) and explanations on the application of the provisions of Article 54.1 of the Tax Code of the Russian Federation (letter of the Federal Tax Service of Russia dated 03/10/2021 No. BV-4-7/3060@);
• current legal positions of the Supreme Court of the Russian Federation, reflected in paragraphs 11-14 of the review of practice approved by the Presidium of the Supreme Court of the Russian Federation on 12/13/2023, and paragraph 4 of the review of practice approved by the Presidium of the Supreme Court of the Russian Federation on 07/04/2018;
• judicial practice of resolving tax disputes by arbitration courts based on the above-mentioned approaches.

Obviously, the list of criteria is not closed: inspectors can draw a conclusion based on a number of indicators, many of which are not formal. And then the business will have to prove the correctness of paying taxes already in court.

At the same time, analyzing the activities of interdependent persons, the Federal Tax Service may additionally take into account:

• community of founders and (or) heads of organizations, employees;
• unity of personnel policy;
• accounting by the same person;
• matching IP addresses;
• general access to the disposal and management of funds;
• matching location addresses;
• common means of communication and identification, contractors, representatives, material and technical resources;
• cost sharing by the participants of the scheme;
• signs of formal document management.

These signs are not exhaustive, and the actual circumstances of the activities of a group of formally independent persons are analyzed on a case-by-case basis. The taxpayer has the right to challenge the conclusions of the tax authority by providing evidence of the independent activities of the group members in organizational, financial and other aspects and the existence of reasonable economic reasons for choosing such a business structure. But in practice, such proceedings are conducted in court, which often sides with the regulatory authorities. In this case, the business can only pay taxes, penalties and fines accrued by the Federal Tax Service, as well as pay court costs.

Study all the necessary regulations yourself or order a check to determine the presence of fragmentation – we will carefully analyze your business, identify existing risks and give recommendations on how to reduce the risk of violations in your company.