Dangerous tax schemes – how tax economy can attract the attention of the tax service
In an effort to minimize tax obligations, entrepreneurs sometimes resort to various schemes that can lead to serious consequences. Below are some of the most common tax schemes that attract the attention of tax authorities.
1. Business fragmentation
Business fragmentation involves the creation of several legal entities or individual entrepreneurs (sole proprietors) to distribute income and apply preferential tax regimes. This scheme attracts the attention of tax authorities, especially if the companies are interconnected. Signs of fragmentation include the interdependence of companies, the use of identical counterparties, and shared resources. Tax authorities can combine all organizations into a single business and impose additional taxes.
2. One-day companies
One-day firms are used to obtain unjustified tax deductions and inflate expenses. This usually happens through a fictitious document flow that allows you to declare non-existent VAT amounts. The tax authorities actively identify such schemes, and disputes over them often end in additional charges without litigation.
3. Artificial intermediaries
A scheme with artificial intermediaries, also known as “paper VAT,” involves using technical organizations to increase tax deductions or reduce the tax base. At the same time, there are virtually no transactions or deliveries. The tax authorities refuse to deduct VAT and recognize the costs of transactions with such intermediaries, which leads to significant additional charges.
4. Unjustified application of tax benefits
Some companies create residents of special economic zones to apply preferential tax rates. At the same time, connected organizations may overstate rental payments, which leads to a decrease in tax revenues. The tax authorities consider such schemes as an attempt to evade taxes.
5. Taxpayer’s “Migration”
Some entrepreneurs re-register their companies in regions with lower taxes, without having any real activity in the new location. The tax authorities may regard this as tax evasion and charge additional amounts, as well as fine the entrepreneur.
6. Registration of the general director as an individual entrepreneur
Some companies register an individual entrepreneur as general director in order to reduce their tax burden. This can lead to unjustified tax benefits if there is no real business purpose for such registration. The tax authorities may impose additional taxes if they consider that such a scheme is unjustified.
Using these tax schemes can lead to serious consequences, including additional taxes, fines, and even criminal cases. Therefore, entrepreneurs should avoid such practices and strive for a legal way to minimize tax obligations.
