Artificial business fragmentation: ESBU in the Volyn warns entrepreneurs of tax and reputational risks

 Tax «savings» through artificial business fragmentation can result in fines, reputational losses, and criminal liability.

These risks were discussed during a weekly meeting between government officials and entrepreneurs of the Volyn region within the «Dialogue between Government and Business» platform, organized by the Volyn Regional State Administration.

Serhii Matsko, Deputy Head of the Detectives Department and Head of the Unit at the Territorial Office of the ESBU in the Volyn region, participated in the meeting. The discussion focused on the tax and reputational risks of artificial business «fragmentation.»

This refers to cases where entrepreneurs use individual entrepreneurs (FOPs) not for real economic activity but to minimize tax liabilities.

At first glance, such a scheme may seem like a «legal» optimization method. However, the formal registration of individual entrepreneurs (FOPs) without a factual business purpose can lead to criminal legal consequences.

The risks do not only apply to the organizers of such schemes. Citizens who agree to become formal individual entrepreneurs may also become subjects of criminal proceedings.

Such actions may contain elements of criminal offenses under Article 205-1 and Article 212 of the Criminal Code of Ukraine. This specifically involves the submission of documents containing false information for the state registration of FOPs and intentional tax evasion.

ESBU analysts and detectives analyze and document such schemes, especially in sectors where they have become widespread.

«Business should abandon the practice of artificial fragmentation. Tax benefits saved in this manner can lead to the assessment of significant additional taxes, fines, reputational risks, and criminal liability, Serhii Matsko concluded.