“The Devil in the Details,” or Business Shredding Litigation
Paying as little taxes as possible and spending as little as possible on these goals is a completely understandable and natural desire for a merchant. Entrepreneurial businessmen come up with every second and try to implement a lot of schemes to minimize tax payments. Some of them can be realized with varying degrees of success, while others remain only “gymnastics for the mind” and do not live to the stage of implementation. Still others are successfully applied and are widely used. But, as you know, every action gives rise to opposition. And now, having received fame and recognition of wide circles of the business community, business fragmentation has become the object of fierce opposition from the tax authorities, which are not satisfied with the reduction in the flow of tax revenues to the budget. However, experts of the Federal Tax Service of Russia could not come up with any intelligible arguments prohibiting the actions provided for by the Civil Code of the Russian Federation for a rather long time, and the legislator introduced article 54.1 into the Tax Code of the Russian Federation (subparagraph 1 part 2, which prohibited actions, the main result of which is incomplete tax payment) only in 2017.
In the understanding of the entrepreneur, the fragmentation of a business is its restructuring, as a result of which the company gets the opportunity to save on taxes, free itself from non-core assets, re-profile the business and so on, which, by the way, is not prohibited by the current legislation of the Russian Federation. And what is not prohibited is allowed. For example, the Civil Code of the Russian Federation expressly provides for the possibility of reorganizing a legal entity by isolating new legal entities from its structure. Such a reorganization is a priori fragmentation. In fact, crushing is any scheme that provides for the reorganization of a business (production) in which, instead of one usually large taxpayer, several small ones with less tax deductions arise.
Employees of the Federal Tax Service still proceed from the fact that, since any fragmentation of a business leads to a reduction in taxes payable (due to a decrease in the tax base), it primarily aims to unreasonably reduce tax liabilities, which is illegal. Guided by this postulate, the Federal Tax Service of Russia additionally accrues actually unpaid taxes and requires their payment by the company that carried out the splitting.
It is a very controversial position from the point of view of the logic and meaning of the law, since both the main legal entity pays taxes to the treasury and those who stand out from it also bear this burden. And if the legislator, in his great wisdom, indicated that taxes are paid to a lesser extent before reaching certain performance indicators, then perverting or otherwise interpreting these legal norms is a shameful thing (at least for the “rule of law”, all the authorities of which convince their citizens of the validity of the application of this term in relation to the Russian Federation). Indeed, if you look, suppose a businessman finds out that for several years he did not enjoy privileges due to insufficient tax literacy, he decided to reduce the burden of expenses and, having rebuilt his business, began to pay less taxes. It would seem, well done, honor and praise be to him. But he was held accountable for a tax offense (incomplete tax payment). The ethical dilemma of this incident is that such an entrepreneur, in fact, did not deceive anyone, did not commit offenses, did not evade paying taxes, but simply used the methods provided for by the current legislation to reduce the tax base.
The rules of the game are the same for all players, and, from the point of view of the rule of law of both the Russian Federation and the Federal Tax Service, the same players as the entrepreneur. So why does independent, carried out at your own risk, activity related to the systematic receipt of profit (commercial activity in accordance with Article 2 of the Civil Code of the Russian Federation), in the event of fragmentation, become objectionable to the state? After all, it (the state) itself provided the opportunity to pay taxes on preferential regimes? And the answer is quite simple and lies in the very definition of entrepreneurial activity – attention: the activity should be independent.
Indeed, in the example I have cited, an entrepreneur who has created several enterprises in the same industry with similar activities will inevitably find himself in a situation where at least one of the links in his crushing chain becomes dependent on another, which excludes his independence.
The position of the Federal Tax Service does not always resonate in the ranks of the senders of justice. Moreover, to date, a perfectly acceptable practice has developed. The question of the legality of business fragmentation has been brought up for discussion by the RF Armed Forces more than ten times. And the number of litigations related to “business fragmentation” is currently huge. After analyzing the judicial practice for 2018, we can make sure that in disputes regarding obtaining unreasonable tax benefits by splitting up a business, court decisions were made with an indicator of about 50 to 50.