"Tax optimization": legal qualification and impact on Ukraine’s budget

Abstract

The purpose of the study is to analyze "tax burden optimization", specifically one of its forms - "business fragmentation". For this purpose, a set of the scientific methods was used, in particular, generalization of current legislation, systemic analysis, and forecasting. The relevance of the research topic is due to the increase in the number of publications by law enforcement officers and tax authorities on exposing misuse of the simplified taxation system. Most of such actions of taxpayers are classified under criminal law, the provisions of which do not correlate with the actual act. In addition, scientists have not given due attention to the consideration and assessment of the legality of such practices by regulatory authorities. In view of this, the purpose of the article is to interpret the mechanism of “business fragmentation” and justify its belonging to a certain form of minimizing the tax burden.

As a result of the research, the differences, history and features of the simplified taxation system were analyzed. The main criteria are identified - advantages which include a simplified registration procedure, reduced bureaucratic burden associated with accounting, simplicity of calculation and the absence of other taxes, except for the single tax. The disadvantages include  a fixed tax rate, mandatory payment of a single social contribution, low fiscal efficiency and the possibility of misuse of the simplified taxation system.

The key difference between “business fragmentation” and  «fictitious self-employment» of employees is assessed, in which there are civil law relations based on a contract between an employer and an employee registered as an individual entrepreneur. The main characteristics of “business fragmentation” expressed in financial, organizational and economic relations, enshrined in the EU Directive, are analyzed.  The provisions of this act are detailed in the practice of both foreign and national regulatory authorities - in particular, the National Bank of Ukraine. It was found that national criminal legislation does not provide for liability for the use of this mechanism, despite the activities of regulatory authorities. For this reason, this method of minimizing the tax burden is classified as a form of tax avoidance.

The conclusion states that  changes to the legislation, regulating the simplified taxation system, are inadvisable. If amendments are introduced, a balance must be maintained in order to be able to stimulate small and medium-sized businesses.