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When business fragmentation can be deemed illegal

When business fragmentation can be deemed illegal

In August 2017, tax authorities released a list of the circumstances that could serve as evidence of illegal business fragmentation, such as:

·The single production process is divided between the companies with simplified tax system, instead of payment of VAT and profit tax from one legal entity;

·Several related entities are engaged in the same activity;

·Companies share common costs in each other’s name;

·Customers and suppliers are redistributed between legal entities depending on the taxation system;

·Activity of some companies is purely formal, etc. 

This list based on court practice can help organizations to prove the legitimacy of fragmentation as long as it was based purely on their business needs.