The State Tax Service of Ukraine has identified the indicators it currently uses to detect so-called “business splitting.”

A shared brand.

The same address.

The same store, warehouse, or equipment.

Shared employees.

A single website.

The same IP addresses used for online banking, software-based cash registers (PRRO), or tax reporting.

Shared suppliers.

A single management center.

The tax authorities pay particular attention to situations where one sole proprietor approaches the statutory income threshold and sales are then effectively continued through another sole proprietor — from the same premises, under the same brand, and serving the same customer base.

According to the State Tax Service of Ukraine, these may be indicators that what formally appears to be several separate sole proprietors is, in substance, a single business artificially divided among multiple entities in order to benefit from the simplified taxation system.

And this is where a very fine line must be drawn.

A shared brand is not, in itself, a violation. Neither is a common address. The same applies to shared suppliers. Cooperation between a legal entity and a sole proprietor, or between several sole proprietors, is not unlawful in itself.

Businesses have the right to independently choose their business model, organizational structure, and counterparties. The law does not require an entrepreneur to conduct business in a manner that results in the highest possible tax burden.

The risks become significantly more serious when different sole proprietors do not, in practice, make independent business decisions or pursue their own economic interests, but instead operate as parts of a single business; when the movement of funds, personnel, goods, and customers is coordinated from a single management center; and when the division of business operations has no reasonable economic explanation other than reducing the tax burden.

At the same time, it is important not to confuse indicators with evidence.

An indicator of business splitting is not, in itself, proof of business splitting.

The indicators identified by the State Tax Service cannot automatically turn a lawful business model into a tax violation. Each case requires an individual assessment of the actual relationships between the parties, their operational and economic independence, the economic substance of their transactions, and the purpose behind the chosen business structure.