Simplification of the business structure: 5 reasons for enlarging a group of companies and 6 reasons not to do this
Structuring a business is usually associated with an increase in the number of companies in a group. There are many reasons for this. There are even more solutions to isolate certain functions into separate entities. But today we will not split up, but enlarge the business. Simplify the structure of the company.
As practice has shown, there is no less motive to reduce the number of companies in a group than to multiply it. Especially against the background of tax control, which is actively opposing the artificial fragmentation of the business. We will begin with tax incentives to simplify the legal structure of companies.
1. No more face-to-face companies needed
For example, in the wholesale business there are several Trading houses, the turnover of each of which did not exceed 2 billion rubles, so as not to be separately registered as the largest taxpayer.
Since 2018, the criteria for recognizing taxpayers as the largest have changed, raising the revenue threshold to 10 billion rubles. Therefore, for some medium-sized companies, the previous restriction ceased to be relevant.
In addition, the incorrect integration of several sales companies into the business often leads to a doubling of revenue, internal resales, manipulation of taxes of the current period (where – how much to pay), hanging debts, cross-employment of employees.
Simplification of the business structure seems to the owner and CFO as an obvious task.
2. In the current scope of business, business is within the limits for special tax regimes for one company
The company sells goods to individuals, no VAT is needed, which means that the application of a simplified tax regime is a priority.
First, one company was created, then another. Indeed, with the simplified tax system, the revenue limit is strictly limited … However, when the companies were created, this limit was 20 million, then 60, then 79. And now – 150. Moreover, against the backdrop of the crisis, the business slowed down. And one legal entity is enough, however, several companies are historically supported. Let’s disaggregate.
A few years ago, it was decided to formalize the production base in the ownership of the “Custodian of assets” using the simplified tax system. Among other things, according to the plan of the entrepreneur, this could help to avoid property tax. However, the notorious STS limits also apply to the value of fixed assets. Now it is 150 million rubles, and until 2017 – 100 million. Therefore, not one “Asset Keeper” was created, but four. And so it is to this day, although the property is constantly depreciated.
In other words: both limits were raised, and the residual value of the property was already close to zero. And four companies are becoming redundant, despite the fact that there are no risks of accusations of artificial fragmentation. Simplifying the ownership structure of assets seems to suggest itself.
3. Or vice versa: the business grew during the tax allowance and tried to fit into the limits for special tax regimes
One company, second, third … Until 10, everything was fine. At the twentieth company, the owner realized that he was losing the feeling of control over the business. The owner wants to be able to look around his “empire.” And it is desirable with all the fundamental features: profit generation points, the ratio of assets and accounts payable to banks and suppliers, growth prospects, etc.
He wants but cannot. And then there are banks with a constant demand to submit consolidated financial statements for loan approval. Next up are the tax authorities, who insist on “splitting up”. “Let’s simplify the structure of my business” – this is what the chief accountant or financial director will hear from the owner.
4. Legislative changes, restrictions on the applicable tax system for specific types of activities
From the latter: a bill banning UTII for organizations involved in the sale of goods subject to mandatory labeling, for example, clothes and shoes. Bill No. 720839-7 If it is passed, a huge number of representatives of medium-sized trading companies will be forced to enlarge their business.
5. I want to work, pay taxes and sleep peacefully
In any case, only the business owner can make the final decision on the shell of the business, focusing on:
assessment of the current situation and development prospects;
the presence / absence of other businesses, the translation of risks for which we would like to minimize;
desired value of the recoverable profit.
Considering the significantly increased number of appeals on similar issues, we add from ourselves – “slow down, take your time.” Indeed, when designing the structure of a group of companies in its current form, several factors were taken into account at once. And if one of them has lost relevance, you need to check the rest. And often they are not related to tax optimization:
1. Business security
The threat of raider seizure is not today something ephemeral. In contrast, many industries are consolidating with hostile takeovers.