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What are the most common cases of concealed distribution of profit in practice?
Are there events where we don’t realize that as a result of our management decisions, we are becoming involved in concealed distribution of the company’s profit?
How often do we, as managers of commercial enterprises, perform actions leading to concealed distribution of the company’s profit?
Managers, prevent large-scale sanctions and the negative consequences of tax inspections. If you have committed any of the listed actions, announce in the annual tax declaration of your companies a concealed distribution of profit and deposit a 5% tax on dividend on the amount. This way, you will avoid non-recognition of the reported expense and a sanction of 20% of its amount.
Decision one:
A decision is taken at a commercial enterprise to take stock of available materials, goods, cash, receivables, liabilities on the last day of each month. At one stock-taking, the commission discovers that cash funds are missing from the cash desk. The manager decides that the shortage will remain at the cost of the company, because he/she has ordered a payment without grounds. No claim has been made against the respective financially liable person appointed as cashier. The accounting financial result has been reduced by the missing amount, reporting another expense. The company has suffered loss of funds. However, it is not because of the business it pursues. This action of the manager leads to an unfavorable tax effect. The company will be penalized with 20% of the amount, because according to the legislator, it comprises concealed distribution.
Decision two:
On several occasions, amounts have been paid from the company’s cash desk with loan repayment as the grounds. They are BGN 10,000 (ten thousand leva) in total. The receiving creditor is unknown. There are no contracts of granted loans at the company which would be payable at the time. This action, authorized by the manager, leads to an unfavorable tax effect for the company. It will be penalized with 20% of the amount, because according to the legislator, it comprises concealed distribution.
Decision three:
Amounts have been paid from the company’s cash desk to repay a liability to a supplier. There is no indication of who that is specifically. No transaction nor invoice with number and date is indicated. The recipient of the amounts is unknown. This action, authorized by the manager, leads to an unfavorable tax effect for the company. It will be penalized with 20% of the amount, because according to the legislator, it comprises concealed distribution.
Decision four:
A manager of a commercial enterprise, on multiple occasions throughout the calendar year, has withdrawn amounts from the company’s current accounts. He/she has not provided accounting documents for them showing that they have been used for repayment of liabilities to suppliers, creditors, the budget. These actions comprise concealed distribution of the company’s profit and are reason for a sanction amounting to 20% of the amount.
Decision five:
Payments have been made from the current account of a commercial enterprise to related persons (spouse, children, parents, siblings, etc.) of the manager. The indicated grounds for the cash transfers are “loan”. No documents have been submitted to the company’s accountants proving the grounds for the transfers. No loan contracts have been concluded between the company and the related persons. No loan funds have been received from the manager’s related persons until the time of payment into the cash desk/current accounts of the company. These actions are considered concealed distribution of the company’s profit and are reason for a sanction of 20% of the total amount.
Decision six:
By decision of the sole owner of capital of the commercial enterprise, the manager has received a gift of a passenger vehicle. The sole owner of capital and the manager are the same person. A donation contract has been drawn up, a protocol of received donation has been issued, and the expense has been accounted for. In this case, the reported donation expense is not recognized for tax purposes. It has the nature of concealed distribution of profit, because it comprises dividend which has not been taxed at source. The company is liable to a sanction of 20% of the amount.
Decision seven:
A bonus has been distributed at the end of the year by decision of the sole owner of capital of the commercial enterprise, who is also its manager. The amount of the bonus is nearly the entire accounting profit achieved by the company throughout the year. A more favorable taxation has been achieved, as well as savings of social security payments, but it has not been taken into account that according to the legislator this action comprises concealed distribution of profit and leads to a 20% sanction.
As managers of commercial enterprises, by our actions, we aim to achieve lawfulness of the accounting documentation. Our main concern is to realize excellent financial results and pay insignificant amounts of tax. To implement that, it is best to comply with making company expenses which are documented in advance and in compliance with the accounting and tax legislation within the country.
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