Merchant accounts: tax risks

Merchant accounts: tax risks

Nowadays, many online businesses are using merchant accounts for the purpose of paying customers.

How does it work? 

A merchant account (or merchant account, literally "merchant account") is a special merchant account that allows a merchant company to accept payments using bank cards. 

The mechanism for using this financial instrument is as follows:

  • to process customer payments, an agreement is concluded between the merchant company and a payment card processing center (acquiring bank or payment aggregator (merchant account operator)) to open a merchant account; 
  • the customer pays for the goods and funds are credited to the Merchant Account; 
  • the received payment is processed by the acquiring bank or payment aggregator (merchant account operator); 
  • funds are transferred from the Merchant Account to the company's current account in the bank. 

If refunds or cancellations related to the transaction are made by the buyer while the funds are in the merchant account, they will be deducted from the merchant account before the money is transferred to the seller's current account.

Tax risks

Currently, the tax authorities have started to bring claims against companies related to the illegal use of merchant accounts by the companies themselves or their partners for the purposes of revenue concealment, similar to the use of dummy KKTs and POS terminals. 

According to the tax authorities, companies may use shell merchant accounts registered in the name of third parties. When payments are made in this way, money from customers may be transferred to the merchant account of another company, which may then cash out the funds. 

What should businesses do?

Companies should assess in advance the risks associated with the possible illegal use of merchant accounts by company partners and prepare a protection file in case of a potential dispute with the tax authority.