The interpretation by the State Tax Service of aircraft leasing as royalties requires an official clarification from the Ministry of Finance, because without a unified approach to the application of international conventions, the tax dispute surrounding the aviation industry will only deepen. This was stated during a round table "New tax practice regarding aircraft leasing" by a member of the Public Council under the Ministry of Finance, certified auditor and tax consultant Tetiana Shevtsova, reports UNN.
The problem arose after the State Tax Service began interpreting lease payments for the use of aircraft as royalties in 2024. This became the basis for the Bureau of Economic Security to open criminal proceedings against Ukrainian airlines. The investigation believes that the airlines allegedly improperly applied the provisions of international conventions on the avoidance of double taxation and did not withhold tax when paying income to non-residents.
According to Shevtsova, this position of the tax service is based on an overly broad interpretation of the term "royalties." She emphasized that the comments to the OECD Model Tax Convention, which the State Tax Service refers to, define equipment leasing as royalties only in a narrow context – when it is used with the transfer of intellectual property rights.
"Why in this case do you not pay attention to the fact that the Model Convention also interprets such payments as royalties only in the case of leasing equipment that is related to the transfer of technical drawings or a production process? It is precisely such cases that are mentioned in the comments to the Model Convention," Shevtsova noted.
Accordingly, such an approach cannot be applied to aircraft.
"The terminology of 'equipment' and 'vehicles' is clearly distinguished according to all norms of accounting legislation and international standards. Airplanes, containers, wagons – these are not equipment, these are vehicles. Therefore, this story is so stretched, and it still needs to be resolved correctly," emphasized the member of the Public Council under the Ministry of Finance.
That is why the issue requires official regulation at the level of the Ministry of Finance. A generalizing tax consultation would allow forming a unified approach to the application of the norms of the Tax Code and international conventions on the avoidance of double taxation, eliminating legal uncertainty for both businesses and regulatory authorities.
But there is less and less time left for such a decision. As previously reported by UNN, Ukrainian airlines are already being charged an additional 15% tax on lease payments not only for the future, but also retrospectively – for operations carried out over the last seven years. At the same time, the average profitability of air carriers is about 7-10%, so such an additional tax burden could become critical for the industry.
At the same time, neither the Tax Code of Ukraine nor the international conventions on the basis of which these payments were made have changed during this time. In fact, the new interpretation is applied to legal relations that have not caused any claims from the state for decades.
Recall
The Bureau of Economic Security is investigating criminal proceedings against at least five Ukrainian air carriers: MAU, "Aviation Company Constanta," "Urga," "N3OPERATIONSHINS," and "Skyline Express." In the materials of these proceedings, the BES questions the application by airlines of the provisions of international conventions on the avoidance of double taxation, and the amounts of allegedly unpaid taxes in individual cases reach tens of millions of hryvnias.
Criminal prosecution is taking place in extremely difficult conditions for the industry. After all, after the closure of the airspace, Ukrainian civil aviation has actually been operating outside the country for more than four years. To preserve their business, airlines were forced to relocate their fleet and personnel abroad, reorient their activities to international markets, while awaiting the resumption of flights in Ukraine.