Ukrainian civil aviation, which has been operating under a closed sky for the fourth year, has faced a new threat – the approach of the Bureau of Economic Security, under which disputes over standard international leasing transactions are transferred to the criminal plane. According to the head of the legal committee of the Aerospace Association of Ukraine, Ruslan Melnychenko, this is inconsistent with international practice of leasing taxation, creates legal uncertainty and may lead to the loss of contracts, fleet and highly qualified personnel even before the resumption of flights in Ukraine, writes UNN.
After the start of the full-scale war, Ukrainian airlines were forced to completely restructure their operations: relocate abroad, seek new markets, refocus on fulfilling international contracts and maintain activities to preserve personnel and competencies until the resumption of flights in Ukraine.
From discussion to criminalization
According to the words of Ruslan Melnychenko, for over 30 years, Ukrainian legislation on taxation of leasing payments made by air carriers to lessors who are non-residents of Ukraine has not changed. At the same time, in May 2024, the State Tax Service published an article according to which payments for financial and operational leasing of aircraft may be interpreted as royalties.
That is, it is about the fact that the STS decided to interpret the lease of air transport as the use of intellectual property. Obviously, this interpretation is supported by some representatives of state bodies and, for example, not all tax officials who are deeply versed in international taxation share this approach.
However, according to the expert, it is precisely this interpretation that created the preconditions for the transfer of the tax dispute into the criminal plane.
"At first glance, this could look like a debatable position or 'analytics'. But it is precisely such interpretations in the tax sphere that quickly become practice - first in the form of claims, then in the form of additional charges, and then (which is most dangerous) - in the form of attempts to transfer a dispute about the qualification of an operation into the criminal plane," noted Ruslan Melnychenko.
Today, this approach already has practical consequences. As UNN previously reported, the Bureau of Economic Security is investigating criminal proceedings against a number of Ukrainian airlines, including PJSC "Ukraine International Airlines" (UIA), PJSC "Airline "Constanta", PJSC "International Joint Stock Aviation Company "URGA", LLC "N3OPERATIONS" and LLC "Airline "Skyline Express".
The expert emphasizes that this practice creates several critical risks for Ukrainian carriers at once. First of all, this is the loss of international contracts, deterioration of financing and leasing conditions, as well as reputational losses in relations with foreign partners.
"Every month of legal uncertainty is a direct loss of contracts, higher cost of financing, deterioration of leasing conditions and acceleration of the 'washout' of Ukrainian competence from the market. Additionally, airlines bear reputational risks: it is difficult for international partners to explain the logic of a situation in which an operation standard for the global market begins to be perceived as a basis for criminal claims. Companies are forced to spend resources on defense and processes, although they are already working in survival mode due to the war and closed sky," emphasized Ruslan Melnychenko.
The key problem in the interpretation of leasing
The head of the legal committee of the Aerospace Association of Ukraine explains that the key problem lies in the attempt to equate leasing payments to royalties.
"The problem boils down to a basic question of qualification: can the payment for the use of an aircraft under a lease be equated to royalties - that is, to payment for the use of intellectual property. This is where collisions arise not only with the logic of civil and tax law, but also with the principles of applying international conventions on the avoidance of double taxation," points out Ruslan Melnychenko.
The expert explained that in international law, royalties are remuneration for the use of intellectual property objects, i.e., patents, technologies, copyrights, trademarks or software. In contrast, leasing involves the use of a tangible asset, in this case in aviation - an aircraft.
"Transport and equipment may contain intellectual solutions, but this does not mean that the vehicle itself automatically becomes an 'object of intellectual property' for tax purposes. Leasing, on the other hand, is a form of using a tangible asset: the airline receives a physical aircraft for use, which is used for transportation. The leasing payment is a payment for the use of property," notes Ruslan Melnychenko.
Interpretation of leasing as royalties contradicts international law
The head of the legal committee of the Aerospace Association of Ukraine drew attention to the fact that the interpretation applied by the BES to leasing in criminal proceedings contradicts the logic of international conventions on the avoidance of double taxation, which are designed to ensure predictability for international business.
"Blurring the boundaries between these categories creates a systemic risk, because it is the qualification of the payment that determines whether Ukraine has the right to tax, what rate can be applied, and whether double taxation arises," the expert noted.
According to him, the Conventions on the Avoidance of Double Taxation, which are in force between Ukraine and a number of foreign states, are a mechanism that allows international economic activity to be predictable.
"If a state signs and ratifies such conventions, but then tries to reclassify a basic business transaction in order to obtain an additional right to tax, this undermines the very idea of international obligations," believes Ruslan Melnychenko.
Substitution of the fiscal process with a criminal one
Separately, the lawyer emphasized that tax disputes should be resolved exclusively within the framework of tax legislation – through audits, tax assessment notices and judicial appeal, and not through criminal prosecution.
"The most dangerous thing in this story is not the existence of the dispute itself, but the attempt to resolve it with the 'wrong tool'. Tax law has its own procedures: audit, tax assessment notice, administrative and judicial appeal. This is how complex issues of income qualification are resolved in a state governed by the rule of law," noted Ruslan Melnychenko.
The lawyer is convinced that criminal law should not replace the fiscal process, especially when it comes not to the fictitiousness of transactions or concealment of income, but to the interpretation and application of international law norms.
Melnychenko is confident that in this situation, the state should eliminate legal uncertainty as soon as possible through dialogue between the STS, the Ministry of Finance, relevant authorities, parliamentary committees and representatives of the aviation industry.
As a result, a unified official position on the qualification of leasing payments in international operations should be formed; uniformity of law enforcement; and a clear distinction where a tax dispute is and where criminal liability is.
In his opinion, if there are indeed abuses, they need to be proven with evidence, not by 'expanding' the concept of royalties to a level that blurs the boundaries between property and licensing relations.
"This situation undermines both trust in Ukraine as a partner that fulfills its international obligations, and the ability to preserve its own civil aviation until the sky opens. If we lose the business, fleet and teams now, then we will have to restore not just transportation - we will have to restore the industry. That is why the state's response must be quick, meaningful and based on law, not on arbitrary interpretations," the lawyer emphasized.
Reminder
As UNN wrote earlier, the BES deliberately ignores judicial practice that does not allow taxing transport leasing as royalties. In their rulings, courts remind that international conventions ratified by Ukraine have priority in application over national tax legislation.
This approach to taxation is not just an erroneous interpretation of tax law norms, both Ukrainian and international, but a 'tax on the Ukrainian flag', which makes Ukrainian air carriers uncompetitive on the global market, believes an expert in the fields of transport and mechanical engineering, executive director of the Public Union "Ukrainian Air Transport Association" Mykola Shcherbyna.