Attempts by the Bureau of Economic Security (BES) and fiscal authorities to reclassify international vehicle leasing as "royalties" have turned into a tool of forceful pressure on the aviation business. A standard commercial leasing operation for the global aviation market, which by its legal nature constitutes the use of property rather than the use of intellectual property objects, has come under criminal prosecution. Despite established judicial approaches and the effect of international conventions on the avoidance of double taxation, the BES is opening criminal proceedings against airlines, creating an effect of intimidation, blocking activities, and forcing the industry out of Ukrainian jurisdiction. Retired judges interviewed by UNN emphasize that investigators are obliged to take court decisions into account, and ignoring them creates risks of systemic pressure on business.
Criminal prosecution of the aviation business
Investigators of the Bureau of Economic Security have opened a series of criminal proceedings involving almost all Ukrainian companies that lease aircraft abroad from non-resident companies of Ukraine. The Bureau is convinced that airlines should pay royalties in Ukraine—a fee charged for the use of intellectual property. At the same time, the fact that transport is not intellectual property is completely ignored, as is the fact that Conventions on the avoidance of double taxation are in force between Ukraine and a number of countries. According to these agreements, Ukrainian companies pay taxes for leasing in the countries where the lessor companies are residents. At least 5 airlines have already suffered from BES pressure: UIA, "Constanta Airline", "Urga", "N3OPERATIONS", and "Skyline". Furthermore, court materials indicate similar approaches in other sectors; they are attempting to impose an additional levy on leased railway transport and even agricultural machinery.
It is important to understand that for over 30 years, the legislation regarding the taxation of leasing in Ukraine has not changed and previously raised no questions or remarks from either tax or law enforcement authorities. The situation changed after the State Tax Service of Ukraine published an article on May 24, 2024, with clarifications regarding the taxation of leasing operations by airlines. Tax officials indicate that the leasing of aircraft from non-resident companies must be taxed as royalties. In doing so, fiscal authorities are juggling articles of international conventions on the avoidance of double taxation, claiming that for aircraft rentals, airlines must pay fees as if for the use of intellectual property.
It is worth noting that the mentioned article on the STS website is not a normative legal act and cannot serve as a legal basis for changing the approach to taxation, let alone for the criminalization of standard business operations.
An additional risk is posed by the attempts of Bureau of Economic Security investigators to apply the new interpretation retrospectively to previous tax periods. This undermines the principle of legal certainty and predictability for the aviation business and effectively turns a commercial operation into a "trap" retroactively.
Such an approach 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 Mykola Shcherbyna, an expert in transport and mechanical engineering and executive director of the "Ukrainian Air Transport Association" Public Union.
Ukrainian civil aviation is going through one of the most difficult periods in the entire history of independence. The sky closed due to the war has destroyed the domestic air travel market; airlines were forced to relocate abroad, where fleet maintenance requires colossal expenses. Companies operate in difficult conditions of global competition, and additional fiscal and law enforcement pressure only deepens the crisis.
Courts are unanimous: leasing is not royalties
Ukrainian courts of various instances have repeatedly emphasized that vehicles are not objects of intellectual property, and therefore standard lease payments cannot automatically be considered royalties. This approach has been applied in a series of disputes regarding the rental and leasing of vehicles, including railway transport, as well as agricultural machinery.
For example, the High Administrative Court of Ukraine directly indicates that royalties pertain to the use of patents, trademarks, know-how, drawings, technologies, and specialized innovative solutions. In contrast, ordinary production assets and vehicles do not belong to such categories.
Furthermore, judges in their decisions emphasize that the rental of a vehicle is a commercial operation of using property, not a transfer of intellectual property rights.
Thus, according to already established judicial practice, the rental of transport, which includes aircraft, is a commercial operation, while license payments have a completely different legal nature.
However, this does not prevent the Bureau of Economic Security from continuing to prosecute airlines for the alleged non-payment of royalties for the leasing of airplanes and helicopters.
Taking the position of the courts into account is an obligation, not a choice
Denys Neviadomskyi, President of the All-Ukrainian Association of Retired Judges, in a comment to UNN, emphasizes that law enforcement agencies cannot ignore established legal approaches during their activities.
"Of course, court decisions or decisions of investigative judges that have entered into force must be taken into account by law enforcement investigators,"
Oleksandr Sytnykov, a retired judge of the High Administrative Court and an attorney, assesses the situation even more harshly. According to him, the problem of non-compliance with or actual ignoring of court decisions has existed for years and goes far beyond the activities of the BES.
"We will proceed even from the position of the Constitution of Ukraine – a court decision is mandatory for execution by all state authorities, regardless of their focus. If there is a decision, it must be executed,"
In his opinion, the roots of the problem partly lie in old approaches that transitioned into the newly created structures from previous bodies.
"This problem has existed for many years. It is not only in the BES, where most employees moved from the tax authorities. And in the tax authorities, so to speak, they couldn't care less about court decisions,"
He cited an example from his own legal practice where, even after a Supreme Court decision to cancel a tax notification-decision, the criminal proceeding investigated by the BES was not closed.
In fact, this is a systemic problem of non-compliance with or ignoring of court decisions and judicial practice by investigators of the Bureau of Economic Security.
The specifics of the criminal process also create particular complexity. According to the retired judge, at the stage of pre-trial investigation, the business's ability to protect its rights is significantly limited. This, as practice shows, opens opportunities for the BES to prosecute an entire industry.
"At the stage of pre-trial investigation, it is virtually impossible to appeal their actions. Only after the case goes to court. That is how our criminal procedural law is structured,"
That is why criminal proceedings can create risks for enterprises for years through the blocking of activities, seizure of property, confiscation of documents, reputational losses, and complications in international cooperation.
For the aviation industry, the consequences can be particularly painful. Most of the global aviation market functions precisely through leasing mechanisms. Ukrainian companies operating on international routes or performing humanitarian and specialized missions abroad are integrated into the global market model. Attempts to create a special approach to taxation in Ukraine could not only hit individual enterprises but also jeopardize the competitiveness of the entire industry.
Moreover, the BES's disregard for international conventions on the avoidance of double taxation, signed between Ukraine and dozens of foreign states, further damages our state's reputation as a reliable partner operating within a defined legal framework.
The reclassification of transport leasing into "royalties" has revealed an unlawful practice where international conventions and established judicial practice are effectively ignored and replaced by arbitrary "internal" interpretation—resulting in systemic pressure on business.
If established judicial practice is not taken into account during investigations, business receives a dangerous signal: even a victory in court does not guarantee protection from repeated pressure. And for a country striving to attract investment and restore its economy under war conditions, such a signal may carry too high a price.