The Ministry of Finance of Ukraine confirmed that the taxation of aircraft leasing must be carried out in accordance with the provisions of the Tax Code of Ukraine and international treaties on the avoidance of double taxation, which take precedence over national legislation. Ukrainian tax legislation contains no provisions under which lease payments for aircraft and helicopters would qualify as royalties. However, the Economic Security Bureau applied a different interpretation of these provisions and is investigating criminal cases against at least five Ukrainian airlines, demanding payment of an additional 15% tax on non-residents’ income, UNN writes.
Despite the fact that Ukrainian tax legislation, which has remained unchanged with regard to leasing for decades, and international treaties clearly describe how taxes on helicopter and aircraft leasing should be paid, the Economic Security Bureau decided, at its own discretion, to change this approach. The ESB is investigating cases involving at least five air carriers, including UIA, Constanta Airline, Urga, H3Operations and Skyline, allegedly over the failure to pay an additional 15% tax on non-residents’ income to the Ukrainian budget under aircraft leasing agreements. Investigators equate lease payments with royalties and treat aircraft and helicopters not as means of transport, but as "equipment."
What the Finance Ministry says
"Regarding the taxation of aircraft leasing transactions, we note that the taxation of such transactions is carried out in accordance with the procedure and at the rates established by the Tax Code of Ukraine," the Finance Ministry said in response to an inquiry from UNN.
It is worth noting that the Tax Code of Ukraine contains no provisions requiring the payment of royalties for transactions involving the leasing of air transport from non-residents of Ukraine.
"A resident, (...), who has chosen the simplified taxation system, or another non-resident conducting business through a permanent establishment in Ukraine, who makes any payment of income derived from sources in Ukraine to a non-resident or a person authorized by that non-resident, (...) withhold tax from such income, (...) in their amount and at their expense, payable to the budget at the time of such payment, unless otherwise provided by the provisions of international treaties of Ukraine with the countries of residence of the persons in whose favor the payments are made, which have entered into force. The requirements of this paragraph do not apply to income received by non-residents through their permanent establishments in Ukraine," the Tax Code of Ukraine states.
Ukraine has concluded and ratified treaties on the avoidance of double taxation with dozens of foreign states. These international treaties are applied first and determine whether such income is subject to taxation in Ukraine and at what rate. They either fully exempt the income from additional taxation or significantly reduce the tax. The Finance Ministry emphasizes that these conventions take precedence in application.
"At the same time, pursuant to paragraph 3.2 of Article 3 of the Tax Code of Ukraine, if an international treaty of Ukraine, the binding force of which has been approved by the Verkhovna Rada of Ukraine, establishes rules other than those provided for by the Code, the rules of the international treaty shall apply," the ministry said in response to an inquiry from UNN.
ESB cases against airlines
Law enforcement agencies obtained analytical conclusions after, in 2024, the previous team at the State Tax Service published an article proposing that leasing transactions involving transport from non-residents of Ukraine be taxed as royalties. The documents, which according to representatives of the aviation market are similar to one another and appear to have been written "from the same template," formed the basis of the aforementioned criminal cases against air carriers.
Lawyers interviewed by UNN point out that investigators ignore the current international conventions on the avoidance of double taxation ratified by the Verkhovna Rada. According to them, the automatic assessment of an additional 15% tax in Ukraine without taking into account the provisions of a specific convention is, at the very least, debatable.
It is worth noting that, according to the State Tax Service, the airlines underwent tax audits, and only one of them found violations in the taxation of leasing. The remaining tax audits did not reveal any such violations.
"As a result of one audit of companies in the aviation sector, leasing payments were reclassified as royalties. Just one audit," said Viktoriia Kasian, Deputy Director of the Transfer Pricing Department of the State Tax Service of Ukraine.
However, the absence of violations did not prevent the Economic Security Bureau from opening criminal cases against the airlines, believing that they had failed to pay 15% in royalties over the past seven years. At the same time, the list of airlines against which law enforcement agencies have claims over leasing may expand at any moment, since around 40 air carriers use leasing. Thus, the entire civil aviation sector may come under threat.
Representatives of the aviation sector have already publicly stated that they are being pressured by the Economic Security Bureau. In their words, civil aviation has found itself under threat of destruction due to the actions of state regulatory authorities, which could ultimately finish off companies that survived the closure of the airspace and relocation abroad because of the full-scale war. The Ukrainian Air Transport Association appealed to the Verkhovna Rada Committee on Transport and Infrastructure, as well as to the Public Council under the Ministry of Finance, calling for a unified approach to applying tax legislation in the field of aviation leasing to be developed.
Therefore, it is obvious that if the Economic Security Bureau's approach becomes a general rule, airlines may be assessed additional taxes for previous years under agreements that had not previously raised any concerns among tax authorities. For an industry that, following the closure of Ukraine's airspace, is effectively surviving thanks to relocation and operations abroad, this creates the risk of new criminal proceedings and financial claims, as well as withdrawal from the Ukrainian market.
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