The issue of taxation of aircraft leasing payments will soon be considered by the Tax Committee of the Public Council under the Ministry of Finance of Ukraine. Following the consideration, the Public Council will initiate a comprehensive tax clarification from the Ministry of Finance. Tetiana Shevtsova, a member of the Public Council under the Ministry of Finance, a certified auditor and tax consultant, told UNN in an exclusive comment.
Tax clarification regarding leasing
This week, I will send all the materials regarding this issue (the taxation of transactions involving the leasing of transport from non-residents of Ukraine – ed.) to the Ministry of Finance. I also have to hold a meeting of the Tax Committee of the Public Council under the Ministry of Finance of Ukraine. Tentatively, this will take place this week or next week
First and foremost, the members of the Tax Committee want to obtain the official position of the Ministry of Finance on how the relevant payments should be taxed.
First of all, at the meeting of the Tax Committee, we will discuss this issue with the Ministry of Finance and ask them to provide us, as the Public Council, with a written response regarding their view of the taxation of such payments (…) We need to discuss this issue with the Ministry of Finance thoroughly and in detail and hear their position
According to her, the decision of the Tax Committee will subsequently be submitted for consideration by the Public Council.
Shevtsova added that representatives of the Ukrainian Air Transport Association are planned to be invited to the committee meeting. The association previously appealed to the relevant government bodies, calling for a unified approach to the application of tax legislation in the field of international aircraft leasing to be developed. In addition, representatives of the State Tax Service and the Economic Security Bureau may be involved in the discussion at the Public Council meeting.
If, following the discussion, it is possible to formulate an agreed position, the Public Council will initiate the preparation of an appropriate tax clarification by the Ministry of Finance.
If we reach a reasonable, agreed position, we will also initiate a tax clarification from the Ministry of Finance. It is signed by the Ministry of Finance and must subsequently be taken into account by other government bodies
Leasing and royalties are distinguished in the Tax Code
One of the key issues in the discussion is whether payments for the lease of aircraft can be treated as royalties. It was precisely the differing approaches to the qualification of such transactions that led to criminal pressure on Ukrainian air carriers.
Shevtsova pointed out that Ukrainian tax legislation regulates leasing payments and royalties separately.
This is an issue of Ukrainian tax legislation because it separately defines the object of leasing, while the definition of royalties in the Tax Code does not include lease payments. There is a separate article on lease payments and a separate one on royalties
According to her, from the perspective of Ukrainian legislation, these provisions are also important for the further application of international taxation rules and the tax on the income of non-residents.
At the same time, a final conclusion requires an analysis of international conventions on the avoidance of double taxation, since their provisions may differ depending on the specific country.
The approaches of international organizations, in particular the OECD and the UN, to the interpretation of the relevant provisions will also be analyzed separately.
The problem concerns not only aviation
Shevtsova stressed that the issue of taxing transport leasing transactions is of much broader significance and is not limited to the aviation industry. A similar problem may arise, in particular, when railway carriages are leased.
My view is that this concerns not only the aviation industry. It also concerns the leasing of railway carriages, which is currently very widespread
According to the expert, case law regarding similar legal relations is already being developed. Therefore, resolving the issue may be significant not only for air carriers but also for other Ukrainian companies that lease vehicles from non-residents.
Let us add
As reported by UNN, representatives of the aviation industry publicly stated that they were under pressure from the Economic Security Bureau because investigators interpreted air transport leasing operations as royalties, initiated criminal proceedings, and attempted to impose additional taxes for seven years. According to them, civil aviation has come under threat of destruction due to actions by 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 ESB is investigating cases involving at least five airlines, including MAU, "Constanta Airline," "Urga," H3Operations, and "Skyline," over the alleged failure to pay an additional 15% tax on non-residents’ income to the Ukrainian budget under aircraft and helicopter leasing agreements. Investigators equate leasing payments with royalties and treat aircraft not as vehicles but as "equipment."
The ESB received analytical conclusions after, in 2024, the previous team at the State Tax Service published an article proposing that leasing operations involving transport from non-residents of Ukraine be taxed as royalties. The documents formed the basis for criminal cases against air carriers.
However, according to lawyers interviewed by UNN, during the investigation, investigators ignore the current international conventions on the avoidance of double taxation. Treaties with foreign states ratified by the Verkhovna Rada take precedence over national legislation and determine in which state and at what rate the relevant income of a non-resident may be taxed. Therefore, the automatic imposition of an additional 15% tax in Ukraine without taking into account the provisions of a specific convention is at least debatable, experts emphasize.
It is worth noting that Ukrainian tax legislation regarding the taxation of leasing has not changed for decades. Moreover, according to the State Tax Service, the airlines underwent tax inspections, and violations in the taxation of leasing were identified based on only one of them. The remaining tax inspections did not reveal such violations.
As a result of one inspection of companies in the aviation industry, leasing payments were reclassified as royalties. Only one inspection
However, the absence of violations did not prevent the ESB from opening criminal cases against the airlines, believing that they had failed to pay 15% royalties over the past seven years. At the same time, the list of airlines against which law enforcement authorities have claims related to leasing may expand at any moment, since approximately 40 air carriers use leasing. Thus, the entire civil aviation industry could come under threat.