A precedent for the market: how a new interpretation of leasing taxation is destroying Ukrainian aviation

A dangerous situation has developed in Ukraine, where complex tax or economic disputes in the aviation industry, instead of being professionally considered within the framework of inspections and tax procedures, are immediately attempted to be moved into the criminal sphere. The Bureau of Economic Security has opened a number of criminal proceedings against most airlines that lease aircraft abroad. The reason for such persecution was an obviously incorrect interpretation of international law, according to which investigators believe that leasing operations should be taxed as royalties. This situation threatens the destruction of Ukrainian civil aviation, which in the future could become a driver of Ukraine's economic recovery, and is now forced to survive through international contracts, writes UNN.

One of the criminal proceedings was opened by the BEB against PrJSC "Airline Constanta" due to leasing payments for the use of aircraft. This is no longer just a separate dispute between business and the state, it is another confirmation of a much broader practice, according to which complex issues of international tax law in Ukraine began to be resolved not through legal certainty, official explanations or tax audits, but through criminal prosecution by the Bureau of Economic Security. This criminal case once again shows how, after the appearance in 2024 of an unsubstantiated interpretation of international law from the State Tax Service, headed by the notorious team of Tetiana Kiriyenko, that aircraft leasing can be considered a royalty, the law enforcement system actually received an instrument of pressure on the aviation business.

Today, according to Mykola Shcherbyna, executive director of the Public Union "Ukrainian Air Transport Association", at least five airlines have already suffered from this approach, against which investigators have opened criminal proceedings for alleged non-payment of taxes when making leasing payments to non-residents. Among them, as UNN previously reported, was PJSC "Ukraine International Airlines". In the criminal case being investigated by the BEB against the former management of UIA, it is stated that investigators believe that leased aircraft are intellectual property and that the company should have paid royalties on these operations.

What is imputed to "Airline Constanta"

The BEB has similar claims against "Airline Constanta". These cases, obviously like others against the rest of the airlines, demonstrate how vulnerable Ukrainian business can be if legal approaches begin to change not through law, but through arbitrary interpretation of international law and tax legislation.

Investigators of the Bureau of Economic Security are investigating criminal proceedings No. 72025001220000034 dated June 16, 2025, under Part 3 of Article 212 of the Criminal Code of Ukraine (tax evasion on an especially large scale), in which "Airline Constanta" is involved.

According to the BEB, officials of PrJSC "Airline Constanta", allegedly in collusion with a non-resident company from the UAE, between January 1, 2023, and March 31, 2025, allegedly improperly applied the provisions of Article 8 of the Convention between Ukraine and the UAE for the avoidance of double taxation, which allowed them not to withhold tax on non-resident income when paying lease payments for the use of aircraft.

The investigation believes that in this way the state allegedly underreceived UAH 28.3 million, and payments to non-residents should have been taxed at a rate of 15%. Although the income of non-resident lessors has nothing to do with Ukraine regarding the source of such income, and therefore is not subject to such taxation.

The legal construct of the BEB, which investigators tried to support with analytical conclusions expressing a number of assumptions, is based on the premise that payments for the use of aircraft allegedly do not fall under the regime of international transportation or operation of air transport, but can be considered as royalties within the meaning of Article 12 of the aforementioned convention.

And this is what underlies the criminal proceedings.

What is the main problem with the BEB's position?

At first glance, the case looks like a standard tax case. But a closer analysis reveals that it is not about a "scheme," hidden income, or fictitious operations, but about a dispute regarding the correct application of an international convention, which is a classic question of tax qualification of an economic operation.

In such situations, the state should apply clear fiscal procedures: conduct a tax audit, record violations if any, issue a tax notice-decision, and provide the taxpayer with the opportunity for administrative and judicial appeal.

Instead, in the case of "Airline Constanta," a completely different process took place: the issue of interpreting international law immediately became the subject of criminal prosecution by the BEB.

Such an approach sends an extremely dangerous signal to Ukrainian businesses entering international markets: if legal uncertainty or different interpretations of international law can be automatically turned into "intentional tax evasion," then any business that works with non-residents and uses international tax mechanisms is at risk.

What the expertise says

"Airline Constanta" insists that the BEB's position does not stand up to professional legal evaluation.

This is an incorrect interpretation of the provisions of international law, which prevails over national legislation. We have the conclusions of an expert examination conducted by an expert from LLC "Research Institute of Forensic Examinations and Legal Expertise". According to these conclusions, the BEB's position on "Airline Constanta" understating income tax with a source of origin in Ukraine by more than UAH 28 million when making leasing payments to a non-resident from the UAE for the lease of aircraft without a crew is not confirmed.

According to him, the expertise not only confirmed the reality of economic operations, but also recorded the correctness of their legal nature.

Importantly, the expertise clearly confirmed that we transferred funds to a non-resident between 2020 and 2025 as payment for the lease of aircraft without a crew.

In particular, the expert concluded that the payments made by the airline were indeed lease payments, that the interpretation of such payments as royalties is erroneous, and that the Ukrainian airline correctly applied the Convention between Ukraine and the UAE for the avoidance of double taxation.

That is, the expert legal opinion directly contradicts the analytics on which the investigation relies. This once again emphasizes that what we have before us is not a crime, but a conflict of interpretations of international law, which in the civilized world should be resolved in the fiscal and judicial spheres, and not by force.

Vadym Vdovenko also said that the company provided the investigation with all available documents. At the same time, according to him, part of the documentation was destroyed due to an enemy drone attack on the enterprise in Zaporizhzhia, and work is currently underway to restore the documents for their further transfer to the BEB.

Previous leadership of the SFS launched a wave of persecutions

Special attention should be paid to the origin of the very idea on which criminal proceedings against airlines are now based.

The starting point was an article on the SFS website in May 2024, which stated that aircraft leasing could be interpreted as royalties. This publication appeared under the previous SFS team, which was "famous" for attempts to persecute businesses. It was after this publication that the BEB's criminal proceedings began to appear. It is noteworthy that investigators "ran" after almost all airlines at once, and the period for which they had claims against businesses also turned out to be the same - 2023-2025.

It should be noted here that there were no changes to legislation or international agreements that would justify such a radical change in the approach to taxation of leasing. Companies had been operating for years under an established model, applying the provisions of international conventions, undergoing tax audits, and receiving no claims from regulatory bodies that leasing should suddenly be interpreted as royalties.

Instead, in 2024, an administrative interpretation of international law provisions appeared, published in the form of an article on the regulatory body's website.

Therefore, a logical question arises: can an article on the SFS website change the rules of taxation for an entire industry? Obviously not.

The rule of law and the principle of legal certainty imply that tax consequences for a taxpayer must arise from law and international treaties, and not from a journalistic or analytical interpretation by an individual tax official or the press service of that body.

However, in practice, this is exactly what happened: a controversial thesis, which was not enshrined in legislative changes, opened Pandora's box and gave the law enforcement system a reason to launch a systematic persecution of the aviation business.

In fact, after the appearance of the article interpreting leasing as royalties, the model under which the market had operated for years began to be retroactively transformed into a basis for criminal prosecution by the Bureau of Economic Security.

From a legal point of view, this looks extremely problematic. Because if the tax authority did not question a certain approach for years, and then suddenly changes the interpretation without changing the law, and on this basis criminal prosecutions are launched, this already casts doubt on the predictability of state policy in the field of taxation and gives rise to objective suspicions of attempts to pressure businesses and attempts to destroy an entire industry.

Aircraft lease or royalty?

The legal core of this entire saga of attempts to criminally prosecute airlines lies in one question: can payment for the use of an aircraft be considered a royalty?

And here the position of the regulatory bodies looks particularly vulnerable.

Royalties in Ukrainian and international tax law are traditionally associated with the use of intellectual property objects, i.e., copyrights, patents, trademarks, technologies, know-how, etc.

However, it is obvious that an aircraft is a vehicle, not an object of intellectual property. At the same time, leasing, i.e., renting an aircraft without a crew, is a standard economic operation for transferring property for use, and not granting the right to use the result of creative or innovative activity, or leasing some kind of "laboratory on wheels."

That is why the attempt to "pull" aviation leasing under royalties looks not just debatable, but artificial and aimed solely at additional tax assessment or creating an instrument of criminal pressure on business.

The most alarming thing in this story is that the "Airline Constanta" case is not an exception. At least 5 Ukrainian air carriers are known to have faced pressure from the BEB due to alleged non-payment of taxes for aircraft leasing. This means that it is no longer about a separate legal error or a specific case, but about signs of a systemic campaign against the aviation business.

This is especially dangerous for an industry that is trying to survive abroad with the sky closed over Ukraine due to Russia's full-scale war.

When, under such conditions, the state, instead of providing support, also begins to massively persecute companies due to a controversial and previously unused interpretation of norms, it no longer looks like a fight for tax discipline, but like a systematic destruction of the civil aviation industry.