ESBU ignores judicial practice, attempting to tax transport leasing operations as royalties
Kyiv • UNN
The ESBU is attempting to tax transport leasing as royalties despite judicial practice. Such actions by the bureau create pressure, particularly on the aviation business.
The Economic Security Bureau of Ukraine (ESBU) is attempting to establish a persistent approach to taxing aircraft leasing (renting) as royalties. Despite the norms of international law, investigators are trying to convince courts that airplanes and helicopters are not vehicles, but intellectual property. However, judicial practice indicates a refutation of such an approach, UNN reports.
An analysis of court materials contained in the Unified Register of Court Decisions demonstrates that the ESBU's approach not only contradicts legislation but also creates risks of illegal double taxation for airlines.
Royalties are about intellectual property, not transport
The key conclusion that runs like a red thread through judicial practice is that royalties can arise exclusively in cases of using objects of intellectual or industrial property. That is, we are talking about cases where an aircraft is used as equipment—for example, a scientific laboratory with wings. However, this concept in no way applies to civil air transportation, whether passenger or cargo.
Thus, in a ruling of the Sixth Appellate Administrative Court dated April 16, 2025, the court explicitly stated that: "the concept of 'royalties' involves payments for the use or the right to use objects of intellectual property...".
At the same time, the judges emphasize a fundamental point: ordinary vehicles, even if they are complex machinery, do not meet the criteria for objects of intellectual property. In particular, railway cars are not recognized as objects of intellectual property and, therefore, cannot be a source of royalties.
This conclusion is critically important for the aviation industry: by their legal nature, aircraft are also vehicles, not objects of copyright or patent law. After all, like trains, they perform transportation.
Incidentally, the courts also apparently take into account the fact that for over 30 years, the legislation regarding the taxation of leasing operations in Ukraine has not changed; therefore, the ESBU's attempts to change something have no grounds or adequate justification.
Judicial practice
It is worth noting that courts of various instances consistently refuse to support the position of regulatory and investigative bodies regarding the equating of vehicle rentals to royalties.
In particular:
- In 2025, the Eighth Appellate Administrative Court established that the rental of agricultural machinery cannot be considered royalties, as such machinery is mass-produced and is not associated with the transfer of intellectual property rights.
- In 2022, the Fifth Appellate Administrative Court reached a similar conclusion regarding the rental of railway platforms. There were also attempts to tax leasing payments there as royalties.
- Even earlier, the Higher Administrative Court of Ukraine emphasized that royalties concern the use of patents, know-how, trademarks, or specialized innovative equipment, rather than ordinary production assets.
Thus, the courts clearly draw the line: property rental is a business operation, not a licensing relationship.
International conventions on the avoidance of double taxation
Another fundamental block in court decisions concerns the application of international conventions on the avoidance of double taxation. Ukrainian courts directly indicate: if a non-resident's income arises within the framework of rental relations and is not a royalty, then it must be taxed in the country of residence of such non-resident—that is, in the country where the lessor company is a resident.
For example, in a case regarding the rental of equipment from a Polish company, the court confirmed that there are no grounds for withholding tax in Ukraine, as the Convention on the Avoidance of Double Taxation applies.
A similar approach was applied to operations with non-residents from Lithuania and Estonia. Rental income in these countries was classified as other income taxed abroad, and therefore international law, which provides for the avoidance of double taxation, applies.
ESBU's attempts to tax what is non-taxable
Despite established judicial practice, the Economic Security Bureau of Ukraine continues to ignore international law and judicial practice in a number of cases, particularly in the aviation sector. Investigators continue to interpret leasing as royalties, assess additional repatriation taxes for airlines, and consequently draw conclusions about tax evasion and initiate criminal proceedings.
Such an approach effectively ignores both the norms of the Tax Code and the provisions of international conventions.
At least five Ukrainian airlines have already suffered from this position of the investigators; as is customary in the global aviation business, they lease aircraft from abroad. As UNN reported, the airlines UIA, "Constanta Airline", "Urga", "H3OPERATIONS", and "Skyline" have already suffered.
It is worth noting that due to the closed skies over Ukraine because of the war, all activities of air carriers are currently concentrated abroad—from leasing aircraft to their maintenance.
Investigators of the Economic Security Bureau are trying to create a classic situation of double taxation. Firstly, leasing income is already taxed in the jurisdiction of the lessor, which is a foreign state with which a corresponding convention is in effect. And secondly, Ukraine is trying to tax the same payment again by reclassifying it as a royalty contrary to international law.
The courts, in their decisions, explicitly state that without the presence of signs of intellectual property, such actions are unjustified.
The established judicial practice in Ukraine is unambiguous and consistent: operations for the rental (leasing) of machinery, including vehicles such as airplanes, cannot be qualified as royalties without the presence of elements of the transfer of intellectual property rights.
Accordingly, attempts by law enforcement agencies, particularly the ESBU, to apply the opposite approach contradict both national legislation and international treaties; ignore established judicial practice; create risks of illegal double taxation; and most importantly, create additional pressure on business, specifically on the entire aviation industry.
Under such conditions, the issue already goes beyond tax disputes and acquires systemic significance for Ukraine's investment climate and its obligations to international partners.