ESBU investigators are obliged to take into account judicial practice, according to which vehicle leasing cannot be taxed as royalties
Kyiv • UNN
The ESBU has opened cases against airlines for non-payment of royalties for aircraft leasing, despite the fact that courts have previously concluded that such an interpretation of tax regulations is illegal.
In Ukraine, a consistent judicial practice has already been established that prohibits equating the leasing of vehicles with royalties. Despite this, the Bureau of Economic Security (BES) has opened a series of criminal proceedings against Ukrainian airlines that lease aircraft from non-residents, attempting to interpret ordinary lease payments as payment for the use of intellectual property. Rostyslav Kravets, lawyer and partner at the "Kravets & Partners" law firm, explained in an exclusive comment to UNN that law enforcement officers are obliged to take judicial practice into account during their activities.
BES criminal cases against the aviation business
Investigators from 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, i.e., a fee charged for the use of intellectual property. At the same time, the fact that transport is not intellectual property is completely ignored, and Conventions for 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, where they are attempting to impose an additional fee 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 it did not raise questions or remarks from either the tax authorities or law enforcement agencies. 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, the fiscal authorities juggle 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.
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 Public Union "Ukrainian Air Transport Association."
A clear boundary between royalties and transport leasing in judicial practice
While investigators of the Bureau of Economic Security are trying to equate air transport leasing with the use of intellectual property and indicate that royalties must be paid for it, a stable judicial practice on this issue has already been formed in Ukraine.
In a resolution of the Sixth Administrative Court of Appeal dated April 16, 2025, the court explicitly stated: "The concept of 'royalties' involves payments for the use or the right to use objects of intellectual property...". The judges made a fundamental conclusion: vehicles, even when referring to complex machinery, do not meet the criteria for objects of intellectual property rights.
Despite the fact that tax authorities tried to pass off the leasing of railway transport as the use of intellectual property, the court emphasized that wagons are not recognized as objects of intellectual property and, therefore, cannot be a source of royalties.
Aircraft, by their legal nature, are also vehicles. A plane is not a patent, nor is it a copyrighted work or a trademark, or software code, or know-how. An aircraft performs a transport function, just as a railway wagon, locomotive, or agricultural machinery performs its production functions.
Therefore, attempts to interpret international aviation leasing as the use of intellectual property contradict not only international practice and Ukrainian tax legislation but also the already established approaches of Ukrainian courts.
It is indicative that the position on the impossibility of equating transport leasing to royalties is formed not by a single separate decision, but by a whole series of court rulings made in different years by different instances.
For example, in 2025, the Eighth Administrative Court of Appeal established that the rental of agricultural machinery cannot be considered royalties. The court's reasoning was quite direct: mass-produced machinery is not an object of intellectual property rights.
Even earlier, in 2022, the Fifth Administrative Court of Appeal considered a case regarding the taxation of operations for the rental of railway platforms. At that time, the controlling authorities tried to reclassify lease payments as royalties and assess additional taxes.
However, the court did not support such an approach. The judges confirmed a basic legal principle: the rental of a vehicle is an economic operation for the use of property, not a transfer of intellectual property rights.
Another indicative case was the dispute of "Rail Logistics" LLC against the Central Interregional Department of the State Tax Service for work with large taxpayers. The tax office tried to assess additional tax on the income of non-residents for operations of operational leasing of railway wagons from non-residents, specifically companies from Estonia.
The court in this case also sided with the business, emphasizing that transport is not intellectual property.
Even earlier, a similar position was formed by the Higher Administrative Court of Ukraine.
The court explicitly emphasized: royalties concern 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.
Thus, Ukrainian courts consistently draw a clear line: the rental of transport, which includes aircraft, is an economic operation, while license payments have a completely different legal nature.
International conventions also refute the BES approach
Separately, Ukrainian courts in their decisions point to the need to apply international conventions for the avoidance of double taxation signed by Ukraine with a number of foreign states.
It is these international treaties that determine where and how the income of non-residents, including lessors, should be taxed.
Ukrainian courts emphasize that if the income of a non-resident arises within the framework of rental relations and is not a royalty, it must be taxed in the country of tax residence of the lessor company.
At the same time, in their rulings, the courts remind that international conventions ratified by Ukraine have priority in application over national tax legislation.
Investigators are obliged to take the courts' position into account
Lawyer Rostyslav Kravets, in a comment to UNN, explicitly points out that law enforcement agencies must take into account previous judicial practice regarding the taxation of transport leasing.
They are obliged to do so,
At the same time, he critically assesses the current state of the law enforcement system. According to him, after the reforms of recent years, investigators have received excessive procedural autonomy.
Investigators, effectively having a seemingly independent status, abuse their rights,
In his opinion, the consequences can be the freezing of accounts, blocking of enterprise operations, disruption of international contracts, and reputational losses.
If we are talking about legal entities, then blocking their accounts, undermining their authority, disrupting their contracts and million-dollar deals, and thus effectively achieving a situation where individuals either give bribes or admit guilt and pay fines without actual, so to speak, imprisonment. Unfortunately, this is the modern law enforcement system, which needs immediate restoration after all these reforms by foreigners,
This approach is particularly dangerous for the aviation industry. After all, Ukrainian civil aviation is already operating under extremely difficult conditions: closed skies, maintaining the fleet abroad, high costs of operational activity, and the absence of a systemic state development strategy.
Additional tax and legal pressure could create risks not only for individual companies but for the entire industry.
Therefore, attempts to reclassify international transport leasing as royalties go far beyond a tax dispute. It is now a matter of the principle of legal certainty.
If courts have for years formed an approach confirming that transport is not intellectual property and leasing is not royalties, the BES must take the relevant court decisions into account. Otherwise, business receives a signal that even established judicial practice and current legislation do not guarantee legal predictability.
And this is already a question of the investment climate, the country's international reputation, trust in the state as a reliable partner, and economic and national security.