International conventions take precedence over national law, but the BEB ignores this in cases against the aviation business.
Kyiv • UNN
The Bureau of Economic Security is pressuring airlines over lease payments, ignoring the priority of international treaties on avoiding double taxation. Five companies have come under fire.
International treaties ratified by Ukraine have higher legal force compared to national legislation, but in practice, this rule is not always taken into account by law enforcement agencies, particularly the Bureau of Economic Security. For example, in cases concerning the taxation of aviation leasing, the BES applies approaches that may contradict the state's international obligations, writes UNN.
Double taxation of leasing
Investigators of the Bureau of Economic Security are trying to tax leasing payments for the use of aircraft, which are leased by air carriers from non-residents and operated outside Ukraine, as income originating from Ukraine. This contradicts both the economic essence of the operations and the provisions of international conventions on the avoidance of double taxation.
The basis for such persecution was an article published by the State Tax Service of Ukraine during the leadership of Tetiana Kiriyenko, which interprets financial leasing operations as royalty payments, meaning it considers aircraft intellectual property.
Due to Russia's war against Ukraine, the sky over our country is closed to civil aviation, and Ukrainian air carriers were forced to completely move their operations abroad – from flights to aircraft maintenance. This means that all their income and profits are generated abroad, and according to the law, taxes should also be paid abroad. This also applies to aircraft leasing.
According to the conventions on the avoidance of double taxation, ratified between Ukraine and a number of foreign states, the tax for leasing must be paid in the country where the lessor company is a resident.
This system worked for 30 years. However, everything changed in 2024, when the former leadership of the State Tax Service, without any grounds, as no relevant changes were made to tax legislation, decided to impose an additional levy on Ukrainian airlines.
The issue of aviation leasing taxation is not an abstract academic discussion. Ukraine's aviation fleet is almost entirely abroad. All Ukrainian airlines - UIA, SkyUp, "Windrose" and others - lease aircraft through leasing structures, often registered in jurisdictions with an extensive network of DTA (double taxation avoidance conventions - ed.): Cyprus, Ireland, Great Britain. If Ukraine systematically taxes leasing payments, qualifying them as royalties - this means an increase in airlines' operating costs. As a result - either tickets become more expensive for passengers, or airlines incur losses, or foreign lessors refuse to cooperate with Ukrainian partners on standard terms. None of these options is acceptable for a country that seeks to restore aviation mobility after the war
Experts emphasize that, with proper application of conventions, the same income cannot be taxed twice. If an airline operates abroad and pays taxes in the relevant jurisdiction, Ukraine either has no right to additionally charge tax or must apply limited rates in accordance with international agreements.
However, this does not prevent the BES from ignoring the fact that international conventions have greater weight than national legislation, including in matters of taxation, and from prosecuting aviation companies for alleged non-payment of taxes.
As reported by UNN, at least 5 airlines have already suffered from such approaches by investigators, including UIA, "Aviakompaniya Konstanta", "Urga", "H3OPERATIONS" and "Skyline".
The primary goal is the implementation of international conventions
According to the Constitution of Ukraine and procedural codes, the changes that were introduced in 2018, in case there is a relevant law that regulates certain relations, and there are international acts ratified by Ukraine, then they have higher force than the internal legislation of Ukraine
Agreements on the avoidance of double taxation play a key role in this context. They determine in which jurisdiction income should be taxed and how tax residency is established.
As the lawyer emphasizes, such agreements have been concluded by Ukraine with most countries where leasing companies are registered. They, in particular, enshrine a general approach: if a person stays in the territory of a state for more than 183 days, they are recognized as its tax resident and pay taxes there.
Regarding double taxation agreements, of course, they regulate issues of both tax residency and the taxation of income received in a particular country, of which the person will be a tax resident. As for tax residency itself, Ukraine has concluded agreements with almost all countries, and in all agreements, if a person stays in that country for more than 183 days, they become its tax resident, and in fact, will pay taxes in that country.
At the same time, according to him, the mechanism for avoiding double taxation provides for a clear procedure. The taxpayer must obtain a corresponding certificate in another country and provide it to the Ukrainian tax authorities. In such a case, Ukraine has no right to re-tax the same income in full.
This is where conventions come into play, which provide for the avoidance of double taxation. The documents clearly define the amount and type of tax that should be paid.
Despite this, in the practice of investigations concerning the aviation business, according to market experts, these norms are ignored. In particular, it concerns attempts to qualify leasing payments for the use of aircraft as royalties and to additionally charge taxes in Ukraine, even if the operations have already been taxed in other jurisdictions.
Such an approach, according to lawyers, directly contradicts international agreements, which take precedence over national norms, and creates risks of double taxation and generally jeopardizes the functioning of the entire civil aviation industry.
In addition, ignoring the provisions of international conventions and attempts to interpret them at one's own discretion not only casts doubt on legal certainty but also sends a negative signal to foreign partners and investors. And the rather selective approach of the BES, when most are brought to justice, but there are also "untouchables" who work on the same principles, casts doubt on Ukraine's reliability as a partner.
Thus, the issue of the correct application of international treaties goes beyond a purely tax dispute and has already become a factor determining the stability of an entire industry. Without unified practice and adherence to international obligations, the risks for the aviation market and Ukraine's investment climate will only increase, and ultimately our state may lose its own civil air fleet altogether.