Leasing or royalties: The Finance Ministry may resolve the issue over which the BEB is pursuing airlines

The Ministry of Finance of Ukraine may use a general tax consultation to establish a unified approach to applying legal provisions that state bodies interpret ambiguously. This is the mechanism planned for resolving the issue of taxation of Ukrainian airlines’ leasing payments in favor of nonresidents. UNN examined the legal force of a general tax clarification, whether regulatory authorities must take it into account, and whether it can affect the existing claims of the Economic Security Bureau against representatives of the aviation business.

Why is the Finance Ministry’s clarification needed on the issue of aviation leasing?

The issue of taxing aircraft leasing became the subject of a dispute between the aviation business and state authorities. It arose after the Economic Security Bureau decided to interpret aviation leasing not as the rental of vehicles, but as the use of equipment. According to the investigators’ version, Ukrainian air carriers should have paid royalties for leasing aircraft and helicopters.

The ESB is investigating criminal proceedings against at least 5 air carriers, including MAU, "Constanta Airline," "Urga," H3Operations, and "Skyline Express." The cases were opened despite the fact that almost all air carriers had successfully passed tax audits, and the tax authorities’ comments concerning leasing applied to only one company.

Representatives of the aviation industry insist that the problem arose because of an ambiguous interpretation of legal provisions and requires the establishment of a unified state approach. They call the Bureau’s approach to interpreting aviation leasing, without amending tax legislation, pressure that could destroy an entire sector of passenger and freight transportation. After all, according to the State Register of Civil Aircraft of Ukraine, 86% of the aircraft fleet of Ukrainian companies is leased.

That is why the issue of aviation leasing was submitted for consideration by the tax committee of the Public Council under the Ministry of Finance. Following the first meeting, it was decided to initiate the establishment of a working group under the Finance Ministry, which is to develop a draft general tax consultation regarding the taxation of leasing payments in favor of nonresidents.

In response to a request from UNN, the Ministry of Finance reported that the taxation of aircraft leasing transactions is carried out in accordance with the Tax Code and international treaties of Ukraine. It is worth noting that tax legislation in this area has not changed for several decades and, until 2024, had raised no questions either among tax authorities or law enforcement agencies.

The aviation industry hopes that the general tax clarification will settle all questions regarding the taxation of aviation leasing. But is that really the case?

What is a general tax consultation?

As lawyer Yuliia Panasiuk of Prykhodko & Partners Law Firm explained to UNN, a general tax consultation is an officially published position of the Ministry of Finance regarding the practical application of certain provisions of tax and other legislation, compliance with which is monitored by regulatory authorities.

"It is formulated on the basis of a generalization of individual tax consultations provided to taxpayers, or in cases where the Finance Ministry identifies ambiguity in the application of certain legal provisions," Panasiuk explained.

According to her, such a clarification is approved by an order of the Ministry of Finance.

Tax policy expert Danylo Monin noted that the Finance Ministry usually generalizes the practice of applying legislation with regard to a specific problem or topic.

"As the body that formulates state financial policy, the Finance Ministry has the right to generalize the practice of applying legislation concerning disputed issues and, on this basis, issue a general tax consultation. Usually, this is done regarding a specific problem or a particular topic," Monin explained.

Thus, the situation involving differing interpretations of the taxation of leasing payments is precisely the kind of case in which the mechanism of a generalized tax clarification can be used to establish a unified approach.

Can the Ministry of Finance establish new rules for airlines?

As experts explain, a generalized tax consultation does not amend legislation. Through this mechanism, the Ministry of Finance cannot create a new tax, change its rate, or impose on airlines an additional tax obligation that is not provided for in the Tax Code.

"Such a consultation does not create new tax rules and cannot amend the provisions of the Tax Code of Ukraine. Its task is to provide an official position on how an already effective provision should be applied in practice," Panasiuk emphasized.

In the context of aviation leasing, this means that the task of the generalized tax clarification will not be to establish a new taxation regime, but to clarify how the current provisions should be applied to payments for the leasing of aircraft from non-residents.

At the same time, according to the lawyer, if an individual tax consultation contradicts a generalized one, the provisions developed by the Ministry of Finance apply, pursuant to paragraph 53.1 of the Tax Code.

Should state authorities take the Ministry of Finance's position into account?

Controlling authorities must take into account the position formulated by the Ministry of Finance in a generalized tax consultation when applying the relevant legislative provisions.

At the same time, for a taxpayer, the clarification does not become a new provision of law. Businesses must primarily follow the Tax Code, while conduct that complies with a generalized consultation provides the taxpayer with the legal guarantees stipulated by law.

This may be of fundamental importance for airlines if the position formed by the Ministry of Finance differs from the approach previously applied by controlling or law enforcement authorities to leasing payments.

"If the Ministry of Finance has published a GTC that interprets the relevant provision differently from the way a controlling authority previously did, the taxpayer may refer to such a consultation both during a tax audit and at the stage of administrative or judicial appeal," Panasiuk noted.

Going forward, a taxpayer's compliance with the provisions of tax consultations may constitute grounds for exemption from financial liability. The legislation also provides for cases in which no penalty interest is accrued or already accrued penalty interest is subject to cancellation.

What will happen to aviation leasing cases?

One of the key questions in this situation is whether the Ministry of Finance's clarification will be able to affect disputes and proceedings that arose before its adoption.

According to Panasiuk, a new generalized tax consultation does not in itself automatically change the tax consequences of transactions carried out previously. In other words, the appearance of the consultation will not mean the automatic termination or review of all disputes related to the taxation of leasing payments.

However, for cases that have not yet been finally resolved when the document appears, its significance may be substantial.

"If a tax dispute has not yet been concluded, the taxpayer may refer to the new GTC as the Ministry of Finance's official position on the interpretation of the relevant legislative provision," the lawyer explained.

According to her, in such a case the court will assess the consultation together with the provisions of the Tax Code, the circumstances of the specific case, and current judicial practice.

Under the provisions of the Tax Code, generalized tax consultations must be published on the Ministry of Finance's official website within five calendar days of their issuance.

"The Tax Code does not establish a separate period after the expiration of which controlling authorities may begin taking a GTC into account. Therefore, in practice, primary attention should be paid to the date on which the Ministry of Finance's order approving the relevant GTC enters into force," the lawyer warned.

If the Ministry of Finance develops an unambiguous position on the application of the relevant provisions of the Tax Code and international treaties, it could serve as a guideline for the further practice of the supervisory authorities and as a strong argument for airlines in cases handled by the Economic Security Bureau, where aircraft leasing is interpreted as royalties. That is why the development of a UPT may become one of the key stages in resolving the situation.