"Legal nonsense": why the BEB should not have opened criminal cases against airlines due to interpreting aircraft leasing as royalties
Kyiv • UNN
The interpretation of aircraft leasing as royalties by the State Tax Service and the BEB contradicts the principles of applying international conventions on the avoidance of double taxation. International tax law expert Olena Kuznechikova emphasizes that the problem should be resolved by an official clarification from the Ministry of Finance, not by criminal prosecution of businesses.
Ukrainian civil aviation has found itself at the center of a tax dispute due to a new interpretation by the State Tax Service and the Bureau of Economic Security of aircraft leasing transactions. Despite the fact that legislation and international conventions on the avoidance of double taxation have not changed, regulatory authorities have begun to interpret certain leasing payments as royalties, which has already become the basis for criminal prosecution of Ukrainian airlines, writes UNN.
The new approach of the STS and BEB is unlawful and threatens the competitiveness of Ukrainian air carriers and could lead to company bankruptcies. It concerns an attempt to charge airlines an additional 15% royalty on aircraft leasing agreements concluded many years ago. In effect, the rules of the game are being changed without amending the legislation.
At the same time, as explained during the round table "New tax practice on aircraft leasing" by the managing partner of the law firm LAW GUIDE, expert in international tax law Olena Kuzniechikova, international treaties on the avoidance of double taxation cannot be applied using a single template. Each convention has its own peculiarities, and what is decisive is not the formal name of the payment, but the substance of the specific business transaction.
If we look at specific agreements, then by the nature of the transaction, those payments that leave the territory of Ukraine abroad can generally be interpreted under at least five different articles. This could be the business activity of a non-resident, international transportation, classic leasing, or even other types of income. Unfortunately, the tax service very rarely fully examines the entire substance of business transactions and the specific conventions
That is why the issue cannot be resolved by universally interpreting all leasing agreements as royalties. According to Kuzniechikova, in a situation where international treaties allow for different options of law enforcement, the state should be guided by one of the fundamental principles of tax law – to interpret ambiguities in favor of the taxpayer.
If something can be interpreted both in favor of the budget and in favor of the taxpayer, it must be interpreted precisely in favor of the taxpayer. And in international conventions regarding such transactions, there are extremely controversial situations that can be interpreted completely differently depending on the content of the transaction
According to the expert, solving this problem by opening criminal proceedings against airlines is wrong. She noted that the official position of the tax authority changed only in 2024, although the agreements of most airlines were concluded much earlier and for years did not raise any objections from the state.
Involving a law enforcement agency before a coordinated tax liability arises is a legal nonsense. By law, a criminal case regarding tax evasion can only arise after the completion of administrative or judicial appeal procedures
That is why, in her opinion, the resolution of the dispute should begin not with criminal prosecution, but with the formation of a unified state position on the application of international conventions. To this end, the Ministry of Finance should prepare a generalizing tax consultation that will ensure uniform interpretation of the norms for businesses and regulatory authorities.
Recall
Since 2024, the STS has begun applying a new approach to the taxation of aircraft leasing, interpreting certain leasing payments as royalties. Based on this position, the BEB has opened criminal proceedings against at least five Ukrainian airlines: MAU, "Aviation Company Constanta", "Urga", "N3OPERATIONS" and "Skyline Express".
According to UNN, in a number of these proceedings, the BEB's claims are based precisely on the interpretation of international conventions on the avoidance of double taxation, and the amounts of allegedly unpaid taxes reach tens of millions of hryvnias.