Court confirmed legality of the additional accrual of 22 million UAH of tax for transactions with a russian counterparty

Press service of the State Tax Service of Ukraine, published 24 November 2025 at 13:08 Chapter: News

The Supreme Court, composed of judges of the Administrative cassation court, supported position of the State Tax Service on increasing tax liabilities on the income tax of foreign legal entities by 22 million UAH.

This is about a taxpayer who tried to apply provisions of the international contract on the avoidance of double taxation between Ukraine and russian federation – contract that became invalid amid a full-scale war and severance of economic ties with the aggressor state.

According to the Tax Code of Ukraine, if in controlled transactions products, works or services are sold to a non-resident at a price lower than level corresponding to the “arm’s length” principle, the difference is equated to dividends for tax purposes.

Taxpayer is obliged to independently analyze such transactions for compliance with the arm’s length principle and adjust financial result.

It is amount of such adjustment of the financial result that is the basis for income taxation of foreign legal entities.

In this case, the enterprise made adjustments for 2021 and 2022 only in 2023, submitting clarifying declarations:

- for 2021 - December 1, 2023,

- for 2022 - September 29, 2023.

It is these dates of submitting clarifying declarations that are the actual dates of income accrual equated to dividends.

Taxpayer insisted that income was received by the non-residents in 2021 – 2022, when the international contract between Ukraine and russia to avoid double taxation was in effect, and therefore a zero rate could be applied.

The court disagreed. It confirmed that for tax purposes, it is not important when the transaction itself was carried out, but when the taxpayer determined and declared relevant income. That is, the date of submitting the clarifying declarations in 2023.

Contract between Ukraine and russian federation for avoidance of double taxation expired on January 1, 202.

Therefore, at the time when the taxpayer adjusted financial result and declared tax liabilities (September and December 2023), provisions of the international contract were no longer in effect, and application of a zero rate was impossible.

The Supreme Court confirmed legitimacy of position of the State Tax Service: base for calculating and paying tax on the non-resident income arises at the time of calculating (determining) income equated to dividends, and not during the actual implementation of controlled transactions themselves.