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Ukraine introduces new taxation rules for aviation fuel to prevent tax avoidance

January 2019 Excise duty in Ukraine on aviation fuel has increased by ten times as of 1 January 2019, in accordance with the Law of Ukraine № 2628-VIII “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts in Relation to Improved Administration and Revision of Certain Taxes and Duties”. Under the amended tax code, the newly increased excise duty is charged at either the importation or sale of domestically produced aviation fuel, except in cases when fuel is directly supplied to an aircraft.

The new set-up is designed to prevent tax avoidance, as previously low rates of excise duty has lead to the situation in Ukraine where aviation fuel is systematically used to produce diesel fuel for ordinary cars, thus creating a widespread tax-evasion scheme.

In order to avoid a fuel price increase for genuine airline operators, as part of the new excise duty rules for aviation fuel the government has also introduced a system of tax promissory notes that allows aviation fuel suppliers to pay one-tenth of the newly applicable excise duty, provided that they can prove to the tax authorities that the fuel is supplied directly to an aircraft for the purpose of its flight.

To qualify for the discounted excise duty, aviation fuel suppliers must provide the tax office with numerous primary accounting documents for each fuel delivery. This imposes an additional administrative burden on suppliers, airlines and tax officials. For example, Ukrainian flag carrier Ukraine International delayed 22 flights on 29 January, citing a conflict between its fuel supplier and the tax office over tax promissory notes as the reason for the delays. The current system of promissory notes will operate until 30 June 2019, at which time the government is expected to introduce a more advanced, computer-based verification system.

We will continue to monitor the situation in Ukraine regarding excise duties on aviation fuel and will inform you of any new developments.

In case of any questions, please contact Oleksiy Burchevskyy, Knowledge Lawyer, Head of Aviation Sector, at .

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