ADER HABER secures victory for client in UAH 4.6 billion tax dispute

The Tax Disputes Practice of ADER HABER Law Firm acted as legal counsel to PJSC Southern Mining and Processing Plant in a complex tax dispute against the Eastern Interregional Office of the State Tax Service for Large Taxpayers (Case No. 160/11425/25). The court upheld the taxpayer’s right to apply the preferential 5% withholding tax rate to dividends paid to non-residents.

Background of the dispute

The tax authority denied the client the application of the 5% preferential tax rate and assessed additional tax liabilities and penalties based on the standard 15% withholding tax rate.

The case was further complicated by adverse precedent. In separate proceedings (Case No. 160/18691/23), the Supreme Court had previously ruled against the client, finding that the direct recipients of the dividends — 12 Cypriot companies — were merely conduit (intermediary) entities rather than the beneficial owners of the income.

ADER HABER’s strategy

Working closely with the legal team of PJSC Southern Mining and Processing Plant, ADER HABER successfully demonstrated the validity of a fundamentally new legal position based on new evidence and factual circumstances.

• Look-Through Approach.
The team proved that the actual beneficial owners of the dividend income were the parent holding companies resident in the Netherlands and Cyprus. Accordingly, the applicable double taxation treaties were those concluded with the countries of residence of the ultimate beneficial owners, both of which provide for a 5% withholding tax rate.

• Substantiating the entitlement to treaty benefits through indirect ownership.
The team disclosed the ownership structure and demonstrated that each parent holding company indirectly held more than 20% of the share capital of the Ukrainian company. Consequently, the payment of dividends through authorised intermediary entities did not deprive the client of its entitlement to the reduced treaty withholding tax rate.

Result

Both the court of first instance and the appellate court fully upheld the client’s legal position, rejected the tax authority’s attempts to terminate the proceedings by relying on the earlier case, and annulled the disputed tax assessment notice.

The Administrative Cassation Court within the Supreme Court subsequently confirmed the legality of this approach by refusing to open cassation proceedings upon the tax authority’s appeal, thereby making the favourable judgments final.

Significance for the market

This case demonstrates that an adverse judicial finding regarding the status of specific recipients of income in one set of proceedings does not preclude a taxpayer from successfully defending its entitlement to treaty benefits in another case, provided that the scope of evidence is reframed and the true beneficial owner is established through the Look-Through Approach.

The decision provides important guidance for businesses operating through international holding structures that face similar challenges from tax authorities.

The matter was handled by ADER HABER Law Firm’s Tax Disputes Practice team, including Partner Tetiana Danyltsieva, Counsel Stanislav Karpov, and Associate Angelina Dubrova.