The law firm ADER HABER has successfully won a tax dispute between Vinnytsia Poultry Farm LLC (a company within the MHP agricultural holding) and the State Tax Service of Ukraine. The Supreme Court fully cancelled additional tax assessments in the amount of UAH 766.4 million and ordered the state to reimburse the litigation costs. The case concerned pre‑war dividend payments that became the subject of a tax dispute in 2018–2020.
- Case background
The tax authority attempted to apply the general 15% withholding tax rate instead of the reduced 5% rate provided for by the Double Tax Treaty between Ukraine and Cyprus in respect of dividends paid to the company’s Cypriot shareholder.
The basis for the additional tax assessments was the participation of Ukrainian managers in shareholders’ meetings and the signing of documents under a power of attorney from the non‑resident, which, in the tax authority’s view, indicated the existence of a “permanent establishment” of the foreign investor in Ukraine.
- ADER HABER’s legal position
The ADER HABER team developed and successfully implemented a defence strategy based on two key arguments.
- Separation of corporate governance and operational activities
The lawyers demonstrated that the representatives’ actions were of a purely technical nature, aimed at exercising the shareholder’s rights, and did not constitute profit‑generating business activity. The signing of minutes of general meetings and contracts does not create a “permanent establishment” within the meaning of tax legislation. - Asset attribution test
ADER HABER asserted and defended a fundamentally new legal position: even if a permanent establishment were hypothetically deemed to exist, the right to benefit from the reduced dividend withholding tax rate is preserved where the shares are owned by the non‑resident parent company, rather than by the assets of the permanent establishment in Ukraine.
Accordingly, the tax authority had no legal basis to apply the 15% tax rate.
- Precedential significance
The Supreme Court’s judgment sets a new standard for the application of international tax treaties and creates a precedent for the protection of foreign capital:
- Exercising corporate rights through representatives is lawful, provided it does not substitute for the operational business on the ground
- The entitlement to a reduced treaty rate is maintained unless the tax authority proves that the relevant assets belong to a permanent establishment
“This case is a game changer for foreign investors in Ukraine,” commented Tetiana Daniltseva, Partner and Head of Tax Litigation at ADER HABER. “The Supreme Court has clearly distinguished legitimate corporate governance from operational activity, thereby safeguarding investors’ right to control their assets through representatives without risking the loss of treaty benefits.”
“For the global market, the Vinnytsia Poultry Farm case, as part of the MHP group, has become a litmus test,” added Stanislav Karpov, Counsel and Co‑Head of Tax Litigation at ADER HABER. “MHP is not just an agricultural holding, but an international group with Ukrainian roots and one of the country’s largest taxpayers and employers. The business logic is straightforward: if the state can attack such a giant for standard corporate governance tools, then every foreign investor in Ukraine is potentially at risk.”
The interests of Vinnytsia Poultry Farm LLC (MHP) were represented by the tax litigation team of ADER HABER Law Firm: Partner Tetiana Daniltseva, Counsel Stanislav Karpov, and Senior Associate Vadym Ponomarenko.
