• Robert  Zeldi

    Manager, Tax & Law, EY Ukraine

    Robert Zeldi graduated from Uzhhorod National University with a degree in Specialist (Master) of Law and became a certified Attorney-at-Law in 2013.
    He advises businesses on customs and tax regulations and assists clients in dispute resolution and litigation.
    He also advised the Ukrainian government on improving customs legislation. As the leading expert on customs matters, he recently headed the American Chamber of Commerce’s Task Force on Authorized Economic Operator. Robert is fluent in Ukrainian, English, Hungarian and Russian.

EY Ukraine

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EY has a strong full-fledged legal practice in Ukraine, well versed in both local and international legal matters and practicalities and that has an impeccable track record. A team of more than 40 qualified lawyers provides a wide range of services to numerous international and local clients. Our more than 20-year history of operations in Ukraine and the CIS ensures our deep understanding of the local environment and knowledge of Ukrainian business peculiarities.

We have strong experience of all major fields of law, particularly in the areas of commercial, corporate and contract law, legal structuring, regulatory compliance, finance, currency control and banking regulations, etc.

Key areas of our expertise are tax (consulting and litigation), transfer pricing, corporate, M&A, labor & employment, private clients / wealth management, public-private partnership, antitrust/competition and intellectual property.

Our industry focus is also diverse covering, among others, energy & natural resources, banking and finance, agribusiness, real estate and construction, retail, FMCG, healthcare, pharmaceuticals and information technologies.

We are known for treading new ground in various high profile and technically complex projects. These range from our unique expertise of working on oil & gas productions sharing and joint activity agreements, restructuring of the largest business groups and state-owned enterprise and supporting several largest transactions in our country to such matters as sale of football pla­yers or a healthcare system reform in Ukraine.

Albert Sych, Partner, is a law leader for Ukraine.

Customs in Ukraine

The area of litigation with customs on tax-related matters may appear like a twilight zone to many businesses. This is not because disputes do not arise: rather, until recently there were few opportunities to win and businesses preferred to avoid costly and lengthy court proceedings.

Indeed, the legislation that existed before the new Customs Code was worded in such a way that the courts had to rule in favor of the authorities in most cases. For example, prior to 2012 the customs authorities enjoyed victory in 9 customs valuation disputes and lost only one. This ratio changed after the adoption of the new Customs Code. Although it’s been a long time since the courts published their statistical data on these specific cases, the most recent analytics of 2016 shows that business entities won 60% of cases regarding customs valuation disputes.

Potential tax disputes with customs are not only limited to valuation issues. While customs valuation is a complicated matter itself, with its sometimes vague rules on inclusion of certain expenses and proceeds to the taxable base, the customs tariff code and the country of origin of the goods can also have an impact on the amounts of customs duty and import VAT (and, potentially excise) payable at customs. In addition, the customs authorities can challenge the data in the customs declaration not only during customs clearance of the goods. Within 1,095 days after import customs can appoint an audit and assess additional taxes.

The customs authorities are focusing on these matters: according to the report of the State Fiscal Service’s Audit Department, during the first half of 2018 fiscal authorities conducted 377 tax audits, of which 242 related to the classification of the goods under the Customs Tariff.

The subject matter jurisdiction over lawsuits against the customs authorities overall belongs to administrative courts. Judges of administrative courts are rarely experienced in specific questions relating to the customs domain. It is crucial in such lawsuits to present credible but simple legal arguments which will find a way to be heard by the judge.

Below you will find three case studies showing that if a position is well-prepared, the chances of a favorable final ruling are quite good.

Customs Value Case

A consumer goods manufacturer produces goods in an EU member state. The manufacturer sells the goods to an intermediary in another member state, and in turn an intermediary sells the goods to a Ukrainian distribution company. The manufacturer ships the goods directly to the Ukrainian distribution company. All the players (manufacturer, intermediary and distribution company) belong to the same multinational group and can be treated as related persons for transfer pricing (TP) and customs purposes.

Due to certain TP reasons, the sale price between the manufacturer and the intermediary is significantly higher than the sale price between the intermediary and the Ukrainian distribution company. At the same time, the sale price of the goods while being sold by the intermediary to Ukraine is within a normal range for the similar type of goods and the Ukrainian distribution company sells the goods on the local market at a profit.

The customs authorities discover sale invoices from the manufacturer to the intermediary at higher prices. They immediately claim that the intermediary’s invoices are “fake” and raise the customs value of goods up to the level of the manufacturer’s prices.

Summary of Court Hearings and Ruling

The courts in all three instances ruled in favor of the Ukrainian distribution company (the Claimant).

The Claimant agreed that all parties were related to each other and the customs authorities were aware of this.  It was brought to the attention of the court that the higher sale prices between the manufacturer and the intermediary were adequately justified in the TP documentation. The contractual relationship between the Claimant and the intermediary are independent of the contractual relationship between the intermediary and the manufacturer.  The courts in their ruling stressed that the statements of the customs authority on the “fakeness” of the invoice between the intermediary and the Ukrainian distribution company lack any proof, as they are merely the opinion of customs officers.


Declaration on the contractual price of the goods between related parties for customs purposes is a complicated exercise in Ukraine. Customs authorities usually opine that the mere existence of the relationship between the seller and the importer leads to unacceptability of the declared contract prices, especially where the import price of the goods during import is lower than the manufacturer’s price. In addition, the customs authorities are not familiar with transfer pricing and providing them with the re­levant TP information would hardly look convincing to them.  Many similar cases end up before the courts.

The procedure for determining whet­her the relationship between the parties impacted the price is not a simple one, it’s important to create a simple but logical line of argumentation which supposedly convinces the judge.

Country of Origin Case

Diesel vehicles are imported into Ukraine from a CIS country under an effective free-trade agreement (FTA). According to the FTA, under rules of origin in order for goods to qualify for ­preferential origin they must undergo determined working and processing.

The Customs Service of Ukraine obtained the list of processing operations conducted at the CIS manufacturing plant. After analysis, the customs authorities challenged the prefe­rential status of the goods claiming that one processing operation from the list of technological operations foreseen by the FTA was not conducted at the manufacturing plant (mounting of ignition coils — despite the fact, that there is absolutely no purpose in mounting the ignition coil to a diesel engine). In the view of the Customs Service of Ukraine, the goods did not meet the criteria of origin, and exemption from customs duty under the FTA is not available.

Summary of Court Hearings and Ruling

The court agreed that the rulings of the customs authorities did not comply with the law and contradicted the FTA rules. In particular, the text of the FTA clearly stated that the requirement of specific technological operations related only to non-originating components which were actually used during manufacturing.

However, ignition coils are not used at all during manufacturing of diesel vehicles. Thus, the requirements of the list of technological operations cannot be applied to such goods and the absence of mounting of ignition coils does not prohibit to recognize preferential origin of the vehicles under the relevant FTA.


At first sight, the Customs Service of Ukraine were completely right. The technological ope­rations at the manufacturing plant missed mounting of ignition coils because such a component actually had no purpose in a diesel engine. However, a thorough reading of the FTA revealed that all the requirements established by the FTA for sufficient processing should apply only to ‘actually used’ materials. Since the disputed part was not used at all during the manufacturing process, there were no legal grounds to be guided by the requirements of the list of technological operations.

Thorough analysis and clever interpretation of the text in the FTA was the key to success in this case.

Classification Case

Glue guns were imported into Ukraine during 2014-2017 under the customs tariff heading 8515, subject to customs duty at a 5% rate. The guns were cleared through customs, released into free circulation and sold by the importer. Later, during a tax audit, the fiscal authorities decided that the proper customs tariff heading for the imported guns should have been 8516 with an ­import duty rate of 10%. As a result, the fiscal auditors issued a tax assessment for underpaid customs duty and VAT, which the importer challenged in court.

Summary of Court Hearings and Ruling

The court of first instance agreed with the fiscal authorities and rejected the impor­ter’s claim. However, the Court of Appeals considered the case differently. It noted that the customs authorities which cleared the goods did not voice any concerns with respect to the declared tariff code, and did not challenge the duty rate applied. The Court of Appeals deemed  that the latter change of approach for classification of glue guns for customs purposes used by the fiscal authorities during the audit violated the “principle of good governance”, as explained in a decision of the European Court of Human Rights (e.g., Rysovskyy v. Ukraine).


As we can see, ECHR case law is finding its way into the Ukrainian judiciary. Tax disputes usually arise between state agencies and legal entities. Administrative courts are starting to apply the general principles of European justice, and researching ECHR case law for applicable conclusions could well be a well-paying practice.


The examples cited above regarding tax disputes and customs authorities show that deep technical knowledge of customs legislation must also be accompanied by clear and simple legal argumentation from the broader domain of general principles of law. Merging two approaches can be the key to a successful tax dispute on customs matters.