Court Cancels Over UAH 6 Billion in Tax Assessments Against GLOBAL SPIRITS GROUP

The LESHCHENKO & PARTNERS team successfully represented international alcoholic beverages holding GLOBAL SPIRITS GROUP in a major tax dispute. The Kyiv District Administrative Court fully upheld the company’s claim and cancelled eight tax assessment notices issued following tax audits. The first-instance judgment has not yet entered into legal force.

The judgment was delivered on 6 October 2026 in case No. 320/55637/25. The Court declared the challenged actions of the Central Interregional Directorate of the State Tax Service for Large Taxpayers unlawful and cancelled the tax assessment notices dated 6 August 2025.

The client’s interests were represented by Oleksandr Leshchenko, Managing Partner of LESHCHENKO & PARTNERS, and Anastasiia Blyndu, Partner.

Background to the Tax Dispute

GLOBAL SPIRITS GROUP is an international alcoholic beverages holding whose structure includes major production facilities, notably the Khortytsia Distillery and the Odesa Brandy Factory. The dispute arose following tax audits covering the company’s operations during 2019–2023.

The State Tax Service initially conducted a scheduled documentary audit and issued an audit report. The company challenged the findings by submitting formal objections. The tax authority subsequently initiated an additional unscheduled audit, following which it issued eight tax assessment notices.

The assessments concerned various aspects of the company’s business operations, including the production and sale of alcoholic beverages, corporate income tax, VAT, excise duty, marketing services, advance-payment transactions, trademark use, product transportation and water-use rent payments.

To defend the client, the LESHCHENKO & PARTNERS team had to examine extensive primary accounting documentation, analyse manufacturing processes and commercial agreements, assess sector-specific regulatory requirements and scrutinise the procedures followed during the tax audits.

Alleged Unrecorded Alcohol Production: Tax Authority Relied on Water Balance Figures

One of the most notable aspects of the case concerned additional tax assessments arising from allegations of unrecorded production and sale of alcoholic beverages.

During the audit, the tax authority identified a discrepancy between the volume of water supplied to the enterprise and the volume of wastewater discharged.

On that basis, the authority assumed that the difference represented water used to produce alcoholic beverages that had not been recorded in the company’s accounts and were subsequently sold without proper taxation.

However, establishing unrecorded alcohol production requires evidence of more than water consumption alone.

The defence drew the Court’s attention to the absence of evidence of unrecorded ethyl alcohol, other production ingredients, bottles, caps and packaging materials. The tax authority had also failed to establish the quantities of allegedly manufactured products, any actual sales or the receipt of related revenue.

The lawyers demonstrated that discrepancies in water balance figures could not, by themselves, establish the existence of unrecorded production and sales of alcoholic beverages. The Court accepted the defence’s arguments and found the tax authority’s conclusions to be unsubstantiated.

Marketing Services and the Business Purpose of Transactions

Another part of the dispute concerned transactions whose authenticity and commercial rationale were challenged by the tax authority. In particular, the State Tax Service alleged that the company had improperly recognised expenses and VAT input tax credits in connection with marketing services.

To rebut these allegations, the LESHCHENKO & PARTNERS team examined contracts, primary accounting documents and supporting materials establishing the nature, scope, value and commercial purpose of the services provided.

The Court found that the evidence supported the transactions and that the tax authority had failed to substantiate its allegations that the services were fictitious.

A separate issue concerned purchases of alcoholic beverages under advance-payment arrangements. Since the goods were ultimately not delivered, the tax authority questioned whether the transactions had a legitimate business purpose. The defence argued that the failure to achieve an expected economic result does not, in itself, mean that a transaction lacked a business purpose.

A commercial transaction may be intended to generate an economic benefit in the future, but that benefit may not necessarily materialise. The non-delivery of goods alone does not prove that the taxpayer lacked reasonable commercial grounds for entering into the transaction. The Court accepted these arguments and concluded that the tax authority had failed to establish the absence of a legitimate business purpose.

Royalties and Trademarks: Tax Authority Overlooked Supplementary Agreements

The tax authority also alleged violations relating to the taxation of trademark-use arrangements. According to the State Tax Service, the company had used intellectual property without payment, resulting in understated VAT liabilities.

In preparing the defence, the lawyers examined the relevant agreements and supplementary agreements between the parties.

These documents established that the parties had agreed to defer the accrual and payment of royalties. In particular, the arrangements provided for the suspension of royalty accrual during the COVID-19 restrictions and subsequently until the termination or cancellation of martial law in Ukraine. The tax authority had not properly taken these contractual provisions into account.

The defence demonstrated that the deferral of royalty accrual and payment does not, in itself, establish that the relevant intellectual property rights were used free of charge.

Tax Authority Authorised Alcohol Shipments but Later Imposed Penalties for Allegedly Unregistered Consignment Notes

Another issue before the Court concerned penalties imposed for the alleged failure to register consignment notes covering the transportation of alcoholic beverages.

The tax authority claimed that the relevant documents had not been registered in accordance with the applicable requirements.

However, all disputed consignment notes bore the endorsement “Departure Authorised” made by a representative of the State Tax Service. The lawyers explained that, under the procedure governing the relevant register, this endorsement is made only after the consignment note has been registered.

Furthermore, the taxpayer does not administer the register and has no authority to amend the information recorded in it. Accordingly, the tax authority’s allegations contradicted documents processed with the participation of its own representatives. The Court accepted the defence’s arguments and found no grounds for imposing the penalties.

Excise Duty and Water-Use Rent: Overlooked Documents and the Nature of Water Supply

The LESHCHENKO & PARTNERS team also successfully challenged the tax authority’s findings concerning alleged discrepancies in the quantities of alcoholic beverages shipped.

During the audit, the authority failed to take account of certain consignment documents, including those marked as “Full Return”. This affected its conclusions regarding sales volumes and the related tax liabilities. After examining the primary documentation, the Court did not establish the discrepancies alleged by the tax authority.

Another issue concerned rent payments for special water use. The State Tax Service maintained that the company’s use of water in its production processes gave rise to an obligation to pay the relevant water-use rent.

However, the defence demonstrated that the company received water through municipal supply networks, did not independently extract water from natural water sources and did not qualify as a primary water user. The Court agreed that there were no grounds for the additional assessments.

Procedural Violations and Forensic Economic Expert Reports

In addition to challenging the substantive tax findings, the LESHCHENKO & PARTNERS team examined the legality of the audit procedures. In particular, the lawyers focused on the scope and grounds of the unscheduled audit initiated after the company submitted objections to the original audit report.

During the proceedings, the Court established that the tax authority had exceeded the scope of the matters requiring further examination following the taxpayer’s objections. Forensic economic expert reports also played an important role in the evidentiary strategy.

A commission forensic economic examination conducted by the Cherkasy Branch of the Kyiv Scientific Research Institute of Forensic Expertise under the Ministry of Justice of Ukraine did not confirm the findings of the scheduled tax audit examined by the experts.

In addition, two further forensic economic expert reports obtained in preparation for the court proceedings did not provide documentary confirmation of the conclusions set out in the unscheduled audit report.

The Court took these expert findings into account when assessing the tax authority’s position.

The defence strategy therefore combined detailed analysis of tax legislation, primary accounting documents, alcoholic beverage production processes, contractual arrangements and procedural irregularities in the tax audits.