A non-resident’s permanent establishment is neither a registry entry nor a sign on an office door; rather, it is a legal classification of conduct. An analysis of the Supreme Court’s jurisprudence demonstrates that in disputes arising under Subparagraph 14.1.193, Paragraph 14.1 of Article 14 of the Tax Code of Ukraine, victory belongs not to the party with the better paperwork, but to the one whose actions align with what is written on it.
There is a category of tax disputes where the parties litigate substance rather than figures. A non-resident’s permanent establishment (hereinafter referred to as the “PE”) within the meaning of Subparagraph 14.1.193, Paragraph 14.1 of Article 14 of the Tax Code of Ukraine (hereinafter referred to as the “TC of Ukraine”) falls squarely into this category. There is no separate registry to consult and verify whether such status has been “assigned” or “not assigned.” A PE is neither an entry nor a sign on an office door. It is a legal classification of conduct: a conclusion that a non-resident is, in fact, conducting business activities in Ukraine — even if they have never registered a branch here and formally operate from abroad.
Herein lies the principal difficulty. The taxpayer builds its defense on documentary evidence: articles of association specifying auxiliary economic activity codes, an agreement designating it as an independent distributor, or a power of attorney with a narrow scope of authority. The controlling authority counters with actual conduct: correspondence via the parent company’s corporate email, de facto price approvals, and the systematic conclusion of transactions by the same individuals. As a result, the court faces a choice between what is written and what actually transpired. The jurisprudence of the Cassation Administrative Court within the Supreme Court (hereinafter referred to as the “CAC SC”) provides a clear answer: the court examines the facts. Form is silent; actions speak.
In this article, I will not reiterate the statutory definition yet again — it is public knowledge. Instead, I propose two things that are currently lacking in existing publications: a working classification of PE disputes that has emerged in jurisprudence, and a demonstration of specific indicators of a PE based on concrete decisions of the Supreme Court — criterion by criterion, rule by rule, and indicator by indicator. For it is precisely at the level of indicators, rather than the abstract concept, that these cases are won or lost.
Why Corporate Communication Per Se Decides Nothing
It is worth beginning with what is most frequently misconstrued. The mere fact that a French, Cypriot, or Dutch company owns or controls a Ukrainian entity does not, per se, transform the subsidiary into a PE of the parent company. This is explicitly enshrined both in domestic law and in double taxation treaties (Paragraph 7 of Article 5 of the Model Tax Convention): the control and interdependence of companies do not automatically create a PE.
A conceptual approach was established by the ruling of the CAC SC dated September 29, 2021, in Case No. 640/10685/20, which remains one of the most frequently cited benchmarks. The Court distinguished three degrees of a non-resident’s presence in another state.
First — deriving income entirely without a presence in the country (such as interest or royalties); in this scenario, rather than the PE concept, special rules governing the taxation of passive income apply.
Second — establishing a subsidiary that is legally separate, where corporate subordination is counterbalanced by the “arm’s length principle.”
Third — deploying assets or personnel within the country that are separated only geographically but not legally; it is precisely for this situation that the legal fiction of a PE was devised.
The practical takeaway from this triad is both straightforward and underappreciated: ownership of an asset, receipt of dividends, and even having directors who are Ukrainian citizens do not, in themselves, constitute a PE. A PE begins where operational conduct is superimposed on the corporate relationship — namely, the actual performance of significant functions of the non-resident’s business in Ukraine or the activities of a dependent agent. And this is precisely where the evidentiary burden begins.
Classification of Disputes: Seven Scenarios of a Single Provision
Systematizing the body of case law reveals that PE disputes are clearly divided into seven categories, each characterized by its own specific markers contested between the taxpayer and the tax authority.
First — disputes concerning non-commercial representative offices (marketing, advertising, product registration), where the tax authority argues that a prolonged presence, staff, and substantial funding evidence commercial activity, while funding from the head office constitutes hidden income. A key benchmark is the CAC SC ruling dated February 15, 2024, in Case No. 640/35881/21.
Second — disputes concerning residents through whom a non-resident exercises corporate rights and receives passive income (dividends, royalties): the tax authority seeks to recognize the Ukrainian company as a PE of the foreign founder, thereby depriving the non-resident of preferential withholding tax rates on repatriation. Polar benchmarks include the CAC SC ruling dated March 20, 2025, in Case No. 280/4264/21 contrasted against the substantively opposite findings in the DTEK cases (discussed below).
Third — disputes concerning “dependent agent” status: whether a Ukrainian person possesses the de facto authority to act exclusively on behalf of a single non-resident. A key benchmark is the CAC SC ruling dated July 4, 2024, in Case No. 160/11095/23.
Fourth — disputes concerning the time criterion (“project-based” permanent establishments): construction and assembly sites lasting more than 12 months (Subparagraph “a”) or the provision of services for more than 183 days in any 12-month period (Subparagraph “b” of Subparagraph 14.1.193, Paragraph 14.1 of Article 14 of the TC of Ukraine), which automatically triggers an obligation to register a PE. This category is statutory precise and, therefore, the least relevant from the perspective of jurisprudence — as discussed below.
Fifth — disputes concerning commercial transactions without registration: trading through warehouses or servers, and storing a non-resident’s goods without tax registration. This category operates under a special mechanism set out in Paragraph 64.5 of Article 64 of the TC of Ukraine: upon identifying indicators that a non-resident is conducting business through a unit holding PE status without registration, the controlling authority schedules an audit. Based on the resulting audit report, the authority registers the non-resident on its own motion (without an application from the taxpayer), assessing tax liabilities and fines (Paragraph 117.4 of Article 117 of the TC of Ukraine). Independent cassation jurisprudence focusing strictly on the “warehouse and server” indicator remains scarce; at the Supreme Court level, it usually dissolves into the broader question of whether the de facto activity is commercial in nature. In essence, the mechanism of Paragraph 64.5 of Article 64 of the TC of Ukraine was triggered in the Solodkovodne and DTEKcases. This is an preventive, “administrative/registration-focused” category rather than a standalone branch of case law
ixth — disputes in the context of transfer pricing: transactions between a non-resident and its PE constitute controlled transactions (Subparagraph “g” of Subparagraph 39.2.1.1, Subparagraph 39.2.1, Paragraph 39.2 of Article 39 of the TC of Ukraine), and failure to disclose them entails fines for non-submission of the report. Here, jurisprudence establishes a clear dependency: the reporting obligation is derivative of the very existence of a PE. In the previously mentioned Lundbeck case (No. 640/35881/21), the Supreme Court, having established the absence of a PE, immediately set aside the decision imposing a fine for non-submission of the controlled transactions report — given that without a PE, internal transactions between it and the non-resident do not exist, and thus, there is no subject matter for reporting. The fate of this category is therefore entirely determined by the conclusion reached on the core indicators of a PE.
Seventh — purely procedural, yet capable of resolving a case even prior to its consideration on the merits: the proper plaintiff. A key benchmark is the ruling of the Supreme Court, delivered by the Judicial Chamber for the Consideration of Cases on Taxes, Fees, and Other Mandatory Payments of the Cassation Administrative Court, dated July 25, 2024, in Case No. 640/31489/21.
The Judicial Chamber formulated an unequivocal conclusion: a representative office that is not a legal entity and is not registered as a separate subdivision holding the status of a legal entity lacks administrative procedural capacity and, consequently, is deprived of the right to petition the court; only the parent non-resident company itself can be the proper plaintiff. The consequence is fundamental — a lawsuit filed by such a representative office is subject to being left without consideration (Paragraph 1 of Part One of Article 240 of the Code of Administrative Procedure of Ukraine), rather than being adjudicated on the merits. The paradox lies in the fact that the court never evaluated the substance of the PE: the case was exhausted at the procedural threshold. For legal practice, this serves as a clear warning — the non-resident, not its representative office, must initiate court proceedings.
This classification is valuable because it immediately indicates which indicator of a PE will need to be proven or refuted in a specific dispute. Let us now turn to the indicators themselves.
Indicator One: Fixed Place of Business and the Criterion of “Substantiality”
Place of management, office, warehouse, server — the list of places of business in Subparagraph 14.1.193, Paragraph 14.1 of Article 14 of the TC of Ukraine is non-exhaustive. However, the mere presence of a place of business determines nothing; what matters is the nature of the activity conducted through it. The law and tax treaties exclude activities of a preparatory or auxiliary character (such as storage, display, purchasing, or information gathering) from the concept of a PE. Furthermore, the 2017 BEPS reform removed the “automatic” application of these exemptions: now, each exemption must undergo a factual assessment to determine its auxiliary nature (BEPS stands for Base Erosion and Profit Shifting. It is an international project initiated by the OECD and the G20 aimed at countering schemes where multinational enterprises artificially shift profits to low-tax jurisdictions lacking real economic activity).
A classic example of refuting PE status is found in the CAC SC ruling dated March 16, 2020, in Case No. 826/7675/18. The representative office of a foreign pharmaceutical company engaged in the registration and advertising of medicinal products. The Court recognized these actions as preparatory and auxiliary, noting that they merely facilitated the marketability of the goods without generating direct income, and thus did not create a PE. The decisive factor was not the volume of activity, but rather its non-identity with the core commercial objective of the non-resident.
This rule was further developed in the Lundbeck case — CAC SC ruling dated February 15, 2024, in Case No. 640/35881/21. Although the representative office had operated at the same address for 16 years, maintained a workforce, and held fixed assets, the Supreme Court reaffirmed that duration, staff size, and expenses do not transform a representative office into a permanent establishment as long as its actual activity is limited to marketing and auxiliary functions without generating direct income in Ukraine.
Conversely, a mirror situation is illustrated by the CAC SC ruling dated November 11, 2025, in Case No. 640/14638/19. In this instance, the activities of the representative office aligned precisely with the business objects of the non-resident, were directed toward third parties, and were aimed at generating revenue. The Court arrived at the opposite conclusion: such activity is not auxiliary and, therefore, constitutes a PE. The underlying criterion remains identical — namely, substantiality and alignment with the core business objective — but the facts differ.
Indicator Two: Dependent Agent and the “Principal Role” in Negotiations
Subparagraph “c” of Subparagraph 14.1.193, Paragraph 14.1 of Article 14 of the TC of Ukraine recognizes a PE through persons who de facto exercise authority to negotiate the material terms of contracts or to conclude contracts on behalf of a non-resident, acting exclusively in the interests of a single non-resident. The key term here is “de facto” (фактично). The Commentary on the OECD Model Tax Convention introduced the concept of a “principal role”: if a manager in Ukraine conducts all negotiations, aligns prices and details, and a director abroad merely signs the document (“rubber stamping”), such a manager creates a PE — even if the contract is formally signed by someone else.
How this indicator is proven was demonstrated by the CAC SC ruling dated July 4, 2024, in Case No. 160/11095/23 (PEREMOHA LLC / DNIPRO AGRO ALLIANCE LTD). The Court emphasized that for the purposes of legal classification, the title of a document is immaterial; instead, an analysis of the actions actually performed is required — specifically their regularity, substantiality, and alignment with the core business activity of the non-resident. In other words, the indicator of a dependent agent is not presumed — it must be established by evidence.
Notably, the Supreme Court did not resolve the dispute on the merits by this ruling, but rather remanded the case for a new trial precisely because the lower courts had failed to examine the factual circumstances.
However, during the retrial, a telling shift of focus occurred. The courts satisfied the taxpayer’s claim on procedural grounds: the State Tax Service’s request preceding the audit contained no specific facts regarding a violation within the meaning of Subparagraph 78.1.1, Paragraph 78.1 of Article 78 of the TC of Ukraine, and the audit itself demanded documents of the non-resident from the resident that the latter objectively could not possess. By its ruling dated March 18, 2026, the CAC SC left this decision undisturbed and formulated a universal conclusion: an established violation of the audit procedure constitutes an independent ground for declaring a tax assessment notice unlawful, and the court may altogether decline to proceed to the examination of the substantive grounds of the violations. Paradoxically, the Supreme Court in this case never provided a substantive assessment of the dependent agent indicators — the dispute was resolved on procedural grounds.
The law even enumerates the markers of de facto authority: binding instructions issued by the non-resident (including via email), the use of the non-resident’s corporate email for communication with third parties, the management of the non-resident’s inventory, or the lease of premises for the storage of its property. This constitutes the very list of “red flags” around which the evidentiary process is constructed in most agent-related disputes.
Indicator Three: Power of Attorney — Form that is Silent in Itself
A distinct and common question is whether the issuance of a power of attorney by a non-resident to an individual in Ukraine creates a PE. The position of jurisprudence is consistent: the mere fact of issuing a power of attorney does not evidence a PE. A key benchmark here is the CAC SC ruling dated December 21, 2022, in Case No. 200/7051/20-a: findings regarding the performance of PE functions must be grounded in an analysis of the actions actually performed by the attorney-in-fact, rather than the existence of the document. In that case, the Supreme Court ruled in favor of the taxpayer because the controlling authority had classified the attorney-in-fact as a PE without analyzing the nature and line of his activity.
The risk materializes only where two conditions coincide: the non-resident’s line of business aligns with the representative’s authority — and the representative actually performs these actions. A power of attorney for a one-off corporate action (such as voting at a general meeting, signing a new edition of the articles of association, or registering a change of address) does not, in itself, create a PE. The problem arises when corporate powers become an instrument for the operational management of the non-resident’s business in Ukraine.
Indicator Four: The Time Criterion — A Provision Awaiting Its Case Law
A distinct indicator is one applied not by virtue of the substance of an activity, but by virtue of its duration. Certain businesses are present in Ukraine only temporarily — such as construction, equipment installation, or the on-site provision of services — and the legislator classifies such presence as a PE once it becomes sufficiently prolonged. Subparagraph 14.1.193, Paragraph 14.1 of Article 14 of the TC of Ukraine establishes two distinct thresholds here: a building, assembly, or installation site constitutes a PE if the work within a single or connected projects lasts for more than 12 months (Subparagraph “a”); the provision of services through hired personnel creates a PE if the activity is conducted for more than 183 days in any 12-month period (Subparagraph “b”). The duration is calculated per project rather than per contract — a single construction project cannot be fragmented into multiple contracts to circumvent the threshold. Concurrently, the time criterion applies only when the non-resident’s employees are physically present in Ukraine: at the site, on a business trip, or at the customer’s workplace. Conversely, if a non-resident executes a contract entirely from abroad (e.g., programmers writing code from their home country, lawyers consulting via email, or engineers sending blueprints), a PE does not arise under this indicator, regardless of how many months such work continues.
Notably, owing to its statutory clarity, this category remains largely absent from litigation — there are virtually no rulings of the CAC SC where the crossing of the time threshold constitutes the ratio decidendi. The time criterion is largely arithmetical: when personnel are present at a site beyond the prescribed period, the fact of exceedance is confirmed by primary documentation and is not seriously contested. If a dispute does arise, it shifts to other domains — whether the projects are connected, or how to allocate profit to the PE — and reverts to the previously discussed indicators. Thus, the provision operates preventively at the stage of tax compliance rather than as a subject matter of judicial review.
Indicator Five: Management from Within Ukraine and the Fate of the Preferential Rate
The most acute disputes in recent years involve instances where the beneficial owners or directors of a non-resident manage assets directly from within Ukraine. Here, two cases clash, which I deliberately juxtapose, as together they provide a more precise understanding of the substance than either would in isolation.
On one side is the CAC SC ruling dated March 20, 2025, in Case No. 280/4264/21 (Solodkovodne / BKW GROUP LTD). The Court established that the shared beneficial owners of a Cypriot company and a Ukrainian entity went beyond passive ownership: they systematically concluded agreements for the sale and purchase of corporate shares directly in Ukraine and made key management decisions from here. The conclusion — the activity was regular, conducted through representatives who conclude contracts and perform key functions within the territory of Ukraine; consequently, the preferential 5% withholding tax rate on dividends was revoked, and the general 15% rate was applied.
On the other side are the recent CAC SC rulings in the DTEK cases: dated March 5, 2026, in Case No. 320/49198/24 and dated March 11, 2026, in Case No. 320/47510/24. The factual background appeared similar on the surface: the State Tax Service argued that the non-residents (UK, Cyprus, Netherlands) had a place of management in Kyiv, and that directors who were Ukrainian citizens concluded contracts and managed operations. However, the outcome was the opposite. The Court stated that the controlling authority had failed to prove the commercial activity of the non-residents in Ukraine; the companies were not located at the declared address during the audit period; and the citizenship of the directors and their execution of individual agreements did not yet constitute a PE, as the activity must be systematic, whereas a single transaction over several years does not establish permanence. Furthermore, the Supreme Court emphasized that the mere distribution of income to a non-resident does not create a PE, and the non-residents had duly confirmed their status as beneficial owners with appropriate certificates.
The comparison of these cases serves as the best illustration of the Court’s approach across the entire selection. The provision is identical. The criteria are the same: systematic nature, substantiality, and de facto management from within Ukraine. The difference lies exclusively in the evidentiary baseline. Where the State Tax Service proved the regular conclusion of transactions and decision-making from within Ukraine (Solodkovodne), a PE was recognized. Where the evidence was reduced to the citizenship of the directors and isolated signatures (DTEK), it was not. The Supreme Court itself explicitly noted in the DTEK case that its findings do not contradict Solodkovodne: differing conclusions under identical legal provisions reflect differing facts, not differing law.
What the Court Requires: The Burden of Proof and Its Value
The cornerstone of all these judgments is the issue of proof. In PE disputes, the general rule of administrative procedure applies: the burden of proof regarding the lawfulness of its decision rests upon the public authority. Consequently, the formal arguments of the State Tax Service — such as duration of presence, staff size, the existence of a power of attorney, or the citizenship of directors — repeatedly prove insufficient. However, as soon as the controlling authority elevates its case to the level of facts (such as the regularity of transactions, alignment on material terms, or management from within Ukraine), the scales of justice tip. It is also telling that a significant portion of cases conclude not with a victory for either party, but with a remand for a new trial (CAC SC ruling dated July 4, 2024, in Case No. 160/11095/23, CAC SC ruling dated September 29, 2021, in Case No. 640/10685/20 (UNRJR No. 100124167), and CAC SC ruling dated November 19, 2025, in Case No. 440/18088/23 (UNRJR No. 131898092)) — precisely because the lower courts failed to examine the actual economic substance of the operations. A PE is established not by presumptions, but by facts.
By Way of Conclusion
A permanent establishment is a shadow that a non-resident casts upon Ukrainian territory through its conduct. It can neither be concealed by clever contractual drafting nor conjured up solely by a suspicious corporate relationship. The court looks at the actual activity — and defines the contours of the shadow accordingly.
For business, this dictates a purely practical defense strategy that mirrors the State Tax Service’s evidentiary logic: focusing not on phrasing, but on facts — namely, the genuine commercial independence of the Ukrainian company, its own risks and resources, the absence of binding instructions from the non-resident, the avoidance of using the non-resident’s corporate email in relations with third parties, and a clear segregation of auxiliary functions from the core business. For in these disputes, victory belongs not to the party with the better paperwork, but to the one whose actions align with what is written on it.