Kyiv, 6 Ivana Dracha St., of. 15
Your power to winUsing trademarks
One of the types of intellectual property is trademarks. The intellectual property rights to a trademark are protected under our national legislation to the extent specified in the registration certificate. However, if the trademark already has international registration or is recognized as well-known in accordance with the law, it does not require certification by a certificate.
As a general rule, only the owner of the trademark has the right to prevent, prohibit, or allow others to use the trademark. In order to obtain either ownership rights or the right to use the trademark, the relevant agreements must be concluded, specifically: a contract for the transfer of ownership of the mark or a licensing agreement. These agreements are considered valid if they are made in writing and signed by the parties.
The presence or absence of the above agreements, and the analysis of their essential terms, has recently been the subject of scrutiny by tax authorities during documentary inspections, the results of which are reflected in tax audit reports and subsequently in tax notifications and decisions.
Tax authorities make additional assessments of corporate income tax liabilities in cases where they identify transactions involving the taxpayer's free use of a trademark (e.g., determining that the trademark is being used without compensation) or when violations of Ukrainian tax legislation are discovered concerning the calculation and payment of royalties to the actual owner of the trademark, taking into account the country of its registration.
In the first case, tax authorities argue that the free use of a trademark owned by another entity leads to understated tax liabilities for the user of such a trademark. This is because the taxpayer, as the user, derives income due to the gratuitous nature of the provided goods (services).
In the second case, the issue pertains to the incorrect application of international law principles, treaty rules, and/or disregard for identifying the beneficial owner of the trademark.
In addition to the aforementioned issue of properly drafting agreements concerning the right to use a trademark, critical challenges for businesses in Ukraine remain those related to the methods of using this type of intellectual property. Improper use of a trademark can harm and weaken the business reputation of its owner. Examples include situations where the name of a trademark coincides with the trade name of different business entities, where a trademark is identical or similar to a well-known trade name in Ukraine or another well-known trademark, and cases of unauthorized use of a trademark outside the scope of prior user rights.
Thus, to avoid negative consequences when using any designations or combinations thereof in the form of certain words, letters, numbers, graphic elements, color combinations, by applying them to goods, services, packaging, advertisements, printed materials, signs, invoices, forms, and other documentation, every business entity must professionally analyze these matters. This includes ensuring the lawful use of trademarks and addressing potential risks of unauthorized use.
oral/written consultations on determining the scope of rights of a trademark owner;
oral/written consultations on the lawful use of trademarks in business activities and the circumstances of introducing goods into commercial circulation;
legal analysis of the legitimacy of additional tax assessments based on the identified use of a trademark;
legal review of agreements concerning the transfer of intellectual property rights, licensing agreements, assistance during their drafting, modification, or termination;
services for trademark registration;
representation and defense of client interests in court regarding trademark use, including the appeal and annulment of tax notices and decisions issued following inspections concerning intellectual property legislation;
representation and defense of client interests in court concerning any violations of trademark owner rights;
drafting and submitting crime reports to law enforcement authorities regarding the illegal use of trademarks, trade names, or qualified indications of product origin.
Designations that depict or imitate state coats of arms, flags, and other state symbols (emblems); official names of states; emblems, abbreviated or full names of international intergovernmental organizations; official control, guarantee, and assay marks, seals; awards, and other distinctions cannot be granted legal protection.
You do not need the trademark owner's consent for its use if the mark is employed in comparative advertising conducted in accordance with advertising laws, laws on protection against unfair competition, and does not constitute unfair business practices.
The subsequent resale of goods introduced into civil circulation under a specific trademark by the certificate owner or with their consent does not require the trademark owner's permission and cannot be restricted or prohibited by them, provided that the individuals engaged in the resale comply with requirements ensuring the unchanged quality of the goods.
It is important to remember that a registered trademark must be used. Otherwise, if it is not used in Ukraine either entirely or in relation to some of the goods and services specified in the certificate within three years from the date of publication of information about the certificate issuance or from another date after this publication, any person has the right to apply to the court for early termination of the certificate's validity, either in whole or in part.
According to Article 7 of Directive 2008/95/EC of the European Parliament and Council "On the approximation of the laws of the Member States relating to trade marks and service marks," this principle establishes that the owner of a trademark loses the right to commercially use a product that has been introduced into the civil circulation (sold, distributed, etc.), and further use of the trademark for goods and services in relation to that product is free and does not require the owner's consent for goods and services.
Thus, after a product is placed on the market, the use of the trademark on that product is non-commercial, and the presence of the trademark on the product packaging does not by itself create any benefits for the purchaser regarding the use of the trademark, the value of which is already part of the product’s price. Introducing the product to the market does not give the trademark owner the right to demand payment for the use of the trademark, which, in turn, indicates the absence of grounds for concluding licensing agreements or obligations regarding the payment for the use of the trademark.
The registration of a trademark occurs to protect the rights of its owner, and the territory to which such protection applies is determined by the countries that are parties to the relevant international agreements regulating this protection.
For example, a trademark (sign) can be registered in the EU by any individual or legal entity who has a permanent residence in one of the EU member states, a permanent representative office in one of the EU countries, or is a resident of a country that is a party to the Paris Convention for the Protection of Industrial Property of March 20, 1883.
According to Article 1 of the Paris Convention, the countries to which this Convention applies form a Union for the Protection of Industrial Property. The objects of protection under industrial property include patents for inventions, utility models, industrial designs, trademarks, service marks, trade names, and indications of origin or the name of the place of origin, as well as the suppression of unfair competition.
Therefore, any individual (or legal entity) from a country that has joined the Paris Convention can register a trademark in EU countries and receive protection in all EU member states, as well as in the countries that are parties to the Paris Convention.
Paragraph 141.4 of the Tax Code of Ukraine (TCU) establishes special rules for taxing income of non-residents.
In particular, according to subparagraph 141.4.2 of the TCU, a resident or permanent representative office of a non-resident that makes any payment to a non-resident from income sourced in Ukraine (the list of which is provided in subparagraph 141.4.1 of the TCU, with royalties included under subparagraph "v" of subparagraph 141.4.1 of the TCU) is required to withhold tax on such income at a rate of 15%, which is paid to the budget during the payment, unless otherwise provided by the provisions of international agreements of Ukraine with the countries of residence of the individuals (that have entered into force) to whom the payments are made.
At the same time, according to paragraph 3.2 of the TCU, if an international agreement, approved by the Verkhovna Rada of Ukraine, provides for different rules than those specified in the TCU, the rules of the international agreement shall apply.
Therefore, if the recipient of royalties is the beneficial owner of the trademark (subparagraphs 103.2, 103.3 of the TCU), has provided a certificate confirming its tax residency in the country with which an international agreement has been concluded, and other documents provided for by the international agreement (subparagraphs 103.2, 103.4 of the TCU), there are all legal grounds to apply the provisions of the international agreements when paying royalties to their benefit.