Several years ago, Lviv billboards were covered with numerous advertisements of a new elite residential complex from the real estate development group Avalon, and the Internet swarmed with them as well. «Oasis of harmony and inspiration in a megapolis», «a unique location in the central part of the city», «safety and comfort of living are elaborated to the tiniest detail» – the company representatives and journalists were not short of compliments in their advertising articles.
However, now that all the apartments in this residential complex have been sold out, we must state two strange facts. Firstly, if one is to believe the financial reporting, the premium project has brought upon Avalon nothing but total losses. Secondly, as per the documents, for some reason, “the luxury, affordable only by the selected few” was sold at a price of … economy class in the suburbs.
Residential complex Avalon 37 (a photo from the website of the real estate developing company)
It is not the first time that the residential complex (RC) Avalon 37 has become the object of our investigation. Previously, we have already stated that initially, this house was supposed not to exceed 4 floors or 18 meters. Yet, in early 2019, the executive committee of the Lviv city council suddenly amended the city development conditions and restrictions (CDCR) and increased the possible height to 25 meters without any mention of the number of floors. It seems like Avalon had foreseen it – from the very beginning, the house had been planned to have 6 floors, and as of the moment of amending CDCR, the apartments on the last floor were already sold.
The next time we took an interest in RC Avalon 37 after the article of Ukrainska Pravda, whose journalists found out that the brother of Andrii Smyrnov, the deputy head of the President’s Office, became the owner of the apartment of 100 sq.m. in this very house. As per the documents, he paid just a little over UAH 1,16 million, although the market price of this apartment was about UAH 6 million.
In the opinion of Ukrainska Pravda, it could have been a bribe as the courts are pursuing a case on the tax evasion of Vynnyky Tobacco Factory, which is controlled by Hryhorii Kozlovskyi, and Andrii Smyrnov supervises the judicial branch of power in the President’s Office.
Hidden behind the façade
Before diving into the world of fascinating schemes of tax optimization, let’s get to know the then co-owner of the real estate development group Avalon, as his name will be the focal point in this story. In the register of legal entities, the current ultimate beneficiary of the central company of Avalon Inc. company is its director, Alla Shamova. At different times, other managers of Avalon allegedly were the founders too, but it is doubtful that any of them ever controlled the group.
The shadow owner of the property developer is believed to be the Lviv-born Yuriy Fedoriv, who has been living abroad for a long time. Yet, in addition to the non-public figure of Fedoriv, for some time, the group had a more well-known beneficiary – in December 2017, the co-ownership of Avalon was suddenly announced at the meeting of the executive committee by a businessman and the then deputy of the Lviv city council, Hryhorii Kozlovskyi.
Hryhorii Kozlovskyi (a photo from the personal website)
Although the surname of Kozlovskyi was not mentioned among the founders of any group company, during the following year and a half, he was actively meeting the residents of the houses around the future objects, and representing the developer’s interests at the city council meetings. Later, probably having got tired of the journalists’ questions about scandalous developments, he announced in the same unexpected manner that he broke all the ties to Avalon, but that the company still belonged to his friends.
Judging by the chronology of Kozlovskyi’s announcements, he was the co-owner of the company at least from late 2017 till autumn 2019 – and the development in Lychakivska, 37, occurred during the same period. In Avalon, we heard the umpteenth denial of the fact that Kozlovskyi ever owned or had in any way been related to the group but considering the energetic activity of the well-known businessman and politician, these words seem to be an obvious lie.
The fact that Kozlovskyi is related to Avalon was accidentally let slip in our conversation with his old companion, the deputy of the Lviv city council, Petro Adamyk. In 2020, his wife Yana became the owner of the 53 sq.m. apartment in Lychakivska, 37. If one is to believe his declaration and the property rights purchase and sale agreement, the Adamyks spent just a little over half a million hryvnia to buy this apartment. The only thing is – the minimal prices in this house, which the Avalon sales department told us and which can be found in the archive of the specialized website LUN.ua, started at UAH 42 thousand per one sq.m., so the apartment of 53 sq.m. should have actually cost four times more.
Petro Adamyk and his wife Yana (a photo from Instagram)
When we asked Petro Adamyk about the secret of such an incredible reduction, he explained that he had invested at the very beginning of the construction and that it was «a project of his friends»:
– My friends were building it; this price was like an estimate. It was a market price; this is what I paid. Or rather, Yana Yaroslavivna paid, right. And it was at the very beginning of the construction…
– Your friends were building – do you mean Hryhorii Kozlovskyi?
– Well… yes, Avalon, they were my friends at the time. As far as I understand, now Hryhorii Petrovych has nothing to do with Avalon anymore…
Generally, one look at the list of apartment buyers in this house reveals the shadow of Kozlovskyi looming behind each fourth person. Some have business relations with him; some are his family, friends, or even neighbours. But we will come back to this matter a little later.
Concrete, brick, cash?
A six-storeyed building in Lychakivska, 37 was brought into operation in November 2019. According to the technical and economic indices, submitted by Avalon Dream LLC to the State Architectural and Building Inspection of Lviv, the total area of the building was almost 6,700 sq.m., and its cost was UAH 44.3 million. Thus, simple mathematical calculations show that the construction of one square meter cost the company a mere UAH 6,600.
The construction in Lychakivska, 37, in the summer of 2019 (a photo from the website of LUN.ua)
UAH 6,600 is much below the average market price. For instance, in 2018–2019, the indices of the average cost of residential house construction in the Lviv region fluctuated at the level of UAH 11.8–12.5 per one sq.m. These indices are calculated and approved by the state, and they demonstrate how much it costs to build a residential house by the project, most common for the region. Again, the numbers for the estimates are taken from the official documents submitted by developers to the state authorities while putting the constructed buildings into operation.
Of course, this is some «average ward temperature», and the construction of a specific house may cost either more or less. But it is noteworthy that Avalon was building a premium-class residential property, not a cheap place, so the expenses should have been much higher, not twice lower in any way. For instance, the construction of a business class RC in Pasichna, 84 in Lviv, which has a similar area and materials, cost another developer UAH 18.5 thousand per one square meter.
This difference in numbers suggests that Avalon was using the tax optimization schemes, meaning – it procured and registered officially only some services and construction materials, and paid for the rest in cash. “If the cost price of the house construction is twice lower than the average market price, it shows that the construction commissioner has had the documents to prove the expenses related to construction and assembly work at the site only for this very amount during the entire period of its construction work. This situation is a marker, but not a proof of the scheme of reducing the taxation basis,” explains Yevheniy Polunov, an independent real estate expert.
It is cheaper for friends
The prices set by the company to sell apartments in Lychakivska, 37 look no less suspicious. We have already mentioned the purchase of an apartment by the brother of Andrii Smirnov from the President’s Office, revealed by the Ukrainska Pravda, at the cost of UAH 1.16 million, while the market price was UAH 6 million.
However, we discovered that a month before that, the sister and the mother of Vitaliy Svishchov, the youngest Lviv regional council deputy, became the owners of two apartments of a similar total area. Both women managed to buy them much below the market price – each paid a little over UAH 1 million. Hryhorii Kozlovskyi and the Svishchovs have long been united by old friendship and joint business. In particular, Kozlovskyi and Oleksandr Svishchov, the deputy’s father, might still be controlling the abovementioned Vynnyky Tobacco Factory and residing close, in Pidberiztsi village near Lviv, as we have previously reported.
Vitaliy Svishchov (a photo of Dyvys.info)
Another neighbour from Pidberiztsi, Ilona Lobanova-Habruk, also decided to use this opportunity. In early 2019, her mother, who actually lives in Dnipro, suddenly decided to invest half a million hryvnia in the purchase of an apartment of 53 sq.m. in Lychakivska, 37 in Lviv. According to the prices stated by the developer at LUN.ua, the market price of this apartment had to be over UAH 2 million at the moment.
The exact nature of the relations between Ilona Lobanova-Habruk and the bodacious businessman, except their neighbourhood, is still unknown. Yet she has even inherited the telephone numbers of Kozlovskyi and his friends. According to the data of the services of number owner checking, one of her mobile numbers previously belonged to Hryhorii Kozlovskyi and the other – to Oleksiy Riznyk, his lawyer and Lviv city council deputy. Also, judging by Instagram, she is a friend of the Avalon director and owner of record, Alla Shamova.
Alla Shamova (on the left) and Ilona Lobanova-Habruk (a photo from Instagram)
The apartment in RC Avalon, 37 was purchased by another neighbour of Kozlovskyi in Pidberiztsi – the secretary of the Lviv city council, Markiian Lopachak. In September 2020, his wife, Iryna, registered a two-room apartment of 79 sq.m. under her ownership. She also paid much below the official developer’s price – but more about it will follow.
There are many collective pictures of the Kozlovskis and the Lopachaks on social media. Markiian Lopachak was a guest at Kozlovskyi’s wedding, their families celebrate Christmas together, and in the comments under one post, the businessman’s wife calls the council city secretary the child’s godfather.
Yulia Dumanska, Kozlovskyi’s wife, calls Markiian Lopachak the godfather of the child (a screenshot from Instagram)
The younger children of Kozlovskyi – a 4-year-old daughter Diana and a 3-year-old son Yarema – also received their own apartments in Lychakivska, 37. However, we failed to determine their cost as the apartments had just been presented to them. The valuable presents were made by Oksana Kit, the grandmother of Diana and Yarema, only two weeks after she had bought them herself. Kozlovskyi’s mother-in-law had never previously had any serious business, so it is not clear where she could have gotten the money for 230 square meters in a premium-class house.
The family of Orest Vityk, the former head of the State Taxation Service in the Kyiv region, invested in Avalon 37 as well. On September 30, 2020, his mother, Yaroslava, and his aunt, Nataliia Maksymyshyn, registered three apartments in this house under their ownership on the very same day – each apartment cost UAH 500–700 thousand. While the origin of the finances of the tax officer’s mother can be explained by her business, it is absolutely unclear in what way her sister Nataliia, working as a nurse in the Novoyavorivsk hospital in the Lviv region, managed to save almost UAH 1.2 million for two apartments, 80 sq.m. each. It is most probable that elite real estate was registered under her ownership by Orest Vityk himself to avoid declaring it.
Orest Vityk (a photo from the website of the State Tax Service in the Kyiv region)
Hryhorii Kozlovskyi and Orest Vityk may well be acquainted as well. According to the data of Yevhen Plinskyi, 1+1 media journalist, while working in the Lviv tax administration, Vityk may have covered up the schemes of tax evasion used by the Vynnyky Tobacco Factory.
Avalon 37 highlighted the surname of the third probable participant in these schemes, Vasyl Kostiuk, who is called the owner of the network of the conversion centers. In early 2019, the companies of his wife, Viktoria Kostiuk, Vita Development LLC, and Trentova Ltd, bought two apartments and non-residential premises on the sixth floor there. The prices for them turned out to be extremely privileged as well – for instance, a little over a year later, Trentova Ltd re-sold the non-residential premises, bought for UAH 2.5 million, at the 11 times higher price – for UAH 29.6 million.
Later, two apartments of 94 sq.m. were allegedly bought by Viktoria Kostiuk from her own company. At present, she owns the brand of residential real estate renting, Kostjukowski apartments, and these apartments are let to rent at the price starting with UAH 6,200 a day.
Viktoria Kostiuk (a photo by Kostjukowski)
On the face of it, it looks as though businessman Kozlovskyi decided to build a «club» house for his close ones and sold the apartments at the cost price to his friends, relatives, business partners, or just valuable people. However, NGL found out that other buyers, unrelated to him in any way, also bought the apartments in Avalon 37 at the reduced prices stated in the documents.
Avalon Dream has officially sold all the apartments in the RC at the price of UAH 8.5–11.3 thousand per one sq.m. At the same time, these amounts could have been enough to buy only the property in Harmony – an economy-class residential complex in the suburbs of Lviv, which is still partially incomplete, let alone the premium segment almost in the center of the city – as described before, the prices for real estate in Lychakivska, 37, available in open access, started with UAH 42 thousand per one sq.m.
Do you want an apartment? Buy the right to purchase it
What is the secret behind such crazy discounts? The editorial team of Nashi Groshi. Lviv has obtained several property right purchase and sale agreements for apartments, signed in different years. The documents, dated 2019, when the building was not yet put into operation, contain references to so-called «forward contracts».
As per Yevheniy Polunov, an independent expert, it is a proverbial way of tax evasion. «The fundraising at the construction stage involving forward contracts is classic. The judicial practice has been established. Yes, this is a scheme of optimizing the value-added tax and the corporate income tax,» Polunov explains. «The building lobby of Ukraine has lost enough resources to protect it in court. Most attempts of the State Tax Service to charge the additional taxes on this scheme have yielded no results.» As they say, «Nothing personal, just business.»
Yevheniy Polunov (a screenshot from Bihus.Info footage)
Actually, much has already been written about the scheme of purchasing and selling forward contracts, or derivatives, as they are also called. It was discussed by field experts; on its website, the National Commission on Securities and Stock Market warned investors about the risks of buying real estate this way, and the Kyiv Tax Service investigated a criminal case regarding the group of construction companies, DIM, owned by the Nasikovsky brothers, which did not pay over UAH 40 million while selling apartments in the capital RC Avtograf.
So, how does this scheme work? Suppose you would like to buy an apartment. You decided to invest into the house under construction since it is cheaper. But in the office of the developing company, they suggest your first signing a purchase and sale agreement of the derivative (a forward contract) with another related company instead of executing a purchase and sale agreement on property rights, by which you will have received your apartment after the house has been put into operation. This document does not make you a future apartment owner at all. It merely gives you … the right to purchase it from the developer at a reduced price after you first pay the rest of its market value by the derivative.
Why is this scheme interesting for the developer? Firstly, the income from the sale of derivatives is not subject to 20 % value-added tax. Thus, VAT will be paid only for the part remaining for the property rights purchase and sale agreement, not the entire price of the apartment. Secondly, forward contracts are usually signed with venture investment funds, which do not pay income tax till the moment of their liquidation. In its turn, the developing company receives much less profit from the sale of real estate and pays a smaller amount of tax. Or it may come down to zero or suffer losses, according to the documents – and thus the company evades paying any taxes.
As for the buyer, the scheme with the derivatives creates additional risks. If the house has not been completed, the buyer will be able to go to court and get back only the finances, paid by the property right purchase and sale agreement for the apartment, not the money paid by the purchase and sale agreement of the forward contract.
The documents often contain the phrase that a forward contract was allegedly sold following the results of the open auction at the stock market. Yet, the experts say that usually this is an open lie, and investors do not take any part in any sales. And it is doubtful whether any sale actually takes place.
The agreements with Avalon also mention that forward contracts on the provision of property rights were allegedly sold on the commodity market Dovira in October 2018. Now, the website of the market is not active, but we found its copy for that period in the Internet archive. It is really possible to find an advertisement about the sale of future real estate objects from several companies of the Avalon group, but not the ones from Avalon Dream LLC. The advertisements were rather abstract, not even stating the exact addresses of these apartments and non-residential premises.
We managed to talk to two people who have bought apartments at Lychakivska, 37. They have not even mentioned any auctions. According to them, the procedure with forward contracts was suggested to them in the sales department of Avalon.
It is up to each developer to decide which percentage of the apartment cost should be counted on derivatives and which – on property rights purchase and sale agreements. For instance, in the DIM group of companies, according to the materials of the case, 50% were directed to the investment fund accounts and 50% – to the developer’s account. It seems that Avalon chose the 60/40 ratio. To find these numbers, we unexpectedly had some help from the abovementioned secretary of the Lviv city council, Markiian Lopachak.
Markiian Lopachak
In his declaration for 2020, the official stated that the apartment of his wife, Iryna, in Lychakivska, 37, cost UAH 1.65 million. However, according to the property right purchase and sale agreement, the apartment cost only UAH 676 thousand hryvnia. In his communication with NGL journalist, Markiian Lopachak admitted that we should trust the figure in the declaration, «The amount I have declared is exactly the cost of the apartment, paid by my wife. Yes, actually she additionally signed the forward contract, by which the second payment was made. Both amounts were officially transferred to the bank account according to the banking details provided by the developer.»
So, Avalon counted on about one million hryvnia (60% of the apartment cost) for the derivative only and the rest – for the purchase and sale agreement. As a result, the price of the apartment for the Lopachaks was almost UAH 21 thousand per sq.m. Certainly, this is not UAH 42 thousand per sq.m., as we were told in the sales department, but at least it corresponds to the average price of real estate on the primary market in Lviv at the time.
When asked about possible additional payment, in cash, for instance, Markiian Lopachak denied there were any. However, there could have been such attractive prices for investors at the beginning of the construction. Or, probably, the decisive role in Avalon’s decision was played by the buyer’s surname – after all, it was the wife of the deputy of the city council where the “proper” amendments to CDCR had to be introduced.
Back to the past
Although RC Avalon 37 was officially put into operation in November 2019, Avalon Dream went on selling the apartments by property right purchase and sale agreements in 2020, in 2021, and in 2022. The subject of these agreements was described as «premises which will become real estate property after the completion of the construction of a multi-apartment residential building» – as if both the developer and the buyer came back to the past. Only the mention of forward contracts disappeared from the documents. So, one is just to guess in what way the difference in price was paid – transferred to the account of the investment fund or paid in cash.
RC Avalon 37 after the completion of the construction (a photo from LUN.ua website)
As Yevheniy Polunov, the expert, explained to us, this method of sales looks rather dubious since after the house is put into operation, the property rights for the incomplete construction actually cease to exist, and it gets transformed into a newly built real estate object. So, ideally, at first, the company had to register the premises, which have not been sold at the stage of the construction, under its ownership and only then start selling them. On the other hand, it had its reasons not to do it.
«It is easier to sell the property rights for the apartment than to sell an apartment as a real estate object. In this case, the clients have to register the property right for the apartment under their ownership and sell it to the buyer according to the notarized purchase and sale agreement. At the bare minimum, these are additional expenses for the buyer – 1% fee to the Pension fund and 1% of so-called «state duty». It is not profitable for the construction commissioner, who is the seller, either. An apartment as a real estate object is «highlighted» in the register [of property rights for real estate], and there are many more issues in terms of determining the taxation basis,» said the expert.
So Avalon decided to go its own way again – and sold at least 12 apartments and 10 parking places, according to the documents, which were like «way back from the past», and it made about a quarter and a third from the total numbers, respectively.
The highest risks in this scheme could have occurred at the state of registering the property rights under the buyer’s ownership.
Seeing the property right purchase and sale agreement, signed after the house had been put into operation, a notary had a right to deny it altogether. But, if the registration has been completed, it is a reason to open a bottle of champagne because the presumption of lawful notarial actions is valid in Ukraine. Surely, they can be appealed in court, but neither a developer nor a buyer of the apartment is likely to do it.
The prevailing majority of the primary registrations of real estate in RC Avalon 37 were done by Rehina Potapchuk, a private notary. Only two apartments are an exception – one belongs to Potapchuk herself, and the other – to her husband, Andrii Potynskyi, a lawyer. Could a person who invested in this object at the construction stage together with her family not have known when it was put into operation? Hardly.
Rehina Potapchuk (a photo from Facebook)
But Rehina Potapchuk could hardly refuse. The fact is that Andrii Potynskyi, her husband, has long been cooperating with the developing company. From 2016 till January of this year, he has been among the founders of the housing association Avalon Lux, which commissioned the construction of another RC in Boikivska, 30. The surname of Potynskyi was also replaced by the investment fund from the Avalon structure in another company – Partner Investment Company LLC.
Rehina Potapchuk conducted the initial registration of real estate in another RC, belonging to Avalon, in Chornovola Avenue, 16. Obviously, she is cooperating with the developer as well. We managed to confirm this fact in the conversation with one buyer of the apartments in Lychakivska, 37. This lady said that when all the documents were ready, she received a call from Avalon and was told to which notary she was to go to get her certificate of ownership.
Epoch of total losses
After a detailed consideration of schemes, one has to finally answer the most interesting question – which amount of taxes has the country fallen short of due to these schemes? According to the data from our sources in the tax service, Avalon Dream has received an income of almost UAH 32.6 million from the sale of property rights in total for 2019, 2020, and 2022. Taking the 60/40 ratio into consideration, about UAH 48.9 million more had to go to the accounts of investment funds, unknown to us, using forward contracts, and no VAT has been accrued on it – so the country has fallen short of almost UAH 9.8 million.
We don’t even know any data about the company’s income from the sale of property rights in 2018 and 2021 – and 10 apartments were sold in these years. In addition, these figures are accurate only on condition that average buyers bought the apartments just like the Lopachaks – at the price of UAH 21 thousand per one sq.m., not UAH 42 thousand per sq.m., in which case the ratio could have been different and then the amount of VAT, not received by the state, should be multiplied several times.
A look at the financial reporting of Avalon Dream LLC in the analytical system YouControl shows that the company allegedly sold real estate either at the cost price, or almost at the cost price, or at a loss to itself. It ended each year with losses and didn’t pay any corporate income tax. If one is to believe these figures, one is led to believe that the ambitious project was not merely unprofitable, it was close to bleeding the company dry, leaving it with a loss of almost UAH 28 million.
It is worth mentioning that a whole number of other companies from the Avalon group are as totally unprofitable as the abovementioned, and they are commissioners of other residential complexes in Lviv – in Chornovola prospect, the streets of Lypynskoho, Zamastynivska, Zelena, Topolna, and others.
We emailed Avalon to get their comments, but we have not been provided any direct and comprehensive answers to any questions regarding taxes. We also sent a request to Hryhorii Kozlovskyi, asking him to comment on his relations with the developing company and the scheme of tax evasion in RC Avalon 37, but the businessman ignored our letters.