Ailish O’Connor, Manager, Financial Services, Deloitte Ireland LLP: As discussed in the March 2024 Irish Tax Monitor, Finance (No.2) Act 2023 contains a number of changes to the corporation tax treatment of leases, which are having an impact on Irish-based aircraft leasing companies. As Revenue have now confirmed that companies can no longer rely on historic leasing practises from the end of 2023, we are seeing clients actively reviewing their structures in order to assess the impact, if any, and adapt where needed to the changes by exploring restructuring options. In particular, clients are considering the trading status of single aircraft owning entities (SAOEs) and finance companies for the purposes of qualifying for the Case I 12.5% corporate tax rate. In this regard it is important that these type of structures are considered carefully as the trading status of entities are now being viewed on an entity by entity basis as opposed to having regard to the operations of the group as a whole.

Other relevant considerations in terms of trading status include whether SAOEs originated the acquisition of its aircraft and lease and how and from where the SAOE is managed. It is important that Irish-based leasing companies who have not yet considered the changes undertake a review of the trading status of SAOEs and finance companies (where they have not been structured as s.110 companies) in order to determine if any steps should be taken.

Further, the evolution in Revenue practice as set out above as well as the expansion of S.403 TCA 1997 which impacts the leasing ring fence (discussed in detail in the March 2024 Irish Tax Monitor) is giving rise to a re-design of cash pooling and financing structures within leasing groups, as well as additional considerations from a loss efficiency perspective.

In addition to the above, the changes which have been introduced with respect to the taxation of finance leases are being carefully considered by impacted lessors. Notably, there are a number of key new requirements with respect to documentation and disclosures which must be met in order for certain tax treatments to apply.

It is crucial that Irish-based aircraft leasing companies continue to reach out their advisors in order to consider the impact of these changes and consider restructuring options and alternative structures where necessary in order to mitigate any potentially negative impacts.

This article appeared in the April 2024 edition of the Irish Tax Monitor.