Deirdre Barnicle, Partner, McCann FitzGerald: The Aviation Working Group’s suggestion that there should be greater use of the OECD model income tax treaty is sensible. As is outlined in the policy statement, the model treaty offers a total exemption from withholding taxes on aircraft and engine lease payments and underlines that equipment lease payments should be taxed only in the lessor’s home jurisdiction. Greater global cohesion on the tax treatment of these lease payments would level the playing field for businesses in this area and uniform international adoption of the OECD treaty position would facilitate this.

Ireland does not impose withholding tax on lease rentals paid to non-resident lessors, and other aircraft leasing hubs such as Hong Kong and Singapore take a similar approach. Nevertheless, Ireland should ensure that the OECD model provisions in relation to withholding taxes on aircraft and engine lease payments are included in any new or revised double taxation treaties with other countries.

Positively, the Indian Income Tax Appellate Tribunal (ITAT) recently confirmed that, subject to fulfilment of certain requirements (e.g. the establishment of a bona fide commercial enterprise), rental income on aircraft leases is not subject to withholding tax. Further clarity from other jurisdictions where the position is currently less clear would be helpful for airlines and lessors, by offering the much-needed certainty the Aviation Working Group’s policy statement called for in February.

Khatuna Baratashvili, Senior Manager, Financial Services Tax, Forvis Mazars: In February 2026, the Aviation Working Group (AWG) – the international association representing major aircraft manufacturers, global lessors and aviation financiers – published a policy statement addressing the persistent challenges created by withholding tax (WHT) in cross-border aircraft and engine leasing. The document raises substantial concerns about the impact of withholding tax on lease payments on the economics of international aviation financing.

In several tax systems, payments made by airlines to overseas aircraft owners or financiers are automatically subject to withholding tax, regardless of the commercial nature of the lease. This typically requires airlines to hold back a portion of each rental instalment and transfer that amount directly to the domestic revenue authority.

Because lease agreements generally guarantee the lessor a net return, carriers frequently have to increase the amount they pay so the tax deduction does not erode the lessor’s income – a mechanism that effectively shifts the tax burden back onto the operator.

Withholding tax introduces friction into an already complex financial chain, adding administrative cost, undermining predictability, and reducing the overall efficiency of international aircraft funding structures. These pressures compound the operational challenges faced by airlines operating within narrow margins and volatile macroeconomic conditions.

Ireland has cemented its status as the global epicentre of aircraft leasing, with roughly half of the world’s leased fleet under the oversight of companies headquartered in Dublin. The strength of Ireland’s leasing sector is closely linked to its ability to operate across borders with minimal friction, supported by a deep treaty network and a tax framework that offers reliability and clarity.

Aircraft finance demands extraordinary levels of long-term capital investment, far beyond that seen in most other industries. If international WHT regimes become more restrictive or inconsistent, they risk introducing new barriers to capital flows that Irish lessors rely upon. For Ireland to maintain its leadership position, continued alignment with global tax standards and policy certainty is essential.

AWG’s Key Recommendations for Reform
• Clear Legislative Exemptions for Cross-Border Leasing
AWG encourages governments to introduce explicit statutory exemptions removing WHT on aircraft and engine lease payments. Clear statutory carve-outs for international leasing align with prevailing global norms and significantly ease compliance pressures for both businesses and tax administrations.
For Ireland – where the tax framework is already regarded as stable and predictable – the recommendation reinforces the need to maintain a transparent legislative environment that supports long-term investment.
• Strengthening Double Taxation Treaty Networks
Bilateral tax treaties are often the primary legal tool through which countries mitigate or remove withholding obligations on cross-border lease payments. AWG urges jurisdictions to expand, modernise, or renegotiate treaty networks to ensure consistency.
Ireland’s broad, strategically negotiated treaty network remains a critical pillar underpinning its attractiveness as a global leasing hub. Ongoing investment in treaty development is therefore essential to preserving competitive advantage.
• Alignment with OECD BEPS, GAAR, and MLI Frameworks
OECD-aligned rules help define who genuinely earns the income, what level of local activity is required, and which structural arrangements are considered compliant and sustainable. AWG supports these frameworks as they modernise tax systems without disrupting legitimate leasing activity.
Ireland’s early adoption and integration of BEPS and MLI standards has positioned the country as a jurisdiction of substance, an increasingly important factor for global lessors.
• Structuring Leases to Optimise Tax Efficiency
Effective lease structuring remains crucial for managing cross-border tax exposure. This includes:
• Using dry lease arrangements where appropriate.
• Locating lessors in jurisdictions with robust aviation tax regimes.
• Maintaining compliance with transactional taxes, including U.S. federal excise tax where applicable.

Such structures help ensure the resilience and stability of multijurisdictional leasing operations.

Implications for Ireland’s Leasing Sector
Where withholding regimes are unclear or unevenly applied, they can distort competitive dynamics, increase the cost base for market participants, and limit access to internationally sourced capital. For Ireland, the message is clear: preserving leadership in global leasing requires legislative clarity, robust treaty networks, and continued alignment with international best practices.

As other countries push to expand their aviation finance sectors, reducing tax-related barriers becomes vital to ensuring uninterrupted capital movement and enabling Irish lessors to operate seamlessly across global markets.

As jurisdictions modernise their tax codes, easing or eliminating withholding taxes on leases will be a decisive factor in strengthening the aviation industry’s financial resilience. Ireland is uniquely positioned to influence international policy directions, given its dominance in the leasing market and its long-standing commitment to transparent, globally aligned tax practices.

Effective tax systems should facilitate - not hinder - the smooth movement of capital and fleet assets around the world. With a balanced mix of legislative reform, treaty-level cooperation, and adherence to international tax standards, Ireland can safeguard its position at the forefront of global aviation finance.

This article appeared in the March 2026 edition of the Irish Tax Monitor.