Equipment Leasing In Ireland: New Developments

Author:Ms Ailish Finnerty, Caroline Devlin, Alan Heuston, Fintan Clancy, Kathleen Garrett, Conor Hurley, Gary McSharry and Jonathan Sheehan
Profession:Arthur Cox

Until the passing of the Finance Act, 2011, an equipment leasing platform in Ireland generally was established as an Irish resident trading company availing of the 12.5% rate of corporation tax applying to trading profits. This meant that the Irish company was required to carry on a trade in Ireland (thus requiring a certain level of substance and activity) and the capital cost of acquiring the equipment would generally qualify for tax depreciation (known in Ireland as capital allowances). The combination of the 12.5% rate of corporation tax and the generous capital allowances available in respect of the capital cost incurred meant that the Irish company generally suffered a very low effective rate of tax.

Nonetheless, an alternative means of structuring an equipment leasing platform in Ireland has now been introduced, simplifying the trading analysis and removing the administrative and modeling issues associated with capital allowances. It works best where the investors wish to extract the profits from the Irish vehicle rather than earn and retain profits in Ireland, but it is of course possible to combine it with other structures to achieve this.

What has changed?

Since the passing of the Finance Act, 2011 in Ireland, it is now possible for a special purpose vehicle ("SPV") established in Ireland to undertake leasing of "plant and machinery" and to avail of the very favourable tax regime afforded by Section 110 of the Taxes Consolidation Act, 1997 ("Section 110"), a regime which has been widely used for many years in securitisation and structured finance transactions.

What is the Section 110 Regime?

The Section 110 regime applies to a "qualifying company" engaged in the holding or management of "qualifying assets". Formerly, "qualifying assets" consisted of a wide variety of financial assets such as debt, share portfolios and all types of receivables. However, since the passing of Finance Act 2011, a "qualifying company" is now permitted to hold, manage and lease "plant and machinery" (which would include aircraft, ships, rolling stock, mining and drilling equipment, vehicles etc.).

Minimising tax costs on on-going activites and on cash extraction are crucial to any leasing SPV or platform. The taxable profits of a qualifying company operating within the Secion 110 regime are computed broadly following the financial accounts of the company. As a result the cost of funding and other business expenditure is generally tax deductible and...

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