Ireland continues to build on its reputation as a centre of excellence for aircraft financing and leasing and its position has been further enhanced in recent years. There are a number of reasons why Ireland attracts investment in this area which include its favourable tax regime, wide double tax treaty network and professional expertise.
These factors combined with a government which is committed to growing and supporting the industry means that it has become the obvious location through which to finance and lease aircraft.
Taxation developments. 12.5% tax rate. The Irish government has repeated its commitment to maintaining the 12.5% corporation tax rate for active trading companies. This commitment has been welcomed by the aircraft financing and leasing community.
Section 110 companies. Section 110 of the Taxes Consolidation Act 1997 is widely used for structured finance and securitisation transactions in Ireland. Section 110 has recently been expanded to include aircraft assets within the qualifying asset criteria. This expansion is very positive and will assist the aircraft finance and leasing industry in offering a wider range of structures. It is critical in any structured finance transaction to ensure that the return for investors is structured in a tax efficient way.
A section 110 company is a standard Irish resident special-purpose company which holds and/or manages "qualifying assets" and meets the other section 110 "qualifying company" criteria. From a tax perspective, a section 110 company is entitled to claim a tax deduction for all of its expenses, including (usually) any profit-linked interest payments. Therefore, it is possible to ensure that a section 110 company can achieve a tax efficient result by paying out all of its return as an interest payment to investors.
The definition of "qualifying assets" (i.e. the assets which a section 110 qualifying company may acquire, manage and/or hold) has recently been extended to include plant and machinery, which encompasses aircraft and rolling stock. This structure is now proving very attractive for private equity investors and also for bankruptcy-remote requirements of financing banks.
Expansion of double tax treaty network.Ireland has now signed 69 double tax treaties (64 of which are now in force). Ireland's most recently signed double tax treaties include treaties with Uzbekistan, Ukraine, Kuwait, Qatar, Bahrain, Saudi Arabia, Armenia and Egypt. The Irish tax authorities are...