Contributor: Lee Kavanagh, Manager, Financial Services Tax, BDO
Ireland has long stood as one of the global leaders in the aircraft leasing industry, largely due to its competitive corporation tax regime, a strong legal framework, and an extensive double tax treaty network. However, the global implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) framework is reshaping the landscape of the aircraft leasing industry, introducing regulatory challenges that could affect Ireland’s position.
The BEPS initiative aims to restrict profit shifting and tax avoidance by multinational enterprises. Key measures, such as stricter substance requirements, tighter transfer pricing rules, limitations on interest deductibility and the introduction of a global minimum tax rate for large multinationals, directly affect the traditional structures used in aircraft leasing. For instance, leasing companies must now demonstrate genuine operational substance in their jurisdictions and the introduction of the Principal Purpose Test into DTA’s allows for treaty benefits to be denied if obtaining a tax advantage is determined to be one of the principal reasons for an arrangement or transaction. Ireland, while complying with BEPS, has had to significantly tighten its own domestic tax rules, increasing costs and compliance burdens for lessors.
Among the more notable challenges to Ireland’s industry leading position is the changing tax stance of countries like India since the implementation of BEPS. Recently, Indian tax authorities have intensified scrutiny on Irish leasing entities undertaking aircraft leasing to Indian entities. The Indian tax authorities have questioned the substance of Irish leasing entities and in some cases, denied treaty benefits by invoking General Anti-Avoidance Rules and the Principal Purpose Test as introduced by BEPS. These moves can result in higher withholding taxes or the disallowance of deductions, thereby undermining the financial viability of leasing arrangements structured through Ireland.
These developments reflect a broader global trend. Several countries including Singapore, Hong Kong, and the United Arab Emirates are actively building competitive aircraft leasing hubs with favourable tax incentives and regulatory clarity. Separately, India itself has launched the GIFT City International Financial Services Centre, offering tax-neutral treatment to aircraft lessors as it seeks to onshore more of its aviation finance activity.
In conclusion, while BEPS and global tax reforms are increasing scrutiny and complexity in the aircraft leasing industry, Ireland remains a strong force and an attractive location for aircraft leasing entities. However, attractive tax positions being introduced by jurisdictions like India and the emergence of alternative leasing hubs signal a more competitive and regulated future. Ireland’s continued leadership in the industry will depend on its ability to adapt strategically, ensure real economic substance, and maintain the trust of both investors and treaty partners.