BDO's strong role in the aircraft leasing business

BDO's strong role in the aircraft leasing business

“At BDO, we have been providing a range of services to the aviation industry in Ireland since the 1980s, including some of the world’s largest aircraft lessors, airlines and MROs,” said Angela Fleming, Tax Partner at BDO Ireland. “We have also assisted many new entrants to the market with the establishment of their Irish operations. Our structured approach is vital in helping new entrants navigate the Irish market. We work in small, multi-disciplinary teams, using our industry knowledge and experience to  provide expert advice to our clients in the aviation sector.

Ireland is firmly established as the leading global hub of aircraft leasing, and is considered by many to be the birthplace of the aviation finance industry. The origin of the industry can be traced back to Tony Ryan’s Guinness Peat Aviation (GPA) in the 1970’s, which at its time was the largest aircraft lessor in the world. “The knowledge and expertise grounded by GPA became the foundation for the Irish aircraft leasing sector, and today, many of the largest aviation lessors in Ireland, and thus the world, either grew out of GPA or were founded by GPA alumni,” said Fleming.

There are many reasons why Ireland has been so successful in this regard, including our favourable tax environment which provides for a 12.5% rate of corporation tax on leasing profits, and tax depreciation for aircraft over an 8-year period. “In this industry, access to favourable rate of withholding tax is key,” said Fleming. “Ireland has over 70 double tax treaties, many of which have been negotiated with aircraft leasing as a target, and thus offers either zero or reduced rates of withholding tax on lease rentals. This is a key benefit that Ireland offers over its competitors, including Singapore and Hong Kong.”

This favourable tax environment, coupled with over 40 years of aircraft leasing specialism, has led to an unrivalled pool of highly skilled talent, which is essential in this highly technical industry. This talent extends not only to those employed directly by the lessors, but to the experienced professional advisers, including technical advisers, corporate service providers, non-executive directors, legal advisers, auditors and tax advisers.

“The aircraft leasing industry is of such significant value to Ireland that we cannot allow ourselves to become complacent,” said Fleming. “According to the Government the aircraft leasing industry in Ireland employs more than 5,000 people both directly through the leasing companies, and indirectly through legal, tax, audit and other professional services linked directly with the industry.”

At BDO, in addition to aircraft lessors, clients include airlines, maintenance and repair operations (MROs), part-out companies and others involved in the wider aviation industry. This sector contributes more than $4 billion to the economy and employs around 40,000 people when you include pilots, maintenance staff and cabin crew.

“One future challenge facing the industry as a whole is the potential introduction of an aviation carbon tax,” said Fleming. “There is a strong opinion among some EU Member States and international businesses that tax in this area is light, compared to taxes in other transport sectors and amid the increasing concerns regarding the damaging impacts of climate change.  In the last week, it has been reported that the finance ministers of nine EU countries have written to Frans Timmermans, the EU’s executive in charge of climate, calling for the introduction of an EU-wide tax on aviation.” Earlier this year, the prospect of the introduction of an EU-wide aviation tax was addressed in the Tax Strategy Group papers published by the Department of Finance.

“This is an issue that warrants serious consideration from an Irish aviation perspective and could have significant implications for the Irish aviation industry as a whole,” said Fleming. “While the rationale behind an aviation carbon tax may be sound, it is hoped that some attention will be given to the fact that Ireland is a small island nation and thus heavily reliant on aviation transport”. 

The success of the Irish aviation sector is in no small part due to the support of successive governments over the decades. This support has resulted in an enviable tax treaty network, and favourable corporation tax regime. “The continued support of our existing Government, including its IFS2020 strategy for the development of Ireland’s international financial services sector, is key to the continued success of this sector,” said Fleming.

The availability of talent and ability to build a business with substance in Ireland is increasingly important, with approaching changes in the international tax landscape. “From 2020, accessing tax treaties, which is a key requirement for the aircraft leasing industry, will require lessors to have the proper substance in the country from which they are leasing aircraft,” said Fleming. “This represents an opportunity for Ireland.”

“With its highly skilled and experienced workforce, favourable corporate tax regime and wide network of leasing-friendly double tax agreements, Ireland is the perfect location for lessors to establish and develop their leasing platforms,” Fleming said.

To learn more about the services BDO provide to companies in the aviation industry, please visit BDO Aviation Finance.

Content adapted from The Sunday Business Post, November 2019.