Friday 28 July 2017

Ryanair pays less tax than boss O'Leary

DESPITE earning almost €1.6bn profits over the past five years, Ryanair has paid just €11.6m in tax over the period, the Sunday Independent can reveal. This represents an effective tax rate of less than one per cent.

Four years ago, Ryanair boss Michael O'Leary announced that he had paid personal tax of €14m for the year. He tried to present a giant cheque for the amount payable to "dithering Bertie".

In the five years to last March, Ryanair earned total pre-tax profits of almost €1.6bn. According to its profits and loss accounts, the total tax due for this period was €142.6bn. When a tax write-back of €34.2m last year is deducted,the total falls to just €108.4m. That represents a tax rate of just 6.8 per cent.

Low as it may seem, this actually seriously exaggerates the amount of tax Ryanair paid. If one examines their cashflow statements the amount of cash paid over the five years was €11.6m, a mere 0.73 per cent of profits.

How does Ryanair keep its rate so low? Part of the explanation is due to the fact that it keeps spending huge amounts of money on new planes. Last year's capital expenditure, most of which went on aircraft, was €494m. Ryanair's capital expenditure over the past five years was €2.46bn.

Under Ireland's corporation tax regime, plant and machinery, including aircraft, can be written off over an eight year period. Ryanair had an average of just over €2.7bn property, plant and machinery on its books last year. Even if the 12.5 per cent annual capital allowance was allowable against the full amount that would still knock only €338m off Ryanair's taxable profits.

This would reduce Ryanair's taxable profits from €451m to €113m. However, that should still have resulted in Ryanair paying €14.1m in tax. In fact, although the airline provided for a €49.6m tax bill in its profit and loss account, it actually paid just €5.2m.

Capital allowances on new aircraft are only part of the method Ryanair uses to reduce its tax bill to a pittance. While Ireland doesn't allow firms to front-load capital allowances, other countries are more accommodating.

Analysts reckon that many Ryanair aircraft are owned by subsidiary companies based in tax havens such as Cyprus. The aircraft are then leased back to an Irish operating company. By structuring the ownership of its aircraft in this way Ryanair is able to avail of other countries' front-loaded capital allowances.

Ryanair is also believed to have structured the ownership of its online ticket sales operation in a way that minimises its tax bill. This is understood to be owned by a Channel Islands-registered company, which then charges the parent company a commission for every ticket sold.

There is also evidence that Ryanair has been consistently over-estimating the tax liability it records in its profit and loss account. The most recent set of Ryanair accounts include a €34.2m write-back of tax which had been over-provided for in previous years. Add it all up and the Ryanair tax bill shrinks to not more than the price of one its bargain basement airfares.

Ryanair did not respond to detailed queries about its tax payments last week.

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