Angela Fleming: 'Ireland can't afford to take its position as a leader in aircraft leasing for granted'

If Ireland is to maintain its position as a leader in this field it must remain competitive and vigilant in the face of growing competition from Asia-Pacific.

One of the ways in which Ireland competes, for both aircraft leasing as well as business in a wide range of other sectors, is through its corporate tax regime.

The last few years have seen an unprecedented amount of change in the international tax landscape, presenting a challenge both for the taxpayers who must comply with the new rules and the jurisdictions that are required to implement them.

There is a general consensus that international tax changes should be tackled on a multi-jurisdictional basis, as it is widely believed that unilateral change is more likely to lead to an increase in profit shifting, rather than having the desired effect of aligning tax practices internationally.

This consensus has resulted in the establishment of two significant tax projects: the OECD's BEPS (Base Erosion and Profit Shifting) Project, and the EU's ATAD (Anti-Tax Avoidance Directive).

Ireland is a member of both the OECD and EU and therefore both projects will have a direct impact on Irish corporate tax policy, which presents both opportunities and threats for Ireland.

In the aircraft leasing industry, Ireland's key competitors are not other EU countries, but countries such as Singapore, Hong Kong, and China.

Therefore, mandatory tax changes at EU level could have a negative impact on Ireland's competitiveness internationally.

Of greatest concern is the introduction of new rules imposing a limit on the amount of interest expenses which may be deducted for tax purposes.

This change will lead to increased costs for highly leveraged businesses such as aircraft leasing.

Even where no additional tax liabilities arise, it will substantially increase the levels of compliance required, most likely driving up administrative costs.

It's hoped that Ireland doesn't accelerate the implementation date for the interest limitation rules and that businesses will be given enough time to prepare for these tax changes.

In the meantime, it's possible that similar rules will become mandatory for all OECD countries, which would at least level the playing field internationally.

The OECD's BEPS, on the other hand, potentially presents an opportunity for Ireland.

The BEPS Project aims to ensure that profits are taxed where the substance of the business is found.

A major positive from this potential change is that Ireland's 12.5pc corporate tax rate already operates on this basis.

Our tax policy doesn't encourage "brass plate" operations. Companies must have highly qualified and experienced people in Ireland to manage their businesses.

The availability of talent and the ability to build a business with substance in Ireland is increasingly important with these changes to the international tax landscape on the horizon.

From 2020, accessing tax treaties, which is a key requirement for the aircraft leasing industry, will require lessors to have "proper substance" in the country from which they are leasing an aircraft. For certain companies, this will mean restructuring and/or relocating.

M&A activity in the industry continued to be buoyant in 2018 and indications are that this will continue into 2019. Some businesses may look at M&A to increase their footprint in key jurisdictions.

There is certainly potential for consolidation in the market, as the overall number of aircraft lessors has risen in recent years due to new entrants, with China contributing to this significantly.

This represents an opportunity for Ireland because of its highly skilled and experienced workforce, favourable corporate tax regime, and wide network of leasing-friendly double tax agreements.

Despite some challenges ahead, the outlook for aircraft leasing in Ireland is positive with the country remaining the perfect location for lessors to continue to establish and develop their leasing platforms.

Angela Fleming is a tax director at BDO