Notwithstanding the decline of GPA in the early 90's, Ireland and, in particular, Dublin, continues to be an attractive centre from and through which to lease and finance aircraft.

While GPA put Ireland on the map as an internationally recognised and acceptable financial centre for the leasing and financing of aircraft, the decision of Airbus Industrie to establish its main centre for aircraft leasing in Ireland and the establishment of other well recognised names in the aircraft leasing world in Dublin's IFSC including a number of well-known Japanese institutions such as ITOCHU Corporation, has reinforced the position of Ireland as a reputable centre for aviation business.

As a result of such growth, a wealth of financial, legal and technical expertise in the arranging of international leasing and financing structures exists in Ireland which, together with various fiscal incentives and a government generally sympathetic to the needs of the aircraft industry, makes Ireland and, in particular, the IFSC attractive to foreign investors engaged in the aircraft leasing industry to set up their leasing business.

The primary attractions of companies wishing to carry on a substantial aircraft leasing and finance business from the IFSC are the reduced rate of corporation tax applicable to such international leasing activities and the wide network of favourable double taxation treaties which Ireland has with approximately 30 countries worldwide.

In general, certificates issued by the Minister for Finance to IFSC based aircraft leasing companies cover all finance leases and leases of at least one years duration, so that income arising on such leasing activities qualify for the reduced rate of tax.

Further, the exemption enjoyed by IFSC companies from the obligation to withhold tax at the standard rate of 27% from payments of interest on lending facilities provided by foreign lenders irrespective of the existence of a beneficial double taxation treaty with the jurisdiction of the recipient of the interest, gives IFSC companies a significant advantage in negotiating funding for the acquisition of aircraft from foreign banks and lending institutions.

In addition to the general exemption from withholding on interest payments, Irish companies generally are not obliged to withhold tax on lease rentals or on dividends or other distributions made to non-Irish persons so that lease rentals may be paid to the lessor and dividends may be paid to the foreign parent of the Irish company, in each case, without withholding.

As far as capital allowances on aircraft are concerned, an IFSC company may claim accelerated capital allowances for aircraft used in the course of its trade. These take the form of

(a) an initial allowance of 100% of the expenditure incurred in the acquisition of the aircraft for the year in which such expenditure is incurred whether or not the aircraft is in use for the purposes of that trade during that year, or

(b) free depreciation up to a maximum of 100% of the cost of the aircraft in use for the purpose of the trade to give the company maximum flexibility in respect of the time over which it writes down the cost of such aircraft.

Although the reduced rate of tax payable by IFSC companies reduces the significance of these allowances, with appropriate planning and structuring, there may be capacity for cross border double allowances to be achieved in certain circumstances.

Other advantages to establishing an aircraft lease and finance company in Ireland apply irrespective of whether or not the company is established in the IFSC. They include:-

DOUBLE TAXATION TREATY NETWORK

Ireland's favourable double taxation treaty network makes it attractive for foreign investors with whom Ireland has a treaty agreement to invest here and for foreign lenders and foreign leasing companies based in favourable jurisdictions to lend to and participate in aircraft leasing structures involving Irish companies.

For example, where there is a favourable treaty with the country in which the rentals arise, no withholding will apply to the rentals receivable by the Irish company and, as mentioned above, there is no withholding on lease rentals paid out of Ireland. One of the reasons for the popularity of leasing to Korea out of Ireland is the exemption from withholding on lease rentals paid by a Korean lessee to an Irish lessor.

Further, Advance Corporation Tax does not apply to distributions made to a foreign company which is resident in a country with whom Ireland has a favourable double taxation treaty and which holds 75% of the ordinary share capital of the Irish paying company.

STAMP DUTY

There is a specific statutory exemption from Irish stamp duty for instruments relating to the sale or mortgage of aircraft.

V.A.T.

The sale or hiring of aircraft used or to be used by airlines operating for reward chiefly on international routes is zero rated in Ireland for VAT purposes. Further, as a matter of Irish Revenue practice, all non-EU airlines and EU national airlines are treated as coming within this zero rating.

IRISH AVIATION AUTHORITY

Although Irish companies involved in owning and leasing aircraft are not obliged to register aircraft on the register in Ireland, the Irish Aviation Authority has an excellent international reputation for its high standard of maintenance and safety requirements for aircraft on its register making such registration attractive for leasing companies.

GENERAL

The above factors coupled with the support of highly qualified and experienced advisers on the legal and taxation aspects of innovative and sophisticated forms of aircraft transaction structures including Japanese leveraged leases, double dips and securitisations makes Ireland well positioned to continue its growth and success as a centre for aviation business.

CATHERINE DUFFY is an Associate in the firm of A & L Goodbody, Solicitors working in the Banking and Financial Services Group which currently comprises nineteen qualified lawyers many of whom specialise in aircraft and asset financing and leasing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.