New tax credit for non-treaty withholding taxes

Ireland is a world-leading jurisdiction for leasing business and has recently improved its tax regime for cross-border leasing.  Irish lessors have always been entitled to the benefit of Ireland’s wide tax treaty network (currently 66 tax treaties).  Tax treaties play a key role in Ireland’s successful leasing industry by reducing or eliminating withholding taxes on inbound lease rental payments.  Tax treaties also allow Irish lessors to claim tax credits against their Irish corporation tax for any unrelieved foreign withholding taxes.  However, until recently, an Irish lessor could not claim a similar tax credit for foreign withholding taxes where no tax treaty applied.  In a welcome development, an Irish lessor carrying on a trade in Ireland may now also claim a tax credit for foreign withholding taxes on lease rentals where there is no applicable tax treaty.  The relief is granted on a unilateral basis by Irish domestic law.  This latest improvement will position Ireland as an attractive leasing jurisdiction for leasing aircraft and other assets into jurisdictions which do not have a wide tax treaty network.

Flight crew on international flights

The Irish tax authorities recently published guidance on the payroll tax treatment of flight crew.  This guidance follows recent tax changes relating to the operation by Irish airline operators of Irish payroll taxes on flight crew employed on international flights.

An airline operator which is effectively managed in Ireland must account for Irish payroll taxes for flight crew on international flights.  The guidance provides detailed examples of how Irish payroll taxes would apply in different scenarios.  One of the examples dealt with is where the flight crew are themselves resident in a country with which Ireland has a tax treaty and that treaty does not allocate full taxing rights to Ireland.  The example sets out how the Irish airline operator must account for Irish payroll taxes on the portion of remuneration attributable to duties exercised ‘in Ireland’.  In this context, the guidance confirms that the taxable portion of flight crew remuneration in such cases should generally be calculated by reference to ‘landing days’ in Ireland.