The Irish Revenue recently published eBrief 139/18. It contains updated guidance on the taxation of finance leases. The guidance confirms that, in general, an Irish finance lessor is taxed on the total of the rental payments received from the lessee. This follows the treatment set out in Section 76D of the Irish Taxes Consolidation Act 1997.
No mention is made of older guidance previously published by Irish Revenue which stated that a finance lessor may be taxed in accordance with the accounting treatment in certain cases, with the result, broadly, that there would be recognition of the "finance" or "interest" element of the lease rental payments only for tax purposes, not the total amount. We understand from Irish Revenue that this guidance is currently being reviewed.
In our view, it is important that the older guidance is retained. Otherwise, an unexpected tax result can occur which would not reflect the accounting profit or the economics of the transaction. This outcome can be avoided in certain cases under the older guidance. The older guidance is also, we believe, consistent with the expected operation of the new "interest limitation rule" which will be introduced into Irish law in the future by the EU Anti-tax Avoidance Directives (EU ATAD).
We would encourage clients and contacts who may be affected by this to discuss with us to assist our engagement with Irish Revenue.
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