Ireland is one of the world centres for aircraft leasing, largely because of generous fiscal incentives. Aircraft leasing in Ireland is widely regarded as unregulated. This paper aims to examine the economic impact as well as financial, risk and regulatory aspects of aircraft leasing firms that avail of a particular tax subsidised debt called “section 110” debt.
This paper is based on aircraft leasing firms in Ireland that use tax exempt debt, called “section 110” debt. The study population was identified from searches of publicly available files in Companies Registration Office, Dublin. A population of over 350 aircraft leasing firms was identified. Data relating to financing, profitability, ownership structure and local expenditures were extracted from company accounts and used to build a data base of 1433 cases for the period 2010–2020.
The aircraft leasing industry in Ireland is regarded as a ‘success story’ but has low direct employment, low linkages with the domestic economy and low tax payments. Aircraft leasing is part of the non bank financial intermediation sector, that leads to risks to the wider financial system. Risks arise from violation of international treaties, for example by Russia, high debt equity ratios, large reported losses and opaque ownership structures.
There is no publicly available register of aircraft leasing firms in Ireland. The paper is based on a unique data base of financial structure, ownership and other variables, of a subset of aircraft leasing firms that have issued “section 110” debt.
1. Introduction
Aircraft leasing is an integral part of the global aviation industry. It enables new start ups and expansion of existing firms by reducing required capital. Almost all airlines lease some or a majority of their aircraft fleet. Aircraft leasing firms are important customers for aircraft manufacturers. For the year 2024, 50% of output from four aircraft manufacturing firms (Airbus, ATR, Boeing and Ambraer) was purchased by leasing firms (Air Finance Global, 2025, p. 14). Three leasing firms purchased 36% of output. Lessors are also important in the secondary aircraft market. For example Avolon, based in Dublin, bought 89 aircraft and sold 108 aircraft in 2024 (Air Finance Global, 2025, p. 15).
Ireland has been described as “the birthplace of aircraft leasing” (Department of Transport Tourism and Sport, 2015, p. 66). An Irish based aircraft leasing firm, Guinness Peat Aviation (GPA) established in 1974, became by 1991, the world’s largest aircraft lessor with a turnover of $2bn and a global market share of 36.5% (Cahill, p. 169). Following a failed flotation, GPA collapsed and was effectively taken over by GE Capital in 1993 (Muir, 2021). Despite this collapse, Ireland remains a centre for aircraft leasing. Over 60% of the world’s commercial aircraft are leased and financed from Ireland. Nineteen of the top twenty global lessors are located at the Irish Financial Services Centre (IFSC). Aircraft leasing firms assets in Ireland amounted to €121.3 billion in 2013 and €262.9 billion in 2024 [1]. Aircraft leasing in Ireland is regarded as a ‘global success story’ and a key part of Ireland’s industrial strategy.
The focus of this paper is on a subset of aircraft leasing firms in Ireland that issue debt with valuable tax reliefs, known as ‘section 110’ Loans (‘s.110’ loans). These are most frequently referred to as Profit Participating Loans (PPL). ‘S. 110’ loans are valuable because interest paid is tax deductible in Ireland and interest received may be tax free to a non-Irish resident. S. 110 aircraft leasing firms may be described as Non Bank Financial Intermediaries (NBFI) and as such may pose risks to the wider financial sector.
The IMF state a growing exposure to NBFIs has led to” concentration risk among some banks” particularly in Europe. Falls in the NBFI value of collateral assets could in turn “significantly affect banks’ capital ratios” (IMF, 1925, p. 23). Acharya et al. (2024, p. 3) argues that the” intermediation activities and risks of NBFI” and banks are “inextricably intertwined” and that there is a “nexus of NBFI-bank systemic risk”. Lender of last resort facilities (LOLR) have been unintentionally extended to much of the NBFI sector.
In 2022 there were 4861 aircraft leasing firms in Ireland. (Link to the cited article). ‘S. 110’ firms are likely to be a small part (<10%) of this total. The aircraft leasing market in Ireland is dominated by a few large firms. AerCap had $69.7bn in assets in December 2022, with 621 subsidiaries, of which 347 (56%) were incorporated and operating from Ireland. A further 38 subsidiaries were external companies, that is firms registered in another country, such as Bermuda, but operating in Ireland. The parent of all Irish AerCap subsidiaries is an external company, a branch of a Dutch parent company.
In 2022, Avolon had $31bn in assets, and 834 leased aircraft [8]. There were over 120 Irish registered Avolon subsidiaries and over 140 ‘external’ subsidiaries, largely registered in the Cayman islands.
Aircraft leasing firms have particular risks, apart from cyclicality risks such as, for example breaches of international treaties and seizure of leased aircraft by Russia. EU directives pose risks to current financial structures. Leasing firms that issue ‘s. 110’ debt have incentives to have high levels of borrowing and high interest rates. These factors result in either losses or low profits and may result in negative equity. Obscure ownership structures, such as the use of ‘orphan structures’ and location of parent companies in a tax haven, may mean risk is unknowingly transferred to lenders of finance, largely located outside Ireland.
The paper is structured as follows. The next section discusses fiscal incentives and ‘s. 110’ loans, aggregate tax payments by leasing firms and data sources for ‘s. 110’ debt issuing firms. Following sections discuss regulation and risks from breaches of international treaties and risk to leasing firms from restrictions on fiscal incentives from EU directives. Empirical evidence of risks from losses, high debt equity ratios and organisational structure is then presented. Some estimates of economic impact follows. Economic benefits are small, costly in terms of fiscal concessions and are outweighed by risks, including risks from aircraft leasing being part of the unregulated NBFI sector.
2. Fiscal incentives
The Irish Government have stated that growth of aircraft leasing was facilitated by the protection of lessors by international treaties, and “targeted tax rates and rulings as well as the development of a comprehensive network of tax treaties” (Department of Transport Tourism and Sport, 2015p. 66). Double taxation treaties are important in ensuring interest on ‘s. 110’ loans can be paid to a relevant country without payment of tax.
A major influence on the tax and regulatory regime for financial services in Ireland is competition from other low tax centres. PWC state “The Section 110 regime is vital to ensure that Ireland can continue to compete with other jurisdictions” such as Luxembourg which is described as “the number one fund domicile in the EU and Ireland’s biggest competitor (Link to the website of assets.gov, p. 82, 17).
There are two different corporate tax rates for aircraft leasing firms in Ireland. A rate of 12.5% applies to leasing firms where the “lessor is regarded as being in a trade of leasing” (Deloitte, 2014, p. 13). A tax rate of 25% applies to all ‘s. 110’ leasing firms. ‘S. 110’ firms are regarded as ‘trading companies’ and expenses such as costs relating to debt issuance are tax deductible.
In addition to ‘s. 110’ tax relief, capital allowances are a valuable fiscal incentive for aircraft leasing firms. For 2023 nearly 50% (€21bn) of total plant and machinery capital allowances were claimed by aircraft leasing firms. (www.revenue.ie/en/corporate/documents/research/ct-analysis-2024.pdf). It is also possible if the lessee is located in a non-Irish jurisdiction that both the lessor and lessee may claim capital allowances on the same aircraft. This is referred to as “a double dip” (Deloitte, p. 14). It arises because different rules may apply to entitlement to ‘tax depreciation’, for example based on legal ownership versus economic ownership.
For some aircraft leasing firms ‘s. 110’ debt is more important than capital allowances. KPMG state:
Section 110 SPVs [Special purpose Vehicles] play a vital role across a wide range of sectors, including […] the leasing of aircraft” (Link to the website of assets.govp. 27).
‘Section 110’ loans are valuable because interest paid may vary, but in most cases does not, and because of potential variability is treated as a profit distribution on which tax has already been paid. This may result in double non-taxation. ‘S. 110’ borrowing is largely from a parent or fellow subsidiary, within a group structure. Interest payments are in effect a form of ’tax free’ profit distribution. They are a ‘hybrid’ financial instrument, because they have features of debt and equity and are the subject of an OECD BEPS Action Plan and an EU Directive.
‘S. 110’ tax relief was originally intended for firms specialising in securitising assets or providing corporate finance. A small number of aircraft leasing firms claimed ‘s. 110’ tax relief prior to 2011. This tax relief was “specifically” extended in the Finance Act 2011 (section 40) to include” plant and machinery, commodities and certain carbon offsets” as qualifying assets (Finance Bill, 2011, Explanatory Memorandum, p. 13; Deloitte, 2014, p. 16). The intention was to establish a ‘green’ financial services sector. However aircraft leasing was the main beneficiary, because leased aircraft and aircraft engines were accepted as ‘plant and machinery’.
This is because financial assets are generally more liquid than real assets, where liquidity refers to the ease with which an asset can be turned into cash at short notice without loss. The higher the liquidity the lower the risk. Real assets such as aircraft are a relatively homogeneous asset. They have high marketability and capital certainty which results in far greater liquidity and lower risk than real assets such as manufacturing machinery. Hence ‘s. 110’ loans were used to finance real assets such as aircraft.
3. Some features of ‘section 110’ loans and data sources
‘S. 110’ tax status is ‘self-declared’. A firm informs Revenue that it meets required conditions (www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-09-01.pdf, p. 3). There are some rules. The firm must be resident in Ireland, that is operate from Ireland. This may not be the country where the firm is incorporated, as country of residence can be different from country of incorporation. The firm must acquire and carry on a business of managing ‘qualifying assets’, and undertake no other activities. There is little evidence of Revenue audits of compliance with these conditions [4]. All administrative functions are undertaken by corporate service providers (CSP). Almost no firms report any direct employees.
In 2024 there was a total of 3518 external companies. These firms may avail of all fiscal incentives. A total of 427 external companies were registered in the Cayman Islands and 139 in Bermuda (Link to the website of cro.ie, p. 11). Many of these firms are aircraft leasing companies. This structure could be described as a ‘reverse double Irish’ tax strategy. Rather than being incorporated in Ireland and taxed for example, in Bermuda, as in the Google case (Toby Sterling Reuters December 31 2019), the firm is incorporated in Bermuda but taxed in Ireland.
All companies incorporated in Ireland with ‘s. 110 tax status “[…] are required to submit a Special Purpose Vehicle (SPV) return or reporting form […] on a quarterly basis, with some exceptions” (Central Bank of Ireland (2022). External ‘s. 110’ firms operate as a branch and are not incorporated in Ireland and do not submit returns to the CBI[5]. Data on external firms is further limited as most do not file audited accounts.
The much larger non ‘s. 110’ aircraft leasing sector is exempt from similar reporting requirements, although financial structure and risks may be similar.
‘S. 110’ tax relief, in conjunction with accelerated capital allowances and high interest payments, means profits subject to tax are low. Aggregate data for all leasing firms in Ireland show a profit rate (profit/gross assets) of 2% or under for the period 2013–2022 and under 1% for 2023–2024 (CSO, Aircraft leasing in Ireland 2024,).Tax rates are also likely to be low. VAT refunds for 2021–2023 are larger than corporate tax payments (Table 1).
Aircraft leasing firms and tax payments (euro million)
| Year | No. of companies | Net corporate tax receipts | Tax as % of gross tax receipts | VAT receipts |
|---|---|---|---|---|
| 2024 | 569 | 151.5 | 0.4 | −82.7 |
| 2023 | 599 | 68.5 | 0.3 | −102.8 |
| 2022 | 569 | 49.6 | 0.3 | −82.7 |
| 2021 | 420 | 46 | 0.4 | −54.4 |
| 2020 | 515 | 105.5 | 0.9 | −49.9 |
| 2019 | 483 | 142.7 | 1.5 | −47.2 |
| 2018 | n.a. | 54.3 | 0.6 | n.a. |
Prior to 2021 “S. 110” Aircraft leasing firms were excluded from Revenue data
3.1 Data sources
The study population is based on firms that report ‘s. 110’ tax status in accounts filed in Companies Registration Office (CRO) Dublin. ‘S. 110’ loans may be described in accounts as ’Profit Participating Loans’ (PPL loans), ‘subordinated loans’ or ’junior loans’. The key point is that interest paid may vary with profitability. In some cases firms who did not report ‘s. 110’ tax status but issued profit participating loans (PPL) and were taxed at 25% were included.
A data base was constricted on firm financing, profitability, ownership and local expenditures for the period 2010–2020. Data was collected from 560 companies leading to 1851 cases. Dormant companies were excluded, that is firms with no revenue and minimal assets. Firms who did not have, or no longer had ‘s. 110’ tax status were excluded. ‘S. 110’ firms who filed abridged accounts were also excluded. ‘S. 110’ holding companies were included and may have ‘s. 110’ subsidiaries. To avoid double counting, these subsidiaries were excluded. ’S.110’ holding companies, may also consolidate non ‘s. 110’ subsidiaries. For example accounts of Dodder Aviation for 2018, show nine subsidiaries, one registered in Norway, eight registered in Ireland, and three Irish registered ‘s. 110’ firms, which were excluded. Eight ‘s. 110’ external leasing firms, with gross assets of €1.8 billion, filed audited accounts were included. These adjustments resulted in a total of 1433 cases.
The data in published accounts is shown in US$. This was converted to Euros using the exchange rate published by the Irish Central Bank for the last trading day of each year
The study population varies through time as a result of new incorporations and liquidation of existing firms. The number of firms included increased from 17 in 2010–148 in 2015, following increased eligibility for ‘s.110’ tax relief in 2011.
Accounting for leases is complex and controversial (Cahill 2007, p. 197). Accounting standards may vary between Ireland and other countries. For example there may be differences in the treatment of a capital profit on a sale and leaseback transaction depending on whether the leasing transaction is a finance lease or an operating lease. A finance lease “transfers substantially all of the risks and rewards incidental to ownership of the underlying asset”. All other leases are termed operating leases (KPMG (2021, p. 24). A new accounting standard was introduced in 2016 and implemented in 2019. KPMG (2019, p. 23) state the new standard is “essentially unchanged” from the previous standard. Both IFRS 16 and IAS 17 allow some discretion in lease accounting.
4. International treaties, regulation and risk
4.1 The cape town convention
The Cape Town Convention gives rights to a creditor to repossess a leased aircraft after a specified period (www.icao.int/sustainability/Pages/Capetown-Convention.aspx). The convention supports international cooperation and commercial law standards between states. It was established as an inter government agency, UNIDROIT in 2001 (www.unidroit.org/about-unidroit).
The Cape Town Convention, (‘Alternative A’) is specifically designed to meet the requirements of structured financing in “lowering the cost” and increasing finance “for aircraft equipment” (Gray et al., 2017p. 2). This is achieved by giving certainty to creditors to repossess a leased aircraft after a specified period (Gray et al., 2017). Debtor protections in insolvency procedures in countries ratifying the Treaty are removed in favour of creditors (Gray et al., pp. 4–6). This is important because for many countries (particularly civil law countries) insolvency procedures are more ‘debtor friendly’ than common law jurisdictions (Denton, 2016, par. 13).
Ireland enacted the Cape Town Convention insolvency procedures in law in 2013. This states that on the occurrence of an ‘insolvency event’, the lessee must give possession of the aircraft to the creditor without any further action by the creditor and there can be no recourse to court action (Ager and O’Neill, 2017). Breaches by the Russian Federation Government, a signatory of this convention, raise issues as to it’s enforceability.
4.2 The chicago convention
The Chicago Convention requires aircraft to be registered in only one State. This State then ensures compliance with the rules of the Chicago Convention. It is administered by the International Civil Aviation Organisation (ICAO) a U.N. body established in 1944, that ensures uniformity and mutual recognition of aviation licences and certificates” (www.unidroit.org/about-unidroit/).
The Chicago Convention allows the state of registration and the state of operation to sign a bilateral agreement which transfers responsibilities for regulation and safety to the state of the operator (Wedenig and Hanley, 2022, p. 293). This is important for centres of aircraft leasing such as Ireland. It means that most commercial leased aircraft owned and financed in Ireland, have key functions, such as maintaining airworthiness, that take place outside Ireland in the state of the operator. Hence most aircraft leasing employment in Ireland involves the provision of corporate, tax and legal services with a consequently relatively low proportion of Irish expenditures. As discussed later these treaties have particular significance following the seizure of leased aircraft by Russia cd.
4.3 Risk and regulation and ‘section 110’ firms
Understanding risk and regulation of ‘s. 110’ firms is important, given their significance. The main Government agency regulating the airline sector in Ireland, the Irish Aviation Authority (IAA, www.iaa.ie/, states aircraft safety is the main regulatory issue.
A widely held view is that other aspects of aircraft leasing firms are not regulated. One law firm states:
The leasing of aircraft is not a regulated industry in Ireland. For all Irish companies, including aircraft leasing companies, the principal legislation governing the incorporation of companies in Ireland is the Companies Act. (Link to the cited article)
Another law firm states a ‘s. 110 firm’ “is an unregulated vehicle that can be used to engage in an extensive range of financial and leasing transactions” (Arthur Cox, Link to the cited articlep. 13). They further argue that as all ‘s.110’ companies are required to file reports to the CBI they “should not be subject to further regulation”.
The Central Bank of Ireland states (2024, p. 45) “SPEs [special purpose entity] are not authorised by the Central Bank and are not subject to prudential regulation”. Reforms have been proposed but are relatively modest. For example “to pursue cooperation” and the “sharing of data” at EU level (Department of Finance, 2024, p. 11) and that a list of all ‘section’ 110’ firms be published (Department of Finance, 2024, p. 80).
However regulators in Ireland recognise some risks from complex organisational structures. These can facilitate money laundering (Link to the website of assets.gov, p. 46). The Department of Finance state that risks from money laundering and sanctions evasion “continue to be addressed to avoid impacts on Ireland’s reputation as a stable and well regulated global financial centre” (Department of Finance, 2024, p. 33).
In contrast the ECB Financial Stability Review states “Persistent liquidity and leverage vulnerabilities in the NBFI sector require a comprehensive policy response” […] “including monitoring and tackling risks arising from non-bank leverage (ECB, Financial Stability Review May 2025, www.ecb.europa.eu/press/financial-stability-publications/fsr/html/ecb.fsr202505∼0cde5244f6.en.html#toc1).
Wandelt et al. (2023) conclude that the global aircraft leasing industry faces challenges that could turn into problems affecting the entire aviation industry. The high dependency of aircraft leasing firms on debt means that these challenges pose a risk to the wider banking system. The Covid pandemic illustrated risks from high borrowing. The debt to assets ratio for the worlds top eight leasing firms (two of which are based in Dublin) rose form 89% in 2020–112% in 2021 and fell to 89% in 2024 (Air Finance Global, 2025, p. 5, and previous years).
In the ‘Great Financial Crash’, the potential failure of a major insurance firm (AIG) and its leasing subsidiary, International Lease Finance Corporation (ILFC) led to the takeover and rescue of AIG by the US Government (Bjelicic p. 14). ILFC was described in 2008 as the” largest aircraft lessor in the world” (www.marketwatch.com/story/aigs-aircraft-leasing-unit-in-focus-founder-said-to-be-a-bidder). The collapse of AIG was due to their dependence on securitised debt instruments (Collateralized Debt Obligations) based on mortgages and aircraft. (Financial Crisis Inquiry Report p. 130). Nordic Aviation Capital (NAC) based in Ireland entered chapter 11 bankruptcy proceedings in 2022. This led to a reduction of capital by €3.4 billion. Prior to restructuring NAC was described as “the world’s largest lessor of regional aircraft” (www.independent.ie/business/nordic-aviation-capital-sold-to-dubai-based-lessor/a2026475371.html).
The seizure of leased aircraft by Russia has drawn attention to international treaties and risks to aircraft leasing firms.
5. Risks to aircraft leasing firms: Russia and breeches of international treaties; EU directives
5.1 Russia and breaches of international treaties
Following the invasion of Ukraine, sanctions were imposed by the EU on Russia. All Russian aircraft leases were required to end by 28th March 2022 Russian aircraft operators did not return leased aircraft. There were an estimated 500 foreign owned aircraft leased in Russia in 2022. Approximately 330 of these were owned by Irish lessors with an estimated value of $3.5–$4.5bn (www.irishtimes.com/business/aircraft-lessors-face-billions-in-write-offs-as-planes-re-registered-in-russia-1.4826923). Total court claims against insurance companies are reported to be for a far larger sum of $15bn [2]. Irish based Avolon is reported as having the largest single exposure to leased aircraft in Russia with 152 aircraft valued at $2.5 billion (Johnsson and Lee, 2022).
The seizure of leased Aircraft by Russia and their re-registration in Russia is in breach of the Cape Town and Chicago conventions governing international leasing. These treaties are key to the growth of aircraft leasing as they facilitate the separation of ownership and financing from managing leased aircraft.
Most aircraft leased to Russia were registered in Ireland and Bermuda. Both countries revoked certificates of airworthiness, thus largely preventing Russian leased aircraft flying internationally. On March 14th 2022 Russia enacted legislation allowing Russian based airline operators to reregister seized aircraft in breach of the Chicago convention, as there was no agreement to allow re-certification in Russia (Wedenig and Hanley, 2022, p. 394).
Unilateral breaking of international conventions by Russia and possibly future other countries poses additional risk to all aircraft leasing firms and their lenders. It is part of a retreat of ‘rules based’ international trade and investment reflected in current US administration policies (Coates, 2025). There is a risk of large losses by leasing firms, or providers of finance, or insurance companies. The latter group are likely to include firms in the regulated financial sector. Increased risk is likely to be reflected in higher capital and insurance costs. One issue is obscurity in relation to terms of loans and beneficial owners of assets with consequences for the location of risk. These factors are likely to constrain the growth of aircraft leasing.
Nineteen firms in the study population had aircraft leased in Russia. These firms reported asset losses/write downs of £356.9 million for 2021. Eight firms reported losses and write downs greater than 50% of assets. Most of these firms also stated that insurance claims had been lodged. An estimated total insurance claim of $8 -$15bn has resulted from Russian seizure of leased aircraft, although these claims are contested by insurance firms (www.reuters.com/business/aerospace-defense/aircraft-lessors-sue-insurers-65-billion-over-trapped-russian-planes-2022-11-21).
Russian Insurance company NHS, purchased 17 jets belonging to Irish based leasing firm, AerCap, for $465m, (Reuters, September 6 2023). A Russian state owned insurance company purchased 100 seized aircraft for $2.5 billion (Reuters, 2024). Issues relating to differences between the price received and possible insurance claims based on the pre-Ukrainian war market price may arise.
5.2 EU directives
EU directives could have a major impact on the ‘s. 110’ tax regime.
The main tax advantage of ‘s. 110’ debt is tax deductibility of Irish interest payments and possible non-taxation of those interest payments in another country. Firms that issue ‘section 110’ debt are described as being ‘tax neutral’ (Godfrey et al., 2015, p. 51; Dillon Eustace, 2016, p. 4; Barrett et al., 2016, p. 78). It may also result in non payment of tax in Ireland and the recipient country of interest payments.
The OECD BEPS initiative addressed this issue in two reports. The first report is aimed at hybrid financial instruments (www.oecd.org/en/publications/neutralising-the-effects-of-hybrid-mismatch-arrangements-action-2-2015-final-report_9789264241138-en.html). The second report deals with the situation where a portion of income is not taxed in the branch or residence jurisdiction (OECD/G20 BEPS Project Neutralising the Effects of Branch Mismatch Arrangements Action 2: Inclusive Framework on BEPS). These two reports form the basis of an EU directive aimed at limiting hybrid mismatches between two countries resulting in double non-taxation (Council Directive (EU) 2017 / 952 of 29 May 2017 amending Directive (EU) 2016 / 1164 as regards hybrid mismatches with third countries). By eliminating or reducing the use of ‘hybrid financing’ such as ‘s. 110’ loans, the rules are intended to reduce or eliminate ‘double non-taxation’.
5.3 Interest limitation rule
Restrictions on the level of interest that may be tax deductible are a key part of the Hybrid Directive (www.grantthornton.ie/insights/factsheets/irelands-interest-limitation-rules). The new rules mean net interest paid (gross interest paid minus interest received) is tax deductible up to a limit of 30% of earnings before deduction of interest and tax (EBIDTA) (www.revenue.ie/en/companies-and-charities/anti-beps-measures/interest-limitation-rule.aspx).
Interest payments above that level may be deferred until they are tax deductible. The new rules could mean that for some ‘s. 110’ leasing firms with high levels of debt, interest payments would no longer be tax deductible (www.grantthornton.ie/insights/factsheets/irelands-interest-limitation-rules). The detailed rules are complex. Irish Revenue Guidance on the Interest Limitation Rule Part 35D-01–01 manual 2023, has 67 pages of examples showing complex organisational and financial structures.
They also reflect lobbying by interest groups. PWC in a submission to the Department of Finance argued for an extension of the definition of interest paid to include:- “interest income on all forms of debt” and” other income economically equivalent to interest and income earned in connection with the raising of finance” (PWC interest limitation Feed Back Statement, p. 7).
The Finance Act 2021 reflects these submissions. The definition of interest paid includes not only “amounts economically equivalent to interest” but also any expenditures “arising directly in connection with raising finance” (Finance Act, 2021 pp. 55–56). As a result a major law firm (Arthur Cox, 2020, p. 2) stated that “Most transactions involving Section 110 companies will be unaffected by new rules”. The reason being that “taxable interest equivalent” and “deductible interest equivalent” (including interest on PPL debt) match. Arthur Cox (2021) state “Very helpfully and correctly from a policy perspective, “taxable interest equivalent” and “deductible interest equivalent” are defined symmetrically”. PWC stated that Ireland has adopted a” practical approach” incorporating the anti avoidance directive into Irish tax law which “allows taxpayers to apply (and Irish Revenue to police) the rules in a sensible manner” (PWC, 2020).
An alternative view, is that this and other provisions undermine the stated intentions of the Hybrid directive and OECD Action 2, that is “to neutralise the effect of hybrid mismatch arrangements”. This mean that ‘s. 110’ tax status appears unaffected by changes in tax rules following the hybrid directive.
A proposed EU directive on ‘shell companies’ if implemented, could have a considerable impact on ‘section 110’ firms by requiring all companies to have a minimum level of employment (Link to the website of taxation).
6. Risk: losses and financing
The following sections presents data showing high levels of risk from losses, negative equity and high levels of debt and interest payments This section is based on a data base of 1433 ‘s. 110’ aircraft leasing firms. There is an absence of data for these firms on financial structure, firm profitability, levels of borrowing and interest rates.
Gross assets of the study group amounted to €17.2 billon in 2020, or 7.9% of the estimated size of the Irish aircraft leasing sector (Table 2). For most years aggregate pre-tax losses were reported, although median profits were positive except for 2020. Losses are low as a fraction of gross assets (<1%) until 2019–2020. Losses (before tax) amounted to 5% of gross assets for 2020 reflecting the impact of the Covid pandemic. Shareholder funds were low but mostly positive until 2019 but increased to over in €1bn in 2020.
Pre-tax profits and gross assets of “S. 110” leasing firms 2010–2020 (€million)
| Year | No. of firms | Pretax profitsa | Gross assets | Shareholder funds | Gross Assets of external firmsb |
|---|---|---|---|---|---|
| 2020 | 227 | −824.0 | 17219.9 | −1015.7 | 1156 (8) |
| 2019 | 233 | −636.0 | 19735.6 | −448.7 | 1145 (7) |
| 2018 | 235 | −187.2 | 19993.5 | 117.8 | 1050 (6) |
| 2017 | 227 | −140.8 | 17108.5 | −20.6 | 1082 (5) |
| 2016 | 186 | −68.8 | 15673.0 | 47.5 | 244 (4) |
| 2015 | 145 | 84.6 | 12351.7 | 67.6 | 229 (4) |
| 2014 | 70 | −50.1 | 7941.9 | 26.3 | 147 (4) |
| 2013 | 46 | −19.0 | 4593.8 | 19.8 | |
| 2012 | 18 | −9.0 | 1420.3 | 13.3 | |
| 2011 | 28 | −2.0 | 1476.0 | −9.6 | |
| 2010 | 17 | 0.0 | 780.3 | 0.08 |
aMost firms have a December 31st year end. Firms are allocated to the previous calendar year if the accounting year is from January 1st to June 30th; bNumbers of firms is in brackets
Increased risk is indicated by the growth of losses and negative equity for the study period. The per cent of firms reporting losses grew constantly from 17% in 2012–56% in 2020. Losses grew from -€3.8 million in 2011 to -€963.3 million in 2020. Those reporting negative equity increased from 14% in 2011–56% of the study population in 2020. The size of negative equity grew from -€13.9 million in 2012 to -€931.3 million in 2020. Median values reached a peak in 2020. For firms reporting negative equity, deficit increased from -€0.1.6 million in 2011 to -€12146.9 million in 2020. The deficit as a % of gross assets increased from 4% in 2018–14% in 2020. Mean and median values of firms reporting losses and native equity reached a peak in 2020. Profits were reported as being equal to $1000 for 8–10% of the study group for 2015–2020. Profits equal to zero were reported by 3–5% of the study group for the same period. This is likely to indicate ‘profit management’.
A minority of firms (negative equity greater than 10% of assets), account for the bulk of the deficit for 2018–2020. For example for 2020 78% of the deficit was accounted for by 59 firms or 26% of the study group).
Table (3) shows aggregate reported losses in almost every year, but gross internal cash flow (profits before tax plus depreciation) is positive. The table shows impairment charges for 2020 are particularly large, resulting in much reduced internal cash flow. For many firms impairment charges were reduced by recognising as income gains from revaluation of loans including ‘s. 110’ loans and gains from selling aircraft. Losses are also reduced by including maintenance reserves in the income statement.
Internal cash flows, impairment charges and capital gains (€million)
| Year | N | Pre tax Profits/ losses (1) | Depreciation (2) | Internal cash flow (1) + (2) | Impair-ment charge | Revaluations included in pretax profits |
|---|---|---|---|---|---|---|
| 2020 | 227 | −824.0 | 880.5 | 57 | 835.6 | 261.3 |
| 2019 | 233 | −636.0 | 943.9 | 308 | 475.7 | 96.4 |
| 2018 | 235 | −187.2 | 844.4 | 657 | 91.1 | 79.3 |
| 2017 | 227 | −140.8 | 714.4 | 574 | 52.4 | 42.4 |
| 2016 | 186 | −68.8 | 560.2 | 491 | 20.8 | 66.5 |
| 2015 | 145 | 84.6 | 346.4 | 431 | 4.6 | 22.6 |
| 2014 | 70 | −50.1 | 252.9 | 203 | 0.3 | 6.6 |
| 2013 | 46 | −19.0 | 105.3 | 86 | 0 | 5.4 |
| 2012 | 18 | −9.0 | 31.6 | 23 | 0 | 4.4 |
| 2011 | 28 | −2.0 | 8.1 | 6 | 0 | 0 |
| 2010a | 17 | 0.0 | 0.0 | 0 | 0 | 0 |
aAll financial leasing firms with no provision for depreciation
Despite firms reporting both losses and negative equity most firms continued to pay ‘s.110’ loan interest.
‘S. 110’ firms are often described as ‘bankruptcy remote’. (Table 2, 3 and 4) are significant because they show large losses, negative equity and debt write downs, resulting in substantial losses to owners. Those providing loans face increased risks of bankruptcy.
Balance sheet financing (€million)
| Year | N | Total external finance (1 + 4) | Balance Sheet gross borrowinga (1) | Debt/ external finance | Balance sheet s. 110 Loansb (2) | Balance Sheet Shareholder funds (3) | New equity issued | Security deposits (4) | Letters of credit |
|---|---|---|---|---|---|---|---|---|---|
| 2020 | 227 | 18235.7 | 17214.1 | 94 | 5484.9 | −1005.0 | 67.8 | 1021.6 | 59.1 |
| 2019 | 233 | 20184.3 | 18964.6 | 94 | 6231.6 | −448.7 | 95.7 | 1219.7 | 62.4 |
| 2018 | 235 | 19875.7 | 18188.6 | 92 | 5801.8 | 117.8 | 87.0 | 1687.1 | 72.5 |
| 2017 | 227 | 17129.1 | 16011.7 | 93 | 4369.7 | −20.6 | 55.5 | 1117.4 | 80.1 |
| 2016 | 186 | 15625.5 | 14572.3 | 93 | 4474.5 | 47.5 | 84.1 | 1053.2 | 147.7 |
| 2015 | 145 | 12284.1 | 11566.8 | 94 | 4359.7 | 67.6 | 32.6 | 717.3 | 66.0 |
| 2014 | 70 | 7915.6 | 7568.2 | 96 | 2680.4 | 26.3 | 5.4 | 347.4 | 40.6 |
| 2013 | 46 | 4574.0 | 4326.4 | 95 | 1388.6 | 19.8 | 4.5 | 247.6 | 45.9 |
| 2012 | 18 | 1407.0 | 1301.8 | 93 | 750.4 | 13.3 | 0 | 105.2 | 1.5 |
| 2011 | 28 | 1485.6 | 1423.3 | 96 | 231.4 | −9.6 | 5.1 | 62.3 | 1.7 |
| 2010 | 17 | 780.2 | 780.2 | 100 | 0.0 | 0.08 | 0 | 0 | 0 |
aEstimated as a residual = Gross assets minus (security deposits plus shareholder funds). Borrowing is slightly overestimated because all current liabilities are included; bOnly includes firms that identified “S. 110 loan” values
6.1 Financing
Table (4) shows that borrowing accounted for over 90% of external finance for all years. ‘S. 110’ borrowing accounted for 30% to 36% of total borrowing for most years. The next largest source was security and maintenance deposits. New equity subscribed is low with a peak of €95.7 million in 2019. The median value of new equity issued for all years was zero. Most firms showed a capital contribution of $1, but many accounts show that this remained unpaid. Most’ s. 110’ finance is from a related company, which in turn is likely to have sourced loans from a bank. Given losses and negative equity, financing ‘s. 110’ firms poses risk to the regulated banking sector.
The main form of external financing is non-PPL debt. Debt finance may be issued in tranches with varying interest rates as shown in Table (5). The interest rate on each tranche reflects the priority with which interest and principal is paid. The lowest priority has the highest interest rate which may range from 10% to 20%.
Debt structure examples for 2020 ($million)
| Interest rate (%) | Amount |
|---|---|---|
| ClassA | 5.125 | 5.3 |
| Class B | 7.375 | 10.6 |
| Class C | 18.0 | 15.6 |
| PPL loan | Variable | 3.8. |
| ||
|---|---|---|
| Secured loan from DVB bank | 4.21 and 3.74 | 29.6 |
| Intrafirm subordinated PPL loan | 10.94 | 46.9 |
aAll loans provided by parent, AASET 2018–1 Luxembourg S.a.r.l
For some firms PPL may provide the bulk of financing. Table (5) example (2) shows PPL loans provided 60% of total borrowing.
Interest on PPL loans is often accrued and adds to the level of debt. High borrowing which matches assets, means low contributed equity (Table 4). Parent company external debt is also likely to be high. Negative equity for most firms (Table 2) will also be reflected in parent company equity. It is thus not surprising that in recent years holding companies with several ‘s. 110’ subsidiaries have required restructuring [6].
Table (6) shows estimated aggregate interest payments on debt financing. Aggregate interest payments mostly varied between 4.8% and 6.9% for 2013–2020. Interest rates for ‘s. 110’ loans, where both the interest and capital value are disclosed, varied between 8.41and 11.2%. There appears to be no trend in the aggregate rate of interest over the study period, reflecting stable ECB interest rates. There are also some instances of reduced, eliminated or repaid interest on ‘s. 110’ loans in particular for the year 2020.
Aggregate interest and borrowing (€million)
| Year | N | Gross interest | Balance sheet value of gross borrowing. | Int. rate | Interest paid on s. 110a | Balance Sheet value of S. 110a | Interest rate |
|---|---|---|---|---|---|---|---|
| 2020 | 226 | 943.2 | 17151.9 | 5.5 | 425.6 | 3850.1 | 11.1 |
| 2019 | 233 | 1166.5 | 18964.6 | 6.2 | 465.9 | 5183.5 | 9.0 |
| 2018 | 235 | 1248.1 | 18188.6 | 6.9 | 512.5 | 4852.4 | 10.6 |
| 2017 | 227 | 973.1 | 16011.7 | 6.1 | 373.8 | 3345.5 | 11.2 |
| 2016 | 186 | 829.2 | 14572.3 | 5.7 | 322.3 | 3964.7 | 8.1 |
| 2015 | 145 | 593.2 | 11566.8 | 5.1 | 329.6 | 3816.7 | 8.6 |
| 2014 | 70 | 338.0 | 7568.2 | 4.5 | 209.0 | 2474.2 | 8.4 |
| 2013 | 46 | 206.2 | 4326.4 | 4.8 | 137.7 | 1227.9 | 11.2 |
| 2012 | 18 | 83.4 | 1301.8 | 6.4 | 54 | 750.4 | 7.2 |
| 2011 | 28 | 53.6 | 1423.3 | 3.8 | 6.8 | 231.4 | 2.9 |
| 2010 | 17 | 38.1 | 780.2 | 4.9 | 0 | 0.0 | 0 |
aOnly firms disclosing both interest and balance sheet value of ‘s. 110’ loans are included
Most ‘section 110’ interest is paid to a related party and van be seen as a form of ‘tax efficient’ profit distribution. The large difference between aggregate interest payments on’ non ‘s. 110 loans’ and ‘s. 110’ loans indicates the significance of this fiscal incentive.
6.2 Post covid finance
Aggregate profits of all aircraft leasing firms operating in Ireland increased in 2021 following the Covid pandemic. Rather than capital losses, capital gains were reported (CSO, 2025,). Estimated debt ratios remained high (defined as borrowing/total assets). They rose from 66.6% in 2019–71.7% in 2021 and fell to 66.2% in 2024 (CSO, 2025). It is also likely that profits remain low or negative for many aircraft leasing firms. Revenue report a total of just 569 aircraft leasing firms with corporate tax payments for 2024 (McCarthy and Hayden, 2025). Interest payments also remain high. Aggregate interest payments were a multiple of 6 times profit in 2019 and 3.7 in 2024 compared with under 2 in previous years (CSO, 2025).
7. Organisational structure and ‘S. 110’ firms
Many ‘s. 110’ firms have a parent or ultimate parent located in a tax haven. This leads to risks from absence of regulation and poor financial disclosure. In addition as noted earlier a number of aircraft leasing firms operate as a branch of a firm incorporated in Bermuda or the Cayman Islands. Tax havens may be defined as secrecy jurisdictions (Shaxson N. p. 9). They facilitate hiding ownership and avoiding both regulation and tax.
As a result beneficial ownership and financial structure may be obscure and ultimate liability for losses. ‘Section 110’ finance is provided by a parent/affiliate which may be located in a tax haven. In some cases non-section 110 finance is also provided by a parent/affiliate. Opaque financing and non-disclosure were key factors in losses of $4bn to SPVs who provided funds in the First Brands collapse in the U.S. (Eric Platt, E. Robert Smith, R. and Aliaj, O. Financial Times 6th October 2025).
Beneficial ownership may also be obscure because ‘S. 110’ are often established as an ‘orphan’ structure. This means the firm has no legal parent company or subsidiaries and is owned by a trust, or ‘charitable trust’ (Dillon Eustace, 2016, p. 5).
To qualify for ‘s. 110’ tax status, firms must be resident, managed and controlled in Ireland. These conditions are met by the location of key functions such as directors meetings in Ireland (Dillon Eustace, p. 6). A company incorporated in Ireland owned by a trust qualifies, described as an ‘orphan structure’ qualifies for ‘s. 110’ tax status. There may also be prohibitions in company formation documents on owning real assets such as buildings. Some argue that such structures result in what is commonly referred to as a “bankruptcy remote funding vehicle”, with consequent lower costs of funding (Godfrey et al., 2015, p. 54, Financial Stability Board, 2015, p. 51). However these structures do not eliminate risk. Risk is transferred to suppliers of finance, providers of loan guarantees or providers of insurance, as in the case of aircraft seized by Russia.
Since 2015 between 31% and 37% of ‘s. 110’ leasing firms reported they were owned by a charitable trust or a trust. Some trust owned firms, disclose the beneficial owner. Group assets owned by a trust owned firm declined from 53% in 2014–33% in 2020. In 2020, Although owned by a trust, 33% of firms were consolidated in the accounts of a parent company. Under Irish corporate law consolidation implies that a holding company has control or a “dominant influence” over a firm (Companies Act 2014, section 7), which is at variance with ownership by a trust. Some firms reporting ownership by a trust, refer to companies with which they have financial links as ‘sister’ companies.
The proportion of firms reporting a parent/ultimate parent in a ‘tax haven’ has increased through time to 57% in 2020. They accounted for between 40% and 47% of gross assets. The Cayman Islands was the main tax haven location followed by Bermuda. Some parent companies were located in the British Virgin Islands, Jersey and Luxembourg.
Location in a tax haven is particularly attractive to aircraft leasing firms because of low tax, light touch regulation and minimal disclosure requirements. One Irish based law firm states in relation to a Cayman Islands location:
With a Cayman exempted company, there is no requirement to appoint auditors, or to hold an annual general meeting, nor is there any statutory prohibition on the company giving financial assistance for the purchase of its own shares, so long as the directors are acting in the company’s best interests. The corporate records of Cayman exempted companies are not publicly available and there is no requirement for directors or officers of the company to be resident in the Cayman Islands” (Dillon Eustace, 2016).
Location in Bermuda has similar attractions. Bermuda is also the largest location for registration and documentation relating to airworthiness (www.bcaa.bm/). This is crucial in the resale and leasing of aircraft.
Half of all commercial airlines (740 aircraft) operating in Russia were registered in Bermuda, and the majority of these were leased by Irish registered aircraft leasing firms (Palazzo, 2022). Strong connections between Irish aircraft leasing firms and Bermuda and Cayman Islands increases risks to the Irish Aircraft sector through lack of transparency, and resulting increased risk to providers of finance.
The share of Chinese owned ’s. 110’ aircraft leasing firms, increased from 7% in 2015–21% in 2020. Their share of gross assets increased from 3% to 10% over the same period. The total number of Chinese owned aircraft leasing firms, (‘s. 110 and non ‘s. 110’ firms), is likely to be much larger. For example, a major Irish owned leasing firm, Avolon, was purchased by Bohaie a subsidiary of China Construction Bank in 2015. Subsequently Avolon purchased an Irish based leasing firm, Castlelake, for €1.2 billion (Irish Independent, 17 Oct. 2015; Irish Times, 1 Jan. 2025).
For more recent years, over 74% of Chinese owned firms, had a parent/ultimate parent located in a tax haven, mostly the Cayman Islands followed by Bermuda. Some Chinese owned aircraft leasing firms (‘s. 110’ and non ‘s. 110’ firms) are external firms.
8. Economic impact and conclusion
The Irish aircraft leasing sector is regarded as a ‘success story’ and a key part of Ireland’s industrial strategy. This is despite low direct employment and low linkages with the domestic economy. In 2024 assets amounted to €267bn, but employment is low at 2609 fulltime equivalent employees, although average wages for male employees is high at €249,00. Almost all ‘s. 110’ firms report zero employees. Aggregate corporate tax payments are minimal and yearly VAT receipts are often negative.
Most expenditures are likely to take place outside Ireland. Audit, tax compliance and payments to corporate service providers are the only certain Irish expenditures. Most of these expenditures are likely to be paid to the ‘big four’ auditing firms and to providers of corporate services. A small number of firms use aircraft overhaul and certification facilities in Ireland.
Local expenditure as a % of total expenditure varied between 3.2% and 3.8% for 2015−2020., Expenditures varied between 0.2% and 0.4% as a proportion of revenue. Total local expenditures will be higher because for example, of legal fees. Disclosed legal fees do not separate Ireland from other countries. Including Irish leal fees may increase local expenditures by 2–3%. Auditing is one of the main sectors of indirect employment. The top 5 auditing firms reported 334 employees directly employed in auditing aircraft leasing firms for year end 2023. The top five law firms reported 52 employees.
The growth of aircraft leasing in Ireland is closely connected to fiscal incentives. The paper focuses on one incentive, ‘s. 110’ loans which enables interest to be both deductible for the borrowing firm in Ireland and tax free to the recipient outside Ireland.
‘S.110’ interest rates varied in aggregate for 2013–2020 between 8.4% and 11.2% compared with aggregate interest rates of 5.1% to 6.9% for the same period. They are, in effect a form of profit distribution. Interest rates on non – ‘s. 110’ loans from a related firm be as high at 18%.
The cost of tax reliefs from accelerated depreciation allowances, for aircraft leasing firms from accelerated depreciation allowances are high. ‘S. 110’ tax relief costs pose additional costs to both Ireland and the country receiving interest payments. Despite large fiscal incentives, direct benefits to the Irish economy are limited.
The profile and economic contribution of aircraft leasing firms is similar to economic activities in financial centres. Most of the direct expenditures and benefits to the host country accrue to law and accounting firms and corporate service providers. The main direct beneficiaries are to airlines that lease aircraft, via lower finance costs. Providers of finance, such as Limited partnerships, often located in a tax haven, also benefit through lower tax payments.
This paper has identified particular risks for aircraft leasing firms varying from breaches in international treaties to EU directives which may have the effect of restricting tax reliefs. The main risk however comes from high levels of borrowing, high interest rates, resulting in low profits/losses and low or negative equity. Low or negative equity in turn increases the risk of bankruptcy. Obscure ownership structures may also disguise the ultimate liability for debt.
Despite these risks aircraft leasing in Ireland and ‘s. 110’ leasing firms are widely regarded as unregulated within Ireland. Strong connections with tax haven countries obscurity in ownership and financing.
Aircraft leasing is part of the unregulated NBFI sector. There are substantial linkages via ownership and sources of finance from NBFI firms to the regulated banking sector. Risk, although obscure, is transferred to the wider financial system in particular to regulated financial institutions, many of which are located outside Ireland.
Notes
CSO, Aircraft Leasing in Ireland 2024, available at www.cso.ie/en/releasesandpublications/ep/p-ali/aircraftleasinginireland2024/. Ownership of leased aircraft is based on the “economic ownership’ of the aircraft” as distinct from where the aircraft is registered, CSO, “Moving to a Transfer of Economic Ownership Basis for Trade in Aircraft”, July, 2015.
Irish based AerCap based, is suing insurance companies for $3.5 billion in a London court. www.irishtimes.com/business/2023/11/16/irish-aircraft-lessors-due-in-london-court-over-planes-leased-to-russia-carriers.
For example, the standard published in 2021 (IFRS 21) uses the phrase ‘reasonably certain’ 18 times. No definition of ‘reasonably certain’ is given.
There were five revenue audits from 2016 to 2017. Source: P.Q. no. 4707, 19th January 2019. There was one audit in 2018. Source:- P.Q. no. 241, 19th January 2019. In 2019 there were 1355 ‘s. 110’ firms.
CBI guidelines (2021, p. 4) state that “entities incorporated in another jurisdiction, do not fulfil the tax residency test in Ireland” and are not “part of the reporting population”. Source CBI. 2020, “Special Purpose Entities (SPE) Registration FAQs”, p. 5.
In 2023 Voyager Aviation Holdings, LLC, the ultimate parent of several ‘s. 110’ firms entered section 11 bankruptcy proceedings in New York. Source: Panamera Aviation Leasing IV, 2022 accounts note 23.
Aer Cap Holdings NV, Form 20F, 2022, F5. 33% of shares are owned by General Electric.
Avolon Annual report, 2022. Bohai Capital, A Chinese firm is a majority owner of Avolon.
