Airlines furious as Brazil lists Ireland as tax haven

Brazilian airlines are up in arms over a decision by Brazil’s tax authority to list Ireland as a tax haven, which means about 1 billion reais (€273.7m) in new taxes on aircraft leases for carriers struggling to regain profitability.

"The impact is brutal," said Eduardo Sanovicz, head of Brazilian airline association Abear, who will meet today with tax authorities in Brasilia to try to reverse the surprise tax decision taken without consulting the airline industry.

Sanovicz said 60 per cent of the 520 aircraft flying commercially in Brazil are leased from companies registered in Ireland, where they enjoy favourable tax rules. Brazil’s tax authority announced last Thursday it was adding Ireland, Austria, Curacao and Saint Martin to its list of countries denominated as tax havens.

Companies based there will have to start paying a 25 per cent tax rate on transactions with Brazilian companies, costing airlines about 1 billion reais (€273.7m) on leasing contracts that are signed for up to 10 years, Sanovicz said by telephone.

Shares of carrier Gol Linhas Aereas SA fell 12 per cent last week on the decision.

Brazilian airlines are reeling from high jet fuel costs and the drop in demand for air travel due to Brazil’s two-year recession, and say they have no room to pass additional taxes along to ticket prices. The companies complain jet fuel accounts for 37 per cent of air fares compared to an average 27 per cent worldwide, mainly due to the ICMS sales tax collected by Brazilian states.

Iron ore giant

The world’s second largest mining company, Brazilian iron ore giant

Vale

SA, will also be affected by Brazil’s listing of Austria as a tax haven, adding to its woes resulting from low iron prices that are down 50 per cent since 2014. Vale owns Vale International Holdings GMBH, a subsidiary based in Salzburg, Austria, which is used as a holding company for various international assets.

Brazil’s JBS SA, the world’s largest meat packer, is also considering a planned global reorganisation, basing the headquarters of a new company in the UK and listing its shares in New York.