Michael O’Leary lobbied Donohoe for ‘urgent’ crew tax cuts

Ryanair chief executive Michael O'Leary lobbied Minister for Finance Paschal Donohoe to "urgently" introduce tax changes for airline crew members last year.

The proposed amendments, if introduced, would change how Irish airline crew based abroad are taxed, and could cost the exchequer millions of euro.

Currently airline crew based abroad but employed by Irish-registered airlines pay tax on that income in Ireland. Ryanair sought changes to the tax rules, so that crew located in bases outside Ireland would pay tax in the country of residence.

In January 2018 Mr O’Leary wrote to Mr Donohoe stating there was a “pressing and urgent need” to amend the tax laws.

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Ryanair chief financial officer Neil Sorahan provided a detailed submission as part of the lobbying effort. Mr Sorahan said the relevant legislation should be removed or amended "as a matter of extreme urgency".

The current rules put Irish airlines operating overseas flights at a “significant commercial disadvantage” to non-Irish airlines, Mr Sorahan wrote in his letter.

When Ryanair failed to secure commitments that the rules would be amended, it launched a High Court case against the Department of Finance last November.

It alleges that section 127B of the Taxes Consolidation Act 1997 – which provides that people working on planes operated by an Irish company are taxed here, regardless of whether they are tax resident in the State – runs counter to European law.

Potential loophole

Up to 2012, Ireland collected income tax and social insurance payments from people who worked on Irish-registered aircraft. Since then it has collected only income tax. However, some European jurisdictions collect more social insurance and less income tax than Ireland.

The amended legislation was designed to close a potential loophole, where it was feared crew working international routes may not have been required to pay tax in Ireland, or in their country of residence.

However, Ryanair says crew members from affected states end up with a “punitive” tax burden – paying high rates of both income tax and social insurance – meaning that their take-home pay is substantially less than their counterparts working for other airlines.

Ryanair has said it is collecting about €5 million a month for the exchequer in tax from crew based abroad.

In late 2016 Ryanair met department officials and raised opposition to the tax rules. “Since then, the impact has been compounded as a result of an increase in the competitiveness of the market for suitably qualified pilots,” Mr Sorahan wrote.

“A number of foreign tax authorities have also introduced incentives (eg tax- free allowances) for locally resident aircrews, to recognise the nature of their job and associated expenses,” he said.

Ryanair pilots and crew located in bases abroad could not avail of those incentives due to the Irish tax rules, Mr Sorahan said. Changing the rules would bring Ireland into line with arrangements in the Netherlands and United Kingdom, he said.

The letters between Ryanair and the Minister were obtained following a Freedom of Information request from The Irish Times.

Not possible

In response Mr Donohoe said it would not be possible to amend the legislation “within a matter of weeks”, as requested by the airline.

The impact of the proposed changes on Irish tax revenues would need to be assessed, the Minister told Mr O’Leary.

Mr Donohoe said when the tax legislation was first introduced, in 2011, Ryanair had indicated it “would result in increased tax revenues in the region of €50 million”.

A department spokeswoman said the tax rules remained “unchanged” and could not comment further due to the legal case. Ryanair did not respond to requests for comment.

Department officials had attempted to block the release of the lobbying correspondence under Freedom of Information, on the grounds the details were commercially sensitive to Ryanair. However, the Information Commissioner overturned the decision and ruled that a redacted version of the records be released, after an appeal by The Irish Times.